The result also put a major dent in their hopes of qualifying for the knockout stages of the tournament, meaning Tuesday night's clash with Stuttgart is now a must-win game if Rangers are to retain any hope of progressing to the last 16.
Back-to-back 4-1 defeats to Sevilla and Unirea at Ibrox do not make good reading so far and Smith is hoping for third time lucky in Glasgow against the Germans.
"Our home performances have been disappointing and we have to show a good reaction to that problem," he said.
"That's the main thing from our own point of view. We have to show that the Unirea game, especially, was a blip on our own part.
"It was an exceptionally poor performance from us and we have to make up for that."
Erratic home form and better performances on the road so far means Smith is unsure what to expect from Tuesday night's game, having earned a point in Stuttgart in their opening match.
"It's a strange one," he said. "We've got a couple of points from two good performances away from home and we have had no points from our home games, which is an unusual circumstance for any team.
"We've had one exceptionally poor performance and one quite decent performance at home, although we lost quite heavily at the end of that.
"It's been a strange Champions League campaign. After four games we find ourselves with two points but still in a situation where we have an opportunity to qualify or, at least, get into a situation where we have European football after Christmas.
"That must be what we aim for and hopefully we can do that."
Dropping into the Europa League by finishing third may be a more realistic option for Rangers.
Smith added: "We are just thinking about European football after Christmas and the results will determine where that will be and if we are going to get any football after the Christmas period.
"We just have to try to win the game. We've got no thoughts on whether it's continuing in the Champions League or whether it's in the Europa League."
Rangers v VfB Stuttgart To Score 3+ Goals: Rangers 13/2