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The Five Essential Issues in Dealing with the Small Office/Home Office Market

Analyst's Journal - February 23rd, 2012

By Joel Mueller

The Small Office/Home Office (SOHO) market is a unique and expansive segment hiding in plain sight. With little known about these businesses, Barlow Research has set out to determine the five most important issues to consider when dealing with the SOHO market.

Recently, Barlow hosted a discussion group with various financial service professionals from leading financial institutions to examine the SOHO business segment. After a fruitful discussion, five questions emerged and are begging to be answered.

1) Who are those guys?
Never before has a Butch Cassidy quote sparked such a fundamental question until applied to the SOHO market. One of the primary challenges in identifying the SOHO market is that these businesses often appear as consumers because they use personal/consumer accounts, products and services. The financial service industry would benefit from creating criteria for segmenting this mysterious market. It appears that generally, many financial institutions consider the SOHO segment to consist of businesses with under $100,000 in sales revenue; but perhaps there is more to this segment than meets the eye. What expectations can we have for the potential of these companies? It is difficult to know if a SOHO is a sustainable business that may one day cross the threshold into a largely profitable company or if they are simply a "mom & pop" hobby venture.

2) Where's the beef?
Since the SOHO market has been virtually untapped for this long, why should financial institutions focus on this market now and how can this segment be justified as a business case? Perhaps what a singular SOHO lacks in overall revenue can be made up in the shear number of these entities. It would be valuable for financial institutions to know the truth about frequency of account churning and the consistency of cash flow in the SOHO market. Further, financial institutions need to know the value of this segment in terms of personal and business balances, borrowings and fees.


3) Where are their pain points?
It is necessary for financial institutions to understand what is driving SOHOs to use personal accounts opposed to business accounts, in order to market services more appropriately. Determining how SOHOs manage their finances, receive payment for sales, pay bills and what problems they experience in managing finances would be essential for providing actionable service to this market.

4) Are they willing to pay?
Examining the business behaviors of these small companies may uncover how products and services can be rightfully marketed to SOHOs. Should SOHOs be offered bundled products, allowed to pick and choose or be provided with single options? Although the fees associated with bundled products may be enough for a SOHO to steer away from utilizing services that could streamline business operations, many of these small organizations are believers in one-time fees to reduce costs over extended periods of time. For example, a SOHO may see the value in paying the annual fee at Costco to reap the benefits of reduced prices on products to improve profitability. Determining if this thought process transcends into financial behaviors may be a valuable marketing tool.

5) Can we (the banking industry) compete?
It is unclear whether the SOHO market views the banking industry as an appropriate choice for their business. Many SOHOs may try to avoid fees by turning to non-bank financial institutions and credit unions. In order for the banking industry to express their value to SOHOs, we need to first assess market share and usage of non-bank financial institutions.

Stay tuned for an upcoming Web cast to learn more about the value, characteristics and needs of the SOHO market. You can also contact Joel Mueller at (763) 253-1806 or jmueller@barlowresearch.com for more information.

Contact a Barlow Research Analyst about this article
Barlow Research Associates, Inc.
917 Lilac Drive North
Minneapolis, MN 55422
Tel: 763-253-1800 Fax: 763-253-1879
 

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