Direct marketers find small businesses, but not easily

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Direct marketing plays a central role in marketing to small businesses-a highly desirable segment that represents enormous marketing potential along with major challenges.

Small-business owners-owners of companies with fewer than 500 employees-make up 99.7% of all U.S. businesses, according to the U.S. Small Business Administration (SBA).

"Small businesses have tremendous purchasing power," said Denise Hopkins, senior director of business marketing solutions at database company Experian.

They can also be tremendously difficult to find.

"In talking to our clients, that small-business market segment is the most difficult to get to," Hopkins said. While public information on large corporations is readily available, small businesses are much harder to identify. "With small businesses, you need to look for external information to find the data you need to adequately target."

Another problem is the high rate of churn. Small businesses tend to launch and fold at breakneck speed. According to the SBA, 34% of all new businesses with employees do not last more than two years, and 56% do not survive more than four years.

"In b-to-b, the data decay rate is high," said John M. Coe, principal of the Sales & Marketing Institute. "At a minimum, databases are decaying at 5% a month. The accuracy of the list in terms of contact-level data is a real problem."

20% to 30% innacurate info

Coe said he checks compiled databases from major database vendors continually, and that typically 20% to 30%-or even more-of the data is inaccurate.

The trick is figuring out who's here to stay. "It's about understanding `How do I get to the businesses that are growing and are going to survive?' " Hopkins said. Looking at additional data, risk scores and profiling against existing customers with similar attributes are some of the ways to get the answer.

That is the place where direct marketing shines, making it especially effective for companies marketing to small businesses. Direct and database marketing provides an excellent means of identifying and segmenting prospects, and an efficient channel to market to them. Direct mail, e-mail and telemarketing are at the top of many marketers' lists of effective tools, and database marketing is the launching pad.

BellSouth's segmentation

BellSouth uses direct and database marketing fundamentals to attract small-business customers. Lists and segmentation come first. Then the right offer has to be determined and, finally, the marketing communications strategy to reach those customers is formulated.

"If you miss on one of them, you won't be successful," said Ken Kraft, senior director of small-business marketing at BellSouth.

List managers and database compilers are good sources for targeted small-business lists. Data providers such as Dun & Bradstreet, Experian and infoUSA specialize in targeted lists for marketers that want to zero in on small businesses. Those lists allow for deeper drilling, such as finding prospects in specific industries or locations.

Experian's products for small-business marketing include its National Business Database, its b2bBase cooperative database and its Business Owner Link, which matches small-business owners with their home addresses.

BellSouth offers about 100 different products to small businesses. Its top products are DSL, local phone, long distance phone and wireless service. Its segmentation strategy is built on what it expects customers to buy and when, using about 20 statistical models, including variables such as size of business, industry type, location and credit score.

Telemarketing-outbound and inbound-is central to BellSouth's strategy. "Telemarketing is the main way we sell in small business," Kraft said.

Coe also noted the prominence of telemarketing: "In the case of b-to-b, telemarketing is really coming to the forefront." Direct mail responses are down, he said, and e-mail "has fallen off the table."

Telemarketing succeeds with small businesses in particular because a marketer is more likely to get decision-makers on the phone and more likely to keep them on the phone longer. The marketer also has the opportunity to clean up its list with updated information direct from the source.

In addition to telemarketing, BellSouth incorporates direct mail into its communications strategy. "We drop approximately 2 million pieces of mail every quarter," Kraft said. "Mail is still a pretty good vehicle for us." He said e-mail is also very effective and much cheaper than other media, but it poses challenges.

"We are trying to get better with e-mail," Kraft said. "The challenge is having accurate e-mail addresses. There are a lot of bad e-mail addresses out there."

Acquiring third-party e-mail lists is far from ideal, Kraft said, because they often include e-mail addresses within a given company, but "we don't necessarily have the name of the purchaser." The most reliable e-mail addresses are those that come directly from customers.

Whatever the mix, BellSouth's direct mail strategy must be integrated with telephone marketing and e-mail, Kraft said.

"Direct mail gets dropped on this date, we'll do a reminder call on this date and we'll send a reminder e-mail on this date," Kraft said. "In small business, this is the way to market."

Multichannel approach best

Experian's Hopkins agreed. "A multichannel approach is always the best," she said.

In addition to the channel, the way direct marketers talk to small businesses is often radically different than the scripts for larger companies.

"When I'm in a small business, I look at a buying decision in a much more personal way because it is my money," Coe explained. "Personal offers, like desk accessories, actually work better with small-business people than they do on the corporate side."

That gives marketers more creative leeway, Coe said. "When you get into small business, you have a big palette to draw from," he said. Larger companies often place restrictions on the dollar value of premiums their employees can accept from vendors.

While marketers can consider making offers with a much higher dollar value when targeting a small business, Coe cautioned that those offers still must tie back to the benefits of the product. "Some people react negatively because it can seem like a bribe," he said. "If it has no connection to the offer, you get a whole lot of sizzle and no steak." M

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