B-to-B Special Report: Put the Direct Back Into Direct Mail With Credit Scores
Big corporations might get the lion’s share of business headlines, but the truth is that business in America mostly means small business. Two-thirds of the nation’s new jobs and 40 percent of the U.S. gross domestic product are created by small businesses. Nearly all companies nationwide—99 percent—have fewer than 500 employees, government and industry figures show.
That’s why any company planning a large-scale, sophisticated effort to seek out potential B-to-B customers will go where the action is: small- to mid-size businesses. They add up to a huge market for credit card companies offering professional cards, insurance firms rounding out commercial portfolios, office furniture outlets selling desks—for just about anything. Targeting small businesses, however, comes with significant risks along with opportunities. This is a roiling world of new ventures, heady expansions and more than a few crash-and-burn failures.
How, then, do you build a better direct mail campaign? These days, smart marketers are turbo charging their lists by folding creditworthiness data into the mix, creating a powerful tool that puts the “direct” back into direct mail. An overlay of credit data helps you zero in on the best customers, build on existing relationships and avoid making sales pitches to businesses on shaky financial ground.
Credit Scores and the Direct Mail Process
More than a half-million new businesses start up each year. In 2003, about 572,900 new enterprises made their debut. Trouble is, roughly the same number of small businesses fail every year. According to the Small Business Administration, approximately 554,000 firms failed in 2003. Millions more struggle with derogatory legal processes such as bankruptcies or liens at any given moment. And, in contrast to the relative transparency of publicly owned companies, reliable information about small businesses is hard to come by. That’s a significant issue when trying to ascertain whether a firm is likely to pay its bills on time or if warning signs portend significant trouble ahead.
By segmenting a direct mail list with commercial credit scores, marketers can spot the Ford Mustangs among companies while avoiding the Edsels. The most obvious advantage of using commercial credit scores on the front end of a marketing effort is to weed out bad risks.
Say a direct mail campaign targeted to 100,000 flower shops costs 75 cents per piece, or $75,000 total. Assuming a 4-percent response rate, the marketing company’s credit department will need to pull 4,000 full credit reports at roughly $20 each, or $80,000 altogether. Additionally, it costs $10 to process the 4,000 applications for another $40,000. All told, the total campaign cost is $195,000.
Using the same model, let’s apply automated credit scores, which take into account hundreds of factors, including signs of distress such as late payments, liens or bankruptcy proceedings.
First, a credit risk score is applied to the same starting list of 100,000 at, say, 12 cents per record, for a cost of $12,000. Based on the score, high-risk prospects are cut from the list, and only 80,000 pieces go out for a total of $60,000—a savings of $15,000.
But there’s more. By reducing the higher-risk businesses up front in the marketing campaign, it also will save money on the back end by reducing the number of responses that need to be processed.
All told, using credit scores will save $27,000. The project’s total cost is now $168,000: $12,000 for credit scores, $60,000 for mailing and $64,000 to run full credit reports on 3,200 responders (4 percent of 80,000), and $32,000 to process the applications.
More Ways to Reduce Risk
Here’s another way to leverage commercial credit scores. An ever-present challenge for marketers is identifying small-business owners in their existing consumer customer base. Say a retail bank has a customer with a personal checking account. This person comes into the bank, goes to his ATM or logs on to the online banking site. A B-to-B marketing list might reveal that this customer happens to be a small-business owner, allowing the bank to cross-sell to him B-to-B products such as small-business loans, business checking or business credit cards.
But it’s possible the bank might be better off not offering any more services to this particular customer. The worst thing the bank could do is offer a current customer an additional product, receive a favorable response from the customer and after all that turn him down for the B-to-B product. That could negatively impact the existing relationship or even lead to losing the customer entirely. Commercial credit scores help avoid the counterproductive interaction before it begins.
While risk variables like bankruptcies, liens, current delinquency and judgments can be used to identify current/existing risks and suppress unwanted prospects, they do not help you avoid prospects likely to become a risk in the near future by becoming delinquent or filing for bankruptcy. Good risk models can predict the likelihood of potential hazards before you spend marketing dollars on acquisition.
Using Credit Data to Grow Your Business
Commercial credit elements can be used to target businesses that are expanding. For instance, the presence of numerous inquiries on a credit report typically is seen as a negative, indicating a desperate need for credit. Modeling can take into account other elements such as days beyond term, derogatory indicators and purchasing history. A firm with numerous inquiries but otherwise excellent credit and the right pattern of purchases may indicate a company on the move, taking on new commitments as part of a growth strategy.
Lastly, credit scores and other risk models can help you decide the most appropriate sales approach. For example, an office furniture store might send a direct mail piece to one segment offering furniture rentals, while offering another segment furniture for sale. Based on the business credit score, the seller gains insight into which businesses are likely to buy as opposed to rent.
In short, business credit scores and other B-to-B models allow you to get more bang for your direct mail buck.
Denise Hopkins is senior director of marketing at Experian Business Marketing Solutions; she can be reached at firstname.lastname@example.org. Kevin Akerman is a senior product marketing consultant at Experian Business Marketing Solutions; he can be reached at email@example.com.