After the storm

By Published on .

B-to-b direct marketers, like most marketers and media companies, have struggled with the advertising recession and the lingering effects of the Sept. 11 attacks on their bottom line. While it looks like signs of a comeback are slowly beginning to appear, this won’t be the year for strong recovery.

B-to-b direct marketing has fared far better than other marketing sectors, but its growth rate slowed significantly in 2001. U.S. marketers spent close to $102 billion on b-to-b direct response advertising last year, an increase of 4.3% over 2000.

"Not bad, arguably, in light of the year we had," said H. Robert Wientzen, president and CEO of the Direct Marketing Association (DMA). But, he added, that’s only about half of the annual growth b-to-b marketers experienced over the preceding five years. The DMA projects b-to-b ad spending will return to "normal" over the next four years and will grow nearly 7% annually.

Sales for b-to-b direct marketers increased 9% to $858.1 billion in 2001. And there are encouraging signs from various sources that the economy has begun to slowly climb out of its current malaise, especially in the area of consumer confidence.

"Consumers’ confidence has been bolstered by the improvement in business and labor market conditions," said Lynn Franco, director of The Conference Board’s Consumer Research Center, in its latest Consumer Confidence Index report. "The latest gains are striking."

That boom, Franco said, should translate into stronger economic growth ahead.

Wary of spending

Anirvan Banerji, director of research for the Economic Cycle Research Institute, endorsed Franco’s assessment. "We are clearly in recovery in the overall U.S. economy," said Banerji, although he cautioned that businesses are still jittery. "When profits have been crushed and there’s been such a huge downswing, it makes marketers a little wary about spending," he said. "There is still some hesitancy about whether the recovery will prove sustainable."

It is that hesitancy that will likely prevent any significant rebound this year. "We’ll have a flatter year this year," said J.G. Sandom, vice chairman of Rapp Digital New York, a direct marketing and
interactive agency that handles several b-to-b direct marketing clients. "The recession certainly is still having an impact. Clients are slower to move on projects."

Another indicator of the slump is the decline in mailing activity. The U.S. Postal Service said overall mail volume dropped by 1.6 billion pieces, or 3.4%, in the first quarter of this year, compared with the same period in 2001. It expects the loss in volume to continue for at least another quarter.

Wait-and-see approach

While marketing budget freezes have gradually begun to thaw, marketing managers continue to take a wait-and-see approach toward spending. That hesitancy is "not as acute on the business-to-business side," Sandom said. But he indicated that aside from some promising possibilities for new business in the near future, much of his current opportunities involve helping clients optimize existing marketing dollars.

"When times are tough, people look at existing investments and maximize what they’re doing with an existing customer," Sandom said. That likely rules out investment in new software tools in favor of a focus on customer retention and loyalty programs and a lean approach to acquiring new customers using existing tools.

Al DiGuido, CEO of Bigfoot Interactive, an e-mail marketing company, agreed that clients are taking a more cautious approach.

"There’s an intense pressure on all media to measure return on investment because of the tighter economic conditions," DiGuido said. Keeping existing customers and prospecting more efficiently are crucial, because profit margins are much thinner than they’ve been in the past, he said.

Profit margins are, in fact, thin or nonexistent for many marketers, which suggests few companies will make additional discretionary investments any time soon, particularly in technology.

Customer relationship management was supposed to be the solution for marketers interested in retaining customers and reaching them at multiple media "touchpoints" in efficient and useful ways. But hopes that CRM would revolutionize marketing processes proved unrealistic.

"If the story last year was how CRM was the hottest of the hot, the story this year is CRM is failing and companies are uninstalling their multimillion-dollar software products," said direct marketing consultant Ruth P. Stevens.

One of the biggest problems that stood in the way of CRM getting off the ground was the expectation that it would provide a plug-and-play technological answer to all of marketers’ customer service and business automation problems.

CRM oversold

But technology was only a part of the equation. "CRM was oversold," Rapp’s Sandom said. "Part of the problem was that business-to-business marketers, especially technology providers, were trying to say they could solve CRM with a software solution. Large organizations are not embracing CRM on an enterprise level beyond technology."

The result, in many cases, has been that customers are left out of the equation.

The fragile economy and the post-dot-com hangover only aggravated the situation. Large companies for the most part not only did not embrace CRM beyond the technology investment but are now backing off any IT investment if their profit margins aren’t there. The strongest indicator of that is poor first-quarter earnings results for major b-to-b CRM vendors like E.piphany Inc., Onyx Software Corp., PeopleSoft Inc. and Siebel Systems Inc.

But while many CRM projects have been killed or put on hold, bits and pieces of CRM remain useful.

"We’re seeing traction still for CRM within much more containable opportunities within groups," Sandom said. "It’s a trend we’ve seen across our entire [b-to-b] portfolio." Rapp’s clients include Mercedes-Benz’s fleet sales division, Reuters Group plc and SBC Communications Inc.

"Perhaps this will be the year that marketers realize there’s still a lot of value in CRM concepts and will view it as a business process rather than a technology," Stevens said. "I think companies realize they have to reorganize and put customers in the center of everything they do.

Most Popular
In this article: