Asset Finance Company Marketing to SMEs Survey Results

1
Asset Finance Company Marketing to SMEsSurvey
Results

• Peter Hunt
• January 2006

2
Background

• The following slides are the results of a survey
  of asset finance companies to establish their
  current practice in marketing to SMEs, and their
  views on its effectiveness.
• The survey was web-based. There were 16
  respondents which provides a useful benchmark of
  current practices. All respondents who recