Targeting small firms

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Small businesses lead their larger counterparts by a long shot when it comes to making business purchases from direct marketers, according to a new study by Abacus.

Small businesses accounted for 67%, or $2.7 billion, of direct marketers' sales in 2004, while large companies accounted for 25% and midsize businesses generated 8%, according to the Abacus B2B Alliance's premiere industry report.

The report, "2005 Abacus Business-to-Business Industry Insights," is based on an analysis of the alliance's roughly 400 members, all of whom are b-to-b direct mailers. The company plans to publish future b-to-b reports on an annual basis. Abacus has done similar analysis in the consumer space for several years.

"The theme in b-to-b for the last year is a switch in focus to the small-business market," said Stacey Hawes, b-to-b market leader for Broomfield, Colo.-based Abacus.

Large businesses remain an important target for b-to-b marketers, though, because their average purchases are twice as large as those of small businesses, Hawes said.

"Often I talk to mailers who say they need a higher average order and the smaller businesses don't provide a higher average order," she said. "But when you look at the number of orders you get, you are making it up in volume."

There are marketers in the alliance that have already begun to focus on smaller business targets.

"We've been able to change our list selects to target smaller audiences," said Michael King, group publisher at Lawrence Ragan Communications. His division publishes management newsletters for entry- and mid-level managers and sends 800,000 to 1 million pieces of mail per quarter.

"Just in the last year or so, we've made those changes [to the smaller business target]," he said, adding it's been paying off so far. "Before we could eke out an 80-cent ROI, and now we can bring it up over the $1 threshold, based on compa ny size.

Abacus said each customer segment requires its own targeting strategy. "If you are going to focus on small, mid- and large-sized businesses, you have to have different strategies to approach each of those," Hawes said. Most marketers understand that big business merits a specific strategy, she said, but they are not always focused on how to talk specifically to smaller customer targets.

"Maybe the offer is different to a large business versus a small business," Hawes said. "You've got to understand how to target small businesses and that the approach is different."

The study also revealed that industry groups exhibited differences in purchasing behavior across 15 Abacus-defined categories in 2004.

Companies in the health industry were 18 times more likely to purchase magazines, newsletters and books than the average company, according to Abacus' analysis.

King said that is true for his company. Health care customers were the No. 1 buyers of Ragan's top four newsletters in its most recent quarter.

"It seems to be pretty consistent across the board with our folks. Health services was our No. 1 buyer for `Motivational Manager,' " he said. "The same holds true for `Leading for Results,' `Managers Intelligence Report' and `Employee Recruitment and Retention.' "

Given that, the company tried a spin-off of "Employee Recruitment and Retention" specifically targeted to nurses but scuttled it when it did not prove viable. "I was surprised we weren't able to capitalize on that," King said.

However, that doesn't mean he won't try again. "We may go out with another [health care] publication in the future," he said. "I don't see [that industry] dwindling. I see it growing."

Another example is heavy industry, which is defined as industrial, manufacturing and transportation. Heavy industry direct purchases totaled $1.3 billion in 2004, representing 30% of all purchases. In addition, heavy industry was five times more likely to purchase electronics and tools.

Metalcraft Inc., a company that makes identification plates and tags that companies affix to equipment for tracking and inventory purposes, is capitalizing on that trend.

"We use a fair amount of direct mail to manufacturers," said Julia Deets, marketing director at Metalcraft, which recently increased the number of names it has purchased from Abacus.

Deets said current customers are fairly consistent. "They usually buy the same thing at the same time [every year]," she said. "We grow by getting new customers."

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