1.1. Background to the Study

Enterprises according to Oladele and Akeke (2015) can be described as an organization established for the purpose of providing goods and services that meet customers’ needs. Small and Medium Enterprises (SMEs) are undoubtedly recognized by the government, private individual and developmental expert as the main engine room for any nation’s growth and development which can be summarily referred to as the bedrock of the nation, (Ariyo, 2015). The small and medium enterprises are identified as an essential component of economic development and a crucial element in the effort to lift a country out of poverty, (Wolfenson, 2014). The dynamic role of micro and small enterprises (SMEs) in developing countries as engines through which the growth objectives of developing countries can be achieved has long been recognized. It is estimated that SMEs employ 22% of the adult population in developing countries, (Fisseha, 2016).

The development of small and medium enterprises (SMEs) via effective financing options have stem debate and growing interest among researchers, policy makers and entrepreneurs, recognizing the immense contribution of the subsector to economic growth, (Werotew, 2012). SMEs utilize local raw materials and technology thereby aiding the realization of the goal of self-reliance. Also, governments at various levels (local, state and federal levels) have in one way or the other focused on the performance of Small and Medium Scale Enterprises for economic gains, (Ariyo, 2015). While some governments had formulated policies aimed at facilitating and empowering the growth and development and performance of the SMEs, others had focused on assisting the SMEs to grow through soft loans and other fiscal incentives in order to enhance the socio-economic development of the economy like alleviating poverty, employment generation, enhance human development, and improve social welfare of the people, (Fatai, 2017).

In USA, new ventures and entrepreneurs are important for economic development, (Kim & Ames, 2016). SMEs drive innovation, create jobs, and generate wealth for founders, employees, and owners. Besides, new technology-based ventures are suggested to exhibit a `multiplier' effect in terms of job creation, (Stinchcombe, 2013). The technology developed by these types of new ventures often creates employment in additional industry sectors such as the service, retailing, or public sector. Unfortunately, SMEs tend to fail in higher proportions than mature businesses, (Flynn, 2011).

In Europe, Small and Medium Scale Enterprises (SMEs) constitute the driving force of such industrial growth and development. This is basically due to their great potential in ensuring diversification and expansion of industrial production as well as the attainment of the basic objectives of development, (Stokes & Wilson, 2015).

Africa is characterized as low income earners by the World Bank, value small and medium scale enterprises (SMEs) for several reasons, (Ariyo, 2015). Viewed in static terms, the main argument is that SMEs, on average achieve decent levels of productivity especially of capital and factors taken together (that is, total productivity factor) while also generating relatively large amount of socio-economic development. In dynamic terms, the SMEs sector is viewed as being populated by firms most of which have considerable growth potential. SMEs in Africa achieve productivity increases to a great extent simply by borrowing from the shelf of technologies available in the world, (ibid).

In West Africa, SMEs have been able to contribute to Gross Domestic Product (GDP) of many West African countries by reducing the rate of unemployment, thereby increasing the standard of living of the people, (Kanagarajah, 2014). SMEs is considered as an impediment to further economic development and growth, SMEs in West African countries often fail within their first three years of operations as a result of low technical capabilities, low entrepreneurial skills, limitation of their sizes among others, have been adduced to their low survival rate, therefore as a result of these factors, and for SMEs to survive in this contemporary age of technology and competitive business environment, customer relationships management programs was introduced to help give advice, assistance and to assist SMEs for survival, (Philips, 2012).

In Nigeria, SMEs are very important as the country suffers from high unemployment. SMEs are therefore, expected to be an important vehicle to address the challenges of job creation, sustainable economic growth, equitable distribution of income and the overall stimulation of economic development, (Ariyo, 2015). SMEs are as well a vital source of innovation in the development of new products, services and technologies. The contribution of SMEs to private sector employment (56.5%) and to gross domestic product (24.8%), implies a very high labor absorption capacity and highlights the job creating potentials of this sector and its importance to the reduction of unemployment in Nigeria, (Udell, 2017). The sector has potential to provide the ideal environment for enabling entrepreneurs to optimally exercise their talents and to attain their personal and professional goals.

In all successful economies, SMEs are seen as an essential springboard for growth, job creation and social progress. Besides, it is seen as an important force to generate employment and more equitable income distribution, activate competition, exploit niche markets, and enhance productivity and technical change and, through the combination of all of these measures, to stimulate economic development, (Okpara, 2011). Despite the importance and contribution of SMEs to a nation’s economy, they are still affected by some factors such as customer relationship management, which is the independent variable to be examined in this study.

