Good address, bad business

lf you market your company’s products and services to other businesses, you don’t need to be told that the marketplace has changed. A severe downturn will tend to do that to UK plc.

If your own company is still in business, however, then there is another change you need to consider – how capable your data quality processes are at telling you which prospect and customer businesses are steady, at risk or even growing. A dynamic economy demands dynamic data.

Verifying a company’s name and validating an address is useful, especially to ensure the effectiveness of sales and marketing efforts. But with even the biggest organisations facing financial stress, it is not surprising that B2B data providers have been adapting and developing their resources to provide more sophisticated indicators.

They need to, given the rate of change. “We always say that 30 per cent of business data decays every year, through contacts moving, telephone numbers and addresses changing,” says Simon Bennett, sales manager, B2B marketing at Equifax. Pressures on corporate finances have added a further dimension to this decay.

“Having analysed the data, we can see that the failure rate for businesses in 2009 compared to 2008 was up 18 per cent. When we looked at two years ago, 2009 failures were up 39 per cent on 2007,” he says. The good news is that the rate at which companies closed in the final quarter of last year was down by 7.7 per cent on the same period the year before, suggesting the worst of the recession had passed.

To keep B2B data up-to-date, clients are now looking for a more sophisticated verification process that shows more than just whether a correctly-named company is trading from a deliverable address. Equifax has built in credit and financial data sources to its file to support exactly this need.

Bennett says that best practice in B2B marketing should now be to apply a financial screen to prospects as part of the marketing plan, subject to the nature of the offer. “It depends on what you are marketing. If it is high or mid-value, it is more important to know you are dealing with companies who can pay,” he says. “There is no point marketing a £50,000 IT system to a company that can’t pay its bills.”

The return on investment from the extra cost of pre-screening marketing data should be found in a reduction of bad debt. Despite the changed economy, Bennett notes that this case is not always being made. “It depends on whether marketing is measured against that, as well as the cost of data, marketing activity and even sales visits,” he says.

In some organisations, adopting this approach to B2B marketing is opening up new opportunities. The terms under which a product or service is offered can be varied to fit the financial circumstances of each business, for example, either by insisting on payment upfront if the company is under stress or offering easier terms if it is in good health.

Pre-screening of prospects is no substitute for conventional credit checking at the point of application, however. Marketing flags are only an indicator of status, rather than actual proof of fiscal health.

Max Frith, senior client director at pH Group, points out that, “there is definitely a shift towards being more cautious both at the acquisition stage and in-life.” This is an important change from three years ago, he points out, when companies were more gung-ho about taking on all levels of risk.

“What is perhaps surprising is that more don’t filter for credit status at the acquisition stage,” he says. His own view is that, despite the problems besetting company finances, “the insolvency rate has not really exploded”. While the figures may show a large rise in the rate of failure, the absolute number of companies going to the wall remains relatively small, especially among SMEs.

Not that Frith believes this is any cause for celebration. “The risk is that we may see a repeat of what happened in the last recession when the peak of insolvencies was six quarters after the lowest point for GDP,” he says. That would mean this Summer could prove very risky for B2B prospects. “The question is, are we still in the eye of the storm?”

The risk is that we may see a repeat of what happened in the last recession when the peak of insolvencies was six quarters after the lowest point for GDP

In response to the shifting nature of financial risk, pH Group has developed its Distress Warning Score which provides a short-term risk indicator. While most insolvency sources take data across the last 12 to 18 months, this score is based on the most recent three to six months.

The new system has been tested by looking at business data across the last two years, from the very start of the recession, and was found to be most indicative as the market got worse. It also helps discriminate between companies who are doing the right thing and those who have no other choice.

“If a company pushes out its payment period and is in good health, that is not a bad thing. The finance director is preserving the cashflow and letting suppliers take the strain. Our score predicts that health and how able a company is to cope with the recession,” says Frith.

Modelling and filtering on financial dimensions is emerging as an important new aspect of B2B marketing. Scoring records for their health, both now and in the future, can ensure a company does not waste its resources chasing prospects that will not turn into profitable business. At the same time, keeping the core demographics of UK plc up-to-date and accurate has never been more essential. For many, this data quality process has always been at the heart of their marketing effort and remains unchanged by circumstances.

“There is no tangible evidence that businesses are looking at prospects in a different way to when times were good,” says Keith Jones, head of data strategy at Royal Mail. Even so, there has been a realisation that data decay is an issue that needs to be dealt with, leading to more uptake of validation services.

“February was the first time our run rate on marketing revenues has moved upwards in 15 to 18 months,” says Jones. “I am almost confident that businesses are starting to believe we have hit bottom and are coming out the other side.”

The paradox for Royal Mail is that, while revenues have been down because companies have been doing less marketing and have had lower budgets for data cleansing, more data than ever has been flowing into its files, like Business Changes. “That growth on the input side is a potential indicator of stress in the economy, just as output is an indicator of positive growth,” says Jones.

“I would like to think there is a positive outcome from the credit crunch through more data cleaning. It is cheaper to clean data than to send out a mailing that is waste,” he adds.

For some B2B data owners, 2009 was a year to press harder on the accelerator and invest more heavily into their data asset. “We are going beyond name and address validation. We’ve brought in a number of processes to strip out businesses that are going under and identify them as soon as it happens,” says Nick Washbourne, business development director at Market Location.

From weekly feeds of Register Trust data, his company picks up any UK court outcomes, such as CCJs, petitions to wind up or bankruptcies, that show a company has run into trouble. This is an immediate indicator of problems, but there may be others from more traditional sources.

“If we see a change in Companies House data, such as a company filing its accounts on the same date and then changing it, there could be perfectly reasonable financial reasons or it might be in trouble,” says Washbourne.

Any records that get flagged as at risk are put through the company’s call centre for checking. It already invests £750,000 each year to ensure all 1.9 million businesses on file for which it has a telephone number are called and key data validated, such as what they do, employee numbers, key contacts and email addresses if possible.

One of the most interesting new techniques adopted by Market Location is its “Secret Agent” approach to identifying goneaways. If a company stops answering its phone, for example, agents will call other businesses on either side of its premises and ask if it is still trading.

A negative answer is not treated as definitive, but flags the record for further investigation. Similarly, changes in the nature of what a business does get picked up by the “Shiny, Happy People” team, who also look for duplicates resulting from similar, but different company names.

Market Location now supplies 99 per cent of voice-based directory enquiries and 50 per cent of online directories, like Scoot, MSN and Upmystreet. One advantage of this set-up is that companies who spot an error in their online listing tend to update it quickly, thereby flowing that information back to the master file.

All of these data sets provide not just ways to verify a record, but also to target a business. “If we find a 5 per cent growth in employee numbers, that company goes into our growing businesses pot,” says Washbourne.

In the B2B marketplace, even negative indicators on a record can have a positive purpose – there are companies who specifically target other businesses that are in trouble, such as insolvency services, for example. That underlines another important feature of B2B data – that data quality and marketing processes need to be closely aligned, because one feeds the other. Whatever the cost of using new generations of data validation, profiling and modelling, they are outweighed by the potential downsides of bad debt and the upsides of better sales.