Most UK businesses are classified as SMEs, yet many small companies experience difficulty when implementing their DM campaigns. David Reed reports on how small operations can compete with the corporate heavyweights.
If your company employs fewer than 500 staff, then the Department for Trade and Industry classifies your business as a smallto medium-sized enterprise (SME). In the UK, 95 per cent of companies fall into this category and their combined output accounts for 40 per cent of gross domestic product.
But the figures flatter to deceive. In fact, 93 per cent of UK companies actually employ fewer than 50 staff. While potentially acting as motors of the economy, producing new ideas and creating rapid growth, they are also the most vulnerable. Resources and budgets tend to be very limited.
Marketing is one of the areas that can, in particular, suffer. In a survey of 303 companies employing fewer than 250 staff and spending more than &£5,000 a year on direct mail (DM), the Direct Mail Information Service (DMIS) found that 49 per cent had a full-time member of staff working on marketing. But among micros (those employing 49 staff or fewer), this fell to 28 per cent.
More typically, 40 per cent of this group said marketing took up less than half their time – as did 25 per cent of SMEs overall. This is perhaps no surprise, since six out of ten of the sample spent less than &£20,000 on direct mail – not enough to merit heavy management time.
But as Shelagh Regester, founding partner of The Customer Partnership, points out, proper marketing could help with some of the business problems that SMEs encounter. “They have a very sensitive pipeline, which, if not properly managed, can cause corporate disaster very quickly,” she says.
Large companies can cope with failure because of their scale. Poor account management, business development or database maintenance will not build the business – but they won’t sink it either. “Bigger companies can get away without doing the simple things well. SMEs cannot,” says Regester.
The irony is that SMEs know only too well what poor marketing is like, because they are so often on the receiving end of it. “Small businesses are bombarded with poorly targeted and inappropriate direct mail and telephone calls. This is very irritating and wasteful,” says Simon Lawrence, joint managing director of Information Arts.
As well as being a waste of the marketing budget, this could create a drag factor within the economy at large. Small businesses could be missing out on products and services that might help their companies to grow. If the DM targeting SMEs could be improved, economic growth might follow.
A key part of the problem is data. Most business databases focus their effort on larger or more active companies. SME files often lack depth of information. To address this, Lawrence’s company has created the National Register of Small Businesses.
But if large companies find problems in targeting smaller ones, this is as nothing compared to the problems encountered by SMEs when trying to create their own DM campaign. In theory, they should be able to be quicker, more flexible and responsive to marketing opportunities.
Up close and personal
“One of the main reasons why DM can be used so effectively by SMEs is because the management chain is much shorter than in larger organisations, which means that top managers are much closer to their customers,” says Alan Timothy, chief executive of data engineering consultancy Rocket Science.
While a large organisation might struggle even to extract its sales ledger because of the tiers of management involved, the managing director of an SME can demand it face-to-face. “Similarly, ask the managing director who the top 20 customers are and they’ll probably know. Ask the same question of the managing director of a large corporation and nine times out of ten, they won’t have a clue,” says Timothy.
But that same familiarity with the customer base can also be a barrier to the use of DM. Why use indirect contact with the market when the salesforce or senior directors know who they are speaking to? Where a market numbers in the hundreds or thousands, of course, personal knowledge is no longer possible – targeted marketing can have a real benefit.
So what stops SMEs becoming more involved in using DM? Cost is undoubtedly the biggest barrier. In the DMIS survey, 30 per cent said that the main disadvantage of DM was cost. This rose to 33 per cent of medium-sized companies (200 to 250 staff), but fell to 28 per cent of micros.
Response Direct Publishing chairman Peter Webb recognises the problem. “Thousands of SMEs are suffering from corporate exclusion from DM as a result of the high entry costs required to run a DM campaign and the level of expertise needed to ensure its success,” he says. This puts them at a competitive disadvantage compared to larger rivals with the budget to use this channel.
Solutions are available, such as collaborative marketing. One example is card decks, which present 30-odd advertisers to a targeted audience of up to 500,000 at a cost per item of just 4p. This compares to 45p an item for solus DM. Response catalogues are another low-cost option, which can even be bought on a per-response basis.
Webb points to a success story for an advertiser in RDP’s response catalogue The Consumer Information Centre. “Sound Ideas, a small business that offers ‘teach yourself to play the piano’ courses, appeared in the autumn edition. Response was on target, and the company made enough sales to cover the cost of participation before the campaign had even finished,” he says.
