Size doesn’t matter

When it comes to direct marketing, entrepreneurs may be better off than the big guys…

I have a friend who runs his own editing studio. He has three or four regular clients, and a whole lot of ‘one-off-ers’, who land up at the studio once in a while

His clients include advertising agencies, and references play an important role in getting new business. These depend as much on his long-standing relationships as they do on whether the client’s last experience at his studio was delightful, good, so-so or… horrible.

Recently, he asked me, “Raj, can I use direct marketing to grow my business? More important, can I increase business from my regular customers? Isn’t my business too small for direct marketing?”

His question set me thinking about thousands of SOHOs and SMEs who are in similar positions. There are two typical characteristics of such companies: (a) the owner is the nucleus of the business, and is often more important than his entire team; and (b) a handful of regular clients not only ensure his bread and butter but also determine his cash flows.

Here’s my view on how most of these businesses can use direct marketing effectively

3 simple steps

Direct Marketing is a process, a way of doing business. It’s an interactive system of marketing, where information and activity details are stored in a database. Meaning the information is formatted and can be easily retrieved and used. For example, you can easily find out which ones among your customers bought your product for three consecutive business cycles and increased their purchase quantity on each occasion.

For a small business, direct marketing involves three simple steps, which require little financial investment and can be easily done in-house. These are:

1. Storing sales and customer information in a proper format

2. Using this information to identify your key customers, and then

3. Putting into action a plan for getting closer to them.

How to select your VVIPs?

The first step is to store your sales data in form of invoices, with each invoice linked to a customer name. Using this information, you can precisely identify your key customers

Sort invoices by customer, then calculate each customer’s average invoice amount, and the customers in descending order of averages.

Prepare another table, where you rank customers by the number of invoices over the past 12 months. You now have two lists of your customer, one where they are listed by the average value of purchase and another by the number of such purchases

Now split each of the two lists. In the first list, set apart the customers whose average transaction values are higher than the overall average. In the second list, separate out those who have had more transactions than average.

Club the two new lists, remove duplicates, and you now have a list of core customers. Let’s call them your VVIPs.

Try and find as much as possible about them. Delve into their purchase history – when did they become your customers, what’s been their purchase behavior, how satisfied are they with your product or service, who else do they source these products from, what fraction of their total requirement is being met by you, what are the terms others offer, and if your competitor accounts for larger share, why do they prefer your competitor over you?

There are several easy ways of collecting this data, like face-to-face discussion (most of your customers will be actually eager to share their views) noting down your or your employees’ observations, tele call, satisfaction surveys, complaint records, and so forth.

Here small businesses have an enormous advantage over big ones here, because the owner knows the majority of clients personally, and deals with them on a day-to-day basis . This helps in three ways:

1. Clients know that their feedback will go to the top man, and things will get done… unlike in big companies, where the feedback is often stowed away in some marketing department file. So they are more likely to talk.

2. Predicting a client’s future worth is, at best, an imperfect science. Judgment and experience, which the entrepreneur has in plenty, can be worth a great deal more than raw data.

Once you have this information, you’ll have a fairly clear idea of (a) who your most important customers are, (b) which of them are likely to be important in future, and (c) why? Even more important, it will help realize your strengths and weaknesses. (Critical: please continue to do this exercise every year)

What do you do for your VVIPs?

Now take the list of your VVIPs and add up the total revenue they contribute to your business. (You’ll discover Pareto’s principle – they contribute close to 80% of your revenue). Take a small percentage of that revenue – 0.5% to 2% – and plough it into strengthening your relationship with each of them, through their key personnel.

I don’t mean lunches, dinners and Diwali gifts. I know you’re already taking care of these things. I mean the things that will make them feel you are committed to their business and its growth. Extra service, better quality checks on their assignment, deploying your best people to service them, mailing them articles and information they’d find useful, inviting their key personnel to visit your office and get to know your processes and people.

If entrepreneurs take these steps, and you’ll reach levels of customer delight that most big businesses can never hope to attain, in spite their high-priced software and highfaluting consultants. You’ll also discover the truth in the following quote: “Take care of your key customers and they’ll take care of your business”.

(Also published in Business Standard in 2001)