Harry & David, the 68-year-old gourmet food marketer, is on track to exceed its sales goals for this year, thanks to a renewed b-to-b focus.
The Medford, Ore.-based cataloger, with annual sales of $450 million, got its start as a b-to-b supplier but cultivated its business over the years through a consumer-oriented gift catalog. In recent months, it has taken steps to target its most profitable customer segment: corporate clients.
The company created a new division with an emphasis on customer relationship management, or what the direct marketer refers to as customer value management. "The strategy was to identify and recognize valuable customers and integrate cross-channel strategies," said David Giacomini, director of the customer value management group at Harry & David, a division of Bear Creek Corp.
B-to-b more profitable
Taking its existing marketing database, the company divided customers into segments. It found that its b-to-b clientele, which represents 10% of its database, generates much higher sales and profits at a much lower advertising-as-a-percent-of-sales ratio than consumers.
Since recognizing that fact six months ago, the company has increased b-to-b spending by about 15%, including hiring additional salespeople. The marketer uses information derived from segmentation analysis and applies it to marketing tactics such as trade shows, telemarketing, e-mail and direct mail efforts. "Instead of going to broad-based trade shows, we identify vertical industries that respond well," Giacomini said.
Catalog consultant Bill Dean, principal of W. A. Dean & Associates, said Harry & Davidâs strategy is sound. "It makes sense," he said. "Food gifting is a big thing in the business-to-business market." Dean added that supplementing catalog mailings with other marketing methods is necessary for growth today, particularly given the increase in catalog mailing costs.
One challenge Harry & David encountered was retaining and up-selling current customers, so the company recently created a specific group to focus on retention. A change in compensation packages for sales employees was deemed necessary, as commissions had been based almost exclusively on generating new sales.
"The sales team was more skewed to acquisition rather than retention," Giacomini said. "There was little incentive to retain or grow an account."
After the company increased commissions for retained and re-activated sales, the effect was significant and immediate. "Two months ago, we were below plan for the year. Right now, weâre at plan, and weâre optimistic that weâll exceed sales goals for the year," Giacomini said. "I didnât think changing compensation would have an effect that quickly."
Another development was the creation of Gift Express Online, a corporate gift program that features a co-branded Web page with the corporate customerâs logo and direct ordering links. Alliance Capital Management L.P., Wells Fargo & Co.âs Phone Bank Service Center and Nanogen Inc. are among the 12 clients currently participating in this program, which can be customized with features such as predetermined gifts, direct billing and corporate accounting codes.
Harry & David, a category leader that mails 40 million catalogs yearly, continues to market to business customers through its folksy consumer catalog. About 10 years ago, it created a dedicated b-to-b catalog but later decided to scrap it. "We found the consumer catalog worked just as well for business," Giacomini said. Its corporate direct mail package contains the consumer catalog, along with a personalized letter and a 16-page brochure containing gift ideas.
Another, albeit smaller, gourmet food cataloger, Mrs. Beasleyâs, also recently discovered the potential in its b-to-b business. "Mrs. Beasleyâs really didnât know who their customers were," said Ken Harris, CEO of Mrs. Beasleyâs and managing director of its parent company, Kayne Anderson Rudnick Investment Management L.L.C., which also owns toy retailer FAO Schwartz.
Mrs. Beasleyâs move
With the help of DoubleClickâs Abacus Alliance, a b-to-b cooperative database, the company gained information that prompted a major strategic shift. Carson, Calif.-based Mrs. Beasleyâs, which has annual sales of $22 million, assumed its customer base was split 50-50 between business and consumer customers, but Abacusâ database segmentation analysis painted a different picture. Seventy percent of the companyâs catalog buyers were business customers, and a whopping 90% of its online customers were b-to-b clients.
"It was clear business-to-business was driving my sales and profitability," Harris said. "Based on that information, we decided to launch a b-to-b catalog."
Harris said he hopes to build Mrs. Beasleyâs business through an expanded business division and future acquisitions. "Strategically, I want to spend my money to get business customers."