RTM: My impression is that almost no one feels they have successfully targeted SMBs. Why do you think that is so?

RW: Most big companies have a misconception of what SMBs look like.  They think, for instance, that they are business people who make rational decisions.  I would argue that the vast majority behave more like consumers.  They are people who run businesses, not business people.  Most marketeers in large companies think that SMBs look like the models they use when they do a photo-shoot of small businesses.  They don’t.

RTM: How do you mean?

RW: My son is starting a car-valeting business and it is fascinating to go with him to see all the backstreet motor traders and tool shops he is targeting.  That is what SMBs look like.  They are guys who are trying to make a living.  And that is another important thing that most suppliers have yet to grasp.  These people are in business to make a living, not to build a business empire.  Their businesses are lifestyle support machines, which they are only interested in growing if they can retain control.

RTM: Which means they tend to be profoundly conservative?

RW: Often, yes.

RTM: What do you mean when you say they behave like consumers, rather than like business people?

RW: They often fail to invest time in making rational decisions.  For instance, I did some work for a mobile-phone company and we found that most SMBs simply selected the mobile-phone network the boss was using. 

The mentality was: "It’s good enough for the governor, so let’s just add a few more phones."  Often they didn’t even study the tariffs.  The choice of supplier doesn’t come under the heading of managing the business, but is more a by-product of having to do business.

“They are people who run businesses, not business people.”

RTM: Whilst a large corporate…

RW: ...would have technical and financial experts who would study the question and come up with a solution.

RTM: I guess the principal problem with SMBs is how to segment them.

RW: Yes.  Not only are they not an amorphous group, but they don’t congregate in one place or read a particular magazine or newspaper either.  So they are even less homogeneous and less easy to target than consumer groups, so reaching them is a matter of mass marketing. 

RTM: There is always direct marketing.

RW: Yes, but the lists simply don’t exist to enable companies to accurately target different segments of the market – unless you are looking at industry verticals.

RTM: So how do you segment SMBs?

RW: I think you have to do so by their buying behaviour as well as by their demographics.  Broadly speaking, the smaller the SMB, the less time it has, and the more it will behave like a consumer.  The bigger it is, the more rational its decision-making will become, or at least try to become.  But most SMBs are grouped round the bottom of the scale.  You can define SMBs as employing anywhere from one to 50 people.  But the vast majority will be self-employed sole traders or employers of one to three people.

For a mobile-phone company I segmented SMBs into eight groups by size and buying behaviour.  Basically, at the bottom you have the self-employed individual who behaves just like a consumer, and simply hasn’t got the time or inclination to seek out the best price or technology.  And then you go up from there with different people taking the decision at different sizes.

“It’s good enough for the governor, so let’s just add a few more phones.”

So you have companies that delegate decisions to employees who are felt to be knowledgeable.  "Oh, he has worked for an IT company, so he can specify the database."  Eventually, and this is probably on rung five or six, they bring in financial controllers who start basing decisions on financial grounds.  Later on, decisions are based on advice from technical experts and professional buyers.

RTM: So what kinds of messages are going to appeal to these groups?

RW: Well you don’t want to portray them as besuited business folk who are trying to build the next IBM…

RTM: What about advertising and media strategies?

RW: The first thing you have to realise is that you have a problem.  They are not homogeneous; they do not gather together and they are not alike.  So you can either bite off chunks, say, at a local level, or you can take the longer view and try to raise awareness more generally, and so get SMBs to self-select you.  But again this is an expensive mass-marketing approach. 

This self-selection process is the key, I think.  SMBs will actually respond to people who can help them solve their own problems.  If you can provide media marketing or channels, which enable them to identify you, or your intermediary, as a problem-solver, then you have won half the battle.

RTM: Let’s come back to that.  How do you reach SMBs with media?

RW: With great difficulty!  One issue is that the local press is 2.5 to 4 times more expensive (in cost-per-thousand terms) than the nationals in the UK.  Maybe Yellow Pages is the best starting place.  Or you could try advertising once a month in a national paper.

And the one medium that cuts across everything is the Internet.  It starts off feeling like a free call, until you start down it, and then you find the rules are exactly the same.  You have to spend a lot to keep yourself at the front of the queue.

RTM: In my experience, most large suppliers say they want to reach the growth companies, the SMBs that really want to develop.

RW: Yes.  But that is a bit like saying "I only want to reach companies who want to buy our product."  Advertising can’t do that – there is always wastage; your media efficiency depends on your ability to target accurately and then find the medium to match.  Media selection is always about finding the most efficient compromise. 

And in any case, the growth companies are a tiny fraction of the SMBs.  Direct marketing and research might enable you to identify growth companies, but all that effort will be far too expensive to pay off.  For example, it is easy to identify the top 20 magazine publishers and their growth rates.  Repeating that exercise for the top 500 would take forever.  It would simply not be worthwhile.

RTM: I suppose industry verticals is one approach.

“Local dealers just become passive takers of business.”

RW: Yes, but only if your product really will appeal to a specific vertical market.  At mobile-telephone network provider One 2 One we did identify different vertical markets for which we produced tailored offerings, and that worked.  And we treated the product magazines as another vertical market to aim for.  But the segmentation was as much to do with attitude types as anything else. 

RTM:  For me, channels are vital for SMBs.  I remember my own experience.  I went from buying the lowest-cost PC I could from the lowest-cost supplier.  It cost me thousands in wasted time.  Then we started buying from local dealers.  The first one was incapable of networking the PCs and so after four or five years we eventually discovered a dealer with the technical competence we needed.

But it took me that long to work out the real time costs of what looked like cheap solutions.  I also know that I was positively put off by the idea of buying brand names, as I considered them more expensive.  So brands didn’t work for me.

RW: Yes, they did.  You were simply buying the "local brand" and service.  Channels have a hugely important role in providing the sense of being a local brand.  It can make the brand relevant to you.

RTM: Yes, I was fascinated by Vodafone’s approach, which was to get its dealers together and unveil different tariffs and offerings.  Vodafone would then tell its dealers "we think that this solution will appeal to companies which have remote sales forces or who operate warehouses, etc."  And it would end by telling its dealers to identify the companies at local level who were in those industries.

RW:  What is really clever about that approach is that it puts the ball back in the dealer’s court.  It is up to the dealer (who knows the local market far better than Vodafone) to identify the target SMBs.  All too often, local dealers just become passive takers of business. 

This approach takes the weight off Vodafone and it also demonstrates that Vodafone does believe there is a strong role for local dealers.

But it will only work if Vodafone has genuinely got the best product for that particular group of SMBs.  In my experience, a lot of Vodafone tariffs are aimed at corporates, and the SMB ends up with an uprated consumer tariff.  If the Vodafone offering isn’t as good as Orange’s, the dealer will simply sell Orange – the dealer won’t spend ten minutes selling one brand against another.

One of the big advantages of working with a good dealer network is that the fastest- growing companies are precisely the ones that are most likely to work with local dealers, rather than trotting down to PC World or buying direct.

This is because they have worked out that local dealers will save them time, and they appreciate that time is an expensive and limited commodity.  In other words, one of the best ways of segmenting SMBs may be by the channel from which they choose to buy.

A founding member of Saatchi & Saatchi in 1970, Roy Warman went on to set up Warman & Bannister, a business-to-business advertising agency.  He now works as an independent consultant.