By mailing a follow-up to non-buyers, nearly as many sales were produced as from the first wave of response. Webb notes that “they would be unlikely to achieve that from a solus mailing with the same budget”.
Another serious problem identified in the DMIS survey was with databases – 53 per cent of all SMEs had encountered problems, with 32 per cent having problems sourcing lists. Worryingly, 15 per cent of those with database problems said they remained unresolved, rising to 31 per cent of those having trouble with lists.
A raft of new Web-based list and data services should help to overcome these hurdles. The list broking service, MailingFile.com, has been running for four years, providing instant access to both business and consumer data sets.
Last year, Experian launched GrowMoreBusiness.com, a portal aimed specifically at SMEs. As well as access to prospect data and list cleaning services, it offers a database auditing tool and an e-mail campaign management service online.
While helping with the practicalities of targeting, many SMEs are still stymied by the very idea of what a DM campaign should be. According to DMIS, 13 per cent find DM time-consuming. Among those who have had problems, 21 per cent experienced difficulties with dispatch, 18 per cent with design and 18 per cent with print and production.
In other words, the limited experience and time available to marketers in SMEs is stopping them from understanding how to use DM. Not surprisingly, major media owners want to help them to overcome these problems.
Spreading its net
“Given that many SMEs face both financial and time pressures, the added complexity of sourcing and managing a disparate supply chain has proved a real barrier,” says Royal Mail head of media information Andrew Kershaw. “We receive a great number of queries from SMEs looking to access data and other aspects of DM on our website.”
The result was the launch of DM Online (royalmail.com/ dmonline), which is aimed at specifically helping smaller companies through the process of creating a DM campaign. Created by Marketing Drive Worldwide, it draws on the agency’s Marketing Toolbox software to provide templates, images, data and even fulfilment.
The Royal Mail-owned data company, The Preference Service, has also recognised the problem and is introducing its own Web-based service. Managing director Thomas Adalbert says: “I see it as the most lucrative market for direct marketers that has so far remained untapped.”
His company is planning to introduce a Web-based service to support low-volume campaign planning and execution. Users will be able to design, write, print and post an entire campaign via the portal for about &£500 per 1,000 items.
With many of the practical barriers being overcome in this way, lack of experience or time should become less of an issue. SMEs will soon have access to the same tools that their larger rivals make use of.
But if SMEs can pull in sales through existing channels, why bother with DM at all? The strongest argument has to be to stabilise that fragile sales pipeline identified by Regester. And the experience of Hyde Sails suggests that adopting DM can transform the business model.
The company is a small, family-owned concern that makes bespoke sails for racing yachts. Business is seasonal, with many employees laid off during winter, and is also cyclical: while genoa sails might be replaced by a professional yachtsman every year, larger mainsails are only replaced every other year. Tracking the level of involvement in the sport and when a sail was last bought would make a major difference.
By chance, the managing director Edward Hyde met Tony Coad, chairman of CCB – Profits from Data, and was persuaded to trial database marketing. The first mailshot in September, usually the start of the slow season for the business, was written by Drayton Bird, chairman of agency Bill Fryer Direct. It was sent to a file of yacht owners who race, together with a follow-up newsletter. A special price was offered on orders placed by mid-November.
“I couldn’t have imagined the response would be so big,” says Hyde. “I’ve taken on extra staff and by the time we do the next mailing, we’ll be geared up to respond to enquiries more efficiently. I intend to continue mailing. As we get more involved with DM, we plan to enhance the website and investigate the possibilities of Internet marketing.”
The seasonal business is now becoming an all-year-round manufacturer, following a 25 per cent increase in turnover. It’s a big change, but one that many SMEs are finding they can undergo once they get to grips with direct marketing.
As Adalbert says: “DM isn’t just effective for the big mailers of this world, but also for the antique shop in the high street.”
The International Direct Marketing Fair 2003
The International Direct Marketing Fair, now in its 25th year, runs from March 4 to 6 at at London’s Earls Court Two. Over 300 suppliers are exhibiting, focusing on such areas as customer relationship management, database management and e-marketing.
Special features at this year’s show include:
â¢ DMA Royal Mail Award Winners’ Gallery;
â¢ Full seminar programme including four free keynote addresses each day;
â¢Business-to-Business Hub (where you can collect a free copy of the B2B Handbook).