Of the 4.3 million businesses in the UK, approximately 3.7 million fall into the category of small or medium-sized. This means that 86 per cent of potential business customers are SMEs. Historically, marketers have tended to target larger companies with greater spending power, but perhaps it’s time to look at the huge, and largely untapped, potential in smaller businesses.
Data is key to marketing, and quality data on SMEs is difficult both to obtain and maintain. Part of the problem is that the term ‘SME’ is a very loose one. Does the company have less than 250 employees? Less than 50 employees? Less than five? And within the SME category is included limited companies, non-limited companies, sole traders and people working from home offices. Simon Lawrence, CEO at Information Arts, says, We believe that most SMEs are self-employed people, partnerships and one-man-bands, some below the radar of VAT. As marketers know, business data decays very quickly and SMEs are far more volatile than larger companies. Businesses seeking to market to SMEs therefore have to work harder to get useful data for their campaigns.
Sources of SME data
For data on limited companies of whatever size, most data holders have the same source: Companies House. However, as SMEs need to only file abbreviated accounts, there is less published information from which to gather data and draw conclusions about the company. In addition, many companies registered at Companies House are dormant and therefore not appropriate recipients for marketing. Nick Frazer, director of B2B marketing at Experian, says, The number of limited companies available for marketing purposes is only about 350,000 to 400,000. There are far more non-limited companies upwards of 1.45 million.
A major source of small business data is the BT Directory Enquiries system – Operator Services Information System (OSIS), which is a database of all telephone line connections. Business data collected from the record of telephone line connections is then licensed by Thomson and Yell for the purposes of publishing directories; they in turn sub-license to the DM industry.
Directories, as well as listing business numbers, are also a major source of advertising for small businesses. Lawrence at Information Arts explains, Thomson is the main wholesale source of data on SMEs, so most of the data used by most data businesses is ultimately derived from Thomsons. And because it has an extensive telephone research programme funded by its directory business, the data is reasonably robust.
Whenever an application is made for a telephone line, the applicant has to choose whether to subscribe as a business or a private consumer. Very small businesses and the self-employed often register as private customers as the subscription is cheaper. The details of many small businesses can therefore escape the net of data gatherers and so be unavailable to marketers.
Much information about very small companies is gleaned from phone interviews, says Frazer at Experian. It can yield contact details, such as name, address, phone number and email and also number of employees, sector and turnover. Companies are willing to part with the information to ensure that marketing lists are accurate; they want to make sure they avoid receiving marketing information from businesses in whose products or services they have no interest.
Marketers seeking to target SMEs should question potential data providers about their sources of information, what sizes of business the data covers, how and how often the data is updated and by what means. A good measure of whether the data provider updates its data constantly is to ask what the goneaway rate is, and whether the company offers reimbursement for goneaways.
Different types of SME data
Two types of data are useful to marketers wanting to target SMEs, says Matt Hall, senior account director at direct marketing agency TDA. Horizontal data provides generic information across a broader spectrum, while vertical data is a slice through the B2B market according to sector. Horizontal data might start with information from Companies House and augmented by other lists such as Yellow Pages. Such data provides a broad perspective, but lacks information on the roles of individuals beyond the most senior posts. Vertical data can be obtained by purchasing the subscription lists of specialist magazines, providing more information about individuals. The disadvantage is that vertical information covers only a narrow specialism.
Small businesses tend to have much smaller capital reserves than their larger counterparts very small businesses may have none at all so there is a statistically greater likelihood of bad debts when selling to SMEs.
Obtaining SME data in quantity is difficult, so data holders use modelling and a scoring procedure derived from the characteristics of similar larger businesses to extrapolate the likely appearance of small businesses in particular sectors. Reputable data providers include an accuracy score with their data records to give an indication of how accurate their conclusions and therefore their records are.
Lee Waite, director at agency Flamethrower, comments, SME data records are usually checked only about every 18 months and are therefore less accurate although that’s changing now. Marketers should extract data using the flags denoting when the record was last verified and specify that only records checked for in the last six months may be used.
Enhancing B2B with B2C
One of the more subtle ways of identifying suitable marketing targets is to draw on personal and lifestyle information contained within B2C databases and to blend it with business data on decision makers within each SME. In small companies, individuals usually cover more than one function and as Waite at Flamethrower explains, An individual may be the finance director, but also a single mother with a small child, or a young entrepreneur who has just taken up golf. The same approach won’t be suitable for both.
The personalisation of data allows marketers to get much closer to the character of the individuals they’re targeting, group them into similar types and shape the marketing message in such a way as to appeal to each type. As Philip Shuldham-Legh, MD at The Listening Company Consulting, says, The buying decisions of a small business are more aligned with a consumer than a commercial operation, with more emphasis placed on personal tastes and preferences.
Consumer information can also provide a key to how well a small business is doing. The relative wealth of individual consumers, as displayed by their purchasing habits for example, can indicate whether the small business run by, or employing, such individuals is static, growing or declining.
Creative marketing to SMEs is only effective once marketers have good quality data. Marketers can for example, consider the businesses which are their best customers now, assess what they were like when they were SMEs and use the information to predict which small businesses are likely to grow into their best customers in the future. As Waite at Flamethrower says, Marketers that have good customer relations with a company when it is small have a very good chance of retaining the business when the company grows and its spending power increases.
A growing trend
Marketing to SMEs is undoubtedly a growth area. Data providers concentrate more of their resources on gathering and maintaining accurate information about small businesses, while marketers are beginning to explore the creative possibilities of such data.
As Dione Rayside, sales director at Conduit, says, There is plenty of data on SMEs locked up in databases that are not being properly exploited. The techniques for modelling segmentation grouping, for example, already exist, but are underused.
Digital printing is likely to help with creative marketing to SMEs as will accurate email targeting since it appears likely that stricter controls and B2B email may be in the pipeline, in the same way as the CTPS (Corporate Telephone Preference Service) followed consumer TPS.
Digital printing, although expensive, can provide clever personalisation of marketing pieces. Marketing information can then be tailored to individual companies with linked marketing messages directed to different offices holders. Targeting will then become more precise with different mailers and personalised offers becoming the norm.
B2B marketers already know the potential profit that can be made from SMEs, but are only now working to realise it. Hall at TDA says, Businesses marketing to SMEs should make sure that they understand the data and then develop creative propositions that don’t address the database as a whole. Different businesses and different roles within businesses have different requirements and will buy on a different basis. Nobody claims that marketing to SMEs is easy, but the potential profits can be huge.