What is a marketer’s job? Is it to increase the profitability of the company for which they work? Or is it merely to increase the response rate of customers? Most marketers wouldn’t limit themselves to the latter, so why do so few use credit data?
Credit data, often called pre-vetting, has been around for about fifteen years but largely ignored by marketers. In 2005 Experian encouraged marketers to use credit data by launching a service which enabled the credit worthiness of prospects to be checked before mailing. Other suppliers followed suit or revisited their own offerings. Two years on, Nigel Bennett, sales director at Market Location, comments, The knowledge of the service has increased among marketers, but true understanding of its application is still very low. Probably only about two to three per cent of data lists sold are pre-vetted.
Credit data what is it?
Put simply, pre-vetting data means checking a list of prospects against another list containing the credit-worthiness of different businesses and identifying those who are unlikely to pay their bills. It’s a process similar to that performed by credit controllers, but occurs at the beginning of the sales cycle rather than at the end. And that is really the point. But it’s a point which marketers don’t seem to have grasped. According to Experian, almost a quarter of B2B marketers do not feel accountable for the conversion of a sale, while 78 per cent give no consideration to assessing a prospect’s ability to pay for the products which marketers are trying to persuade them to buy.
Nick Frazer, head of B2B marketing at Experian, says, Sales visits can cost up to £250 and several visits may be necessary before conversion. Furthermore, removing businesses with a poor credit history can result in a 10-20 per cent reduction in mailing, production and fulfilment costs. Pre-vetting can also save a company the cost of credit reports. Marketing to a business with a good credit history costs the same as marketing to one with a bad credit history so it saves both time and resources to know which is which before you start.
Marketing and the finance department
So why don’t more marketers use the service? That only a tiny proportion of marketers do pre-vet their data is obvious from the comments of the various suppliers which offer the service. Cost is an obvious factor, but lack of understanding of the potential of credit data, not only among marketers but also among senior managers, is quoted as the main reason.
Marketers, understandably, are more concerned with getting customer response than reducing bad debt. They consider debt and payment the responsibility of the finance department. Bennett says, It is this meeting point of financial and marketing considerations which leads to credit data being used principally in the financial sectors; few marketers in other sectors fully grasp what pre-vetted data can do for them. Staff in many organisations compartmentalise their loyalties and consider that whatever is outside their department is not their problem. But this of course is not true. Staff benefit from ensuring the profitable operation of the company for which they work jobs are more secure, expansion is more likely and promotion more possible.
Small businesses understand the importance of reducing bad debt much more easily than their larger peers as they are much more directly affected by the problem. If a bill is not paid in a multi-national corporation it appears in the accounts but few people directly feel the pain. If a bill is not paid in a small business there may be no cash to pay the staff. Frazer comments, A small business on a five per cent profit margin with a bad debt of £10,000 would have to generate an extra £200,000 of sales to recoup the loss. The cost of generating all those additional sales is astronomical when compared to the relatively low cost of avoiding the situation in the first place.
The blinkered approach
Even those marketers who do grasp the importance of credit data are often constrained in its use by the inflexibility of their company’s departmental structures. Traditionally, marketing is responsible for generating high volumes of prospects for sales to pursue. Typically, pre-vetting identifies and/or removes about 15 per cent of names from selected data; at most it would probably be about one in four. Marketers using credit data could therefore appear to be less efficient, i.e. fewer prospects, rather than more efficient and more likelihood of money coming in. The entire culture of a company may need to be changed before the use of credit data is generally understood and accepted.
The businesses using credit data effectively are reshaping their core processes to establish balance across marketing, sales and finance: they are developing strategies for profitable growth, says Roger Hodson, marketing director of D&B. He adds, Where businesses are united behind the goal of maximising profitable growth and set expectations accordingly, then using credit data early on in the lead development process is proving highly effective.
Cost of credit data
The limitations of departmental budgets are another factor in marketers’ avoidance of pre-vetting. Superficially, credit data appears expensive. According to John Lord, group sales and marketing director at LBM, Each B2B market record costs perhaps 13p to 18p. Once postage is added, each record probably incurs a cost of £1 to £1.50 each time marketers make contact. Pre-vetting might add 25p to that, making it £1.25 to £1.75.
The cost of using credit data comes out of the marketing department’s budget, but later savings on bad debts don’t necessarily appear as savings attributed to the marketing department. Marketers considering their department’s success rather than their company’s profitability may be reluctant to commit resources from the marketing budget to something where the advantages take time to become apparent and then may be attributed to another department. Agencies comment that where marketers are expected to demonstrate ROI for their activities, the importance of pre-vetting is recognised and credit data more frequently used.
Small businesses usually have only an embryonic departmental structure and various employees often share roles which are separated in larger concerns. As a result SMEs retain the flexibility to recognise the importance of using credit data.
Adding value
Even marketers who use credit data often fail to exploit its subtleties. Pre-vetting identifies businesses with a high-risk factor. However, once such businesses have been identified it doesn’t follow that marketers should automatically exclude them from targeted communications.
Lord explains, When it comes to paying bills, failure and delinquency are not the same. Being unable to pay is not the same as being unwilling to pay. Businesses likely to fail are not prospective customers; businesses known to default on payment may be prospective customers, but are much riskier prospects. Hodson agrees, saying, Marketers can tailor their offerings based on the level of risk that each prospect or customer represents. Just because a prospect presents a higher risk doesn’t mean you don’t want their business, but you do want to conduct it on terms that offer you the greatest protection. This keeps sales teams happy as it means sales people can still work from a long prospect list, and the finance department is content that risk is being effectively managed.
Education, education, education
Given the reasons why marketers are reluctant to use credit data lack of appreciation of the possibilities offered by pre-vetting, its cost and their company’s internal organisation an increase in pre-vetting seems unlikely. Legislation might change that. Bennett says, If, for example, EU/UK legislation makes it illegal to sell something to someone who is unlikely to afford it, or perhaps legislation is passed to help SMEs by insisting that buyers must pay their bills within 30 days, then pre-vetting data will become essential for many marketers. This could happen within the next five to ten years.
Pre-vetting is growing slowly, but agencies claim that marketers still need more education. Even senior management sometimes fail to understand how much impact reducing bad debt can have on the profitability of their business, but everyone can understand that it makes no sense to send marketing information to people who can’t pay.
Credit data provides marketers with fundamental information about how their prospects’ business works (or doesn’t). Bennett says, Taking everything into account, pre-vetted data can increase the profitability of the company by at least 20 per cent. Anything which does that should be considered seriously.