Globalization, increasing competition, and advances in information and communication technology, has forced companies to focus on managing customer relationships in order to efficiently maximize revenues, (Wolfenson, 2014). Customer relationship is the key competitive strategy businesses need to stay focused on the needs of the customers and to integrate a customer facing approach throughout the organization. By using information and communication technology, businesses are trying to get closer to the customer so that they can create long-term relationships.

To survive in this 21st century global markets, focusing on the customer is seen as a key factor for SMEs. It is known that it takes up to five times more money to acquire a new customer than to get an existing customer to make a new purchase. Hence, customer retention is in particular important to SMEs because of their limited resources, (Baumeister, 2013). Moreover, a dissatisfied customer causes market damage because they are more likely to defect to competition and more likely to persuade others to defect. It is therefore no surprise that effective management of customer relationship is an important topic of conversation in business world, (Feinberg et al., 2017).

In the SME sector, a well-managed customer relationship can assist in targeting customers who really need attention and are as well profitable. This way customized package can be designed and marketed to them to ensure customer satisfaction and an increase in profitability of the enterprise, (Bueren, Schierholz, Kolbe, & Brenner, 2015). Customer relationship has the ability to perform analysis on customers with respect to their routine processes over time. These include purchase orders, regular visit times, and credit pattern. A proper monitoring and analysis of these can increase customer satisfaction by ensuring proper measures and enhanced delivery.

Customer focus and attention to customer service is not a new concept. It is certainly a business dynamic that has been recognized for a long time by more people than the management gurus such as Peter F. Drucker. CRM is more evolution than revolution. Thus, achieving the full potential of each customer relationship should be the major goal of every business, (Boxwell, 2016). Particularly, customer relationships play a major role in the competence development of SMEs, (Skaates & Seppanen, 2012). SMEs are embracing CRM as a major element of business strategy, mainly because technological applications permit a precise segmentation, profiling and targeting of customers and competitive pressures require a customer-centric culture, (Gurau et al., 2015).

CRM transforms organizations into customer-centric enterprises that maximize the value of every customer, (Skaates & Seppanen, 2012). CRM is based on the ability to facilitate communication and decision-making to provide consistent, high-quality, and cost-effective services to all stakeholders, (Andrade, 2013). CRM can help businesses enhance their customer relationships by attracting more profitable customers and establishing stronger and more durable customer relationships, (Falk, 2014). CRM gives sales force more time to sell, improves customer response times and quality of customer service, and allows marketing to better understand customer issues and trends. At businesses, CRM is committed to helping businesses implement strategies and solutions improving the way they sell, communicate service, and analyze customers, (Skaates & Seppanen, 2012).

1.2. Statement of the Problem

In spite of the major role, the significance and contribution of SMEs to national economy, these enterprises are still battling with many problems arising from the concept of customer relationship management, that exist in promoting their development and growth. The situation is more disturbing and worrying when compared with what other developing and developed countries have been able to achieve with their SMEs.

Literature gathered from customer relationship studies has alluded to the fact that a lot of businesses are not able to successfully use the CRM programs or activities available to them, (Reinartz et al., 2014, Parvitiyar and Sheth, 2011). It has been established that firms and businesses around the world are spending lots of money on CRM, but on the average about 70% of CRM programs do not achieve results in boosting business performance, (Reinartz et al., 2014). It was revealed in some of the studies that, the businesses or firms got it wrong or faltered because the customer relationship capabilities they possess wasn’t adequately deployed to ensure building of superior capabilities in managing customer relationships in order to achieve competitive advantage, (Day, 2012; Morgan et al., 2014; Plakoyiannaki and Tzokas, 2012).

The resource based view of a firm as well shows that, poor capability of the relationship built between the firm and the customers may be one very critical cause of the failure of customer relationship in the organization. It has therefore become urgent that there should be a need for businesses to learn the ways of developing and strengthening their business customer relationship. According to Reinartz et al., (2004), some businesses and business owners see customer relationship to be only technologically driven. Although, the management of customer relationship doesn’t work with technology. It is a combination of activities of human, processes and technology working together at the same time to ensure efficiency. Organizations that believe that managing of customer relationship is only about technology do not understand the concept and thus fails immensely in its adaptation and usage.

Despite the importance of customer relationship on the performance of firms, however, little or no study has been conducted in this regard on SMEs in Lagos State, which is the gap this study will fill by examining customer relationship and the performance of SMEs in Lagos State, Nigeria.

1.3. Research Objectives

The primary objective of this study is to investigate the effect of customer relationships on the performance of SMEs in Lagos State. However, the specific objectives of the study will be to:

        i.            examine the effect of employee attitude on customer retention in selected SMEs in Lagos State

      ii.            find out the influence of service quality on the sales turnover of selected SMEs in Lagos State

    iii.            assess the impact of trust on brand reputation of selected SMEs in Lagos State

1.4. Research Questions

To achieve the objectives of the study, the research sought to answer the following questions:

        i.            What is the impact of employee attitude on customer retention in selected SMEs in Lagos State?

      ii.            To what extent is the influence of service quality on the sales turnover of selected SMEs in Lagos State?

    iii.            How does trust influence brand reputation of selected SMEs in Lagos State?

1.5. Research Hypotheses

Based on the above research questions, the following research hypotheses will be formulated in their null form.

Ho1: Employee attitude has no significant relationship on customer retention in selected SMEs in Lagos State

Ho2: Service quality has no significant influence on the sales turnover of selected SMEs in Lagos State

Ho3: Trust has no significant impact on brand reputation of selected SMEs in Lagos State

1.6. Significance of the Study

This study will be of benefit to small and medium enterprises and other organizations, as it will help them to understand the relationship and attitude of their customers and to enable develop strategies that will help enhance the relationship with customers.  Similarly, an effective and efficient management of customer relationship will help SMEs improves customer satisfaction and subsequently retention rate

In addition, this study will be beneficial to business owners and entrepreneurs, on the need to develop a full and an in-depth knowledge about the behaviours of customers and their preferences in order to develop strategies and programs that ensures that customers get what they ask for to continually relationship.

To the academicians, the study contributes to the existing literature in the field of customer relationship. Furthermore, this study will act as a stimulus for further research to refine and extend the present study especially in Lagos State.

In addition, the findings of this study will be useful to the researcher and scholars as it contributes to the body of knowledge in the area of customer relationship and SMEs performance. And lastly, this study will assist other researchers to further their studies on areas of interest not yet exploited.

1.7. Scope of the Study

The study focused on customer relationship and the performance of SMEs in Lagos State. The data used for the study will be a survey that will be carried out amongst the selected SMEs in Lagos State. The survey will mainly target owners, managers and executives of SMEs. The reason for this is because they are in the best position to execute and implement customer relationship management in their various organizations. Data will be collected through a structured questionnaire administered to the respondents.

1.8. Operationalization of Variables

The dependent variable is customer relationship, represented by employee attitude (EA), service quality (SQ), brand trust (BT), commitment (CT) On the other hand, performance of SMEs, being the independent variable, is proxied by customer retention (CR), sales turnover (ST), brand reputation (BR), and profitability (PT).

Where Y= Dependent variable

             X= Independent variable


Y= f(X)

X= Customer Relationship


X = f(x1, x2, x3, x4)

x1= Employee Attitude (EA)

x2= Service Quality (SQ)

x3= Brand Trust (BT)

x4= Commitment (CT)


Y= Performance of SMEs

Y= f(y1, y2, y3, y4)

y1 = Customer Retention (CT)

y2 = Sales Turnover (ST)

y3 = Brand Reputation (BR)

y4 = Profitability (PT)


The four specific objectives are operationally expressed as:

To examine the effect of employee attitude on customer retention in selected SMEs in Lagos State

Y1 = f (x1)

Y1 = b0 + b1x1 + u

To find out the influence of service quality on the sales turnover of selected SMEs in Lagos State

Y2 = f (x2)

Y2 = b0 + b1x2 + u

To assess the impact of trust on brand reputation of selected SMEs in Lagos State

Y3 = f (x3)

Y3 = b0 + b1x3 + u

To identify the influence of commitment on the profitability of selected SMEs in Lagos State

Y4 = f (x4)

Y4 = b0 + b1x4 + u

1.9. Operational Definition of Terms

Customer Relationship:

Performance: refers to how your employees behave in the workplace and how well they perform the job duties you’ve obligated to them

Trust: is defined as to have confidence, faith, or hope in an organization.

Brand Reputation: refers to how a particular brand is viewed by others

Commitment: refers to it as the attachment that an employee has on their organization due to their experiences.

Service Quality: refers to a customer’s comparison of service expectations as it relates to a company’s performance.

Customer Retention: refers to the ability of a company or product to retain its customers over some specified period.

Sales Turnover: is the total amount of revenue generated by a business during the calculation period.

Employee Attitude: refers to the kind of behaviour or attitude exhibited by an organization’s employees in the workplace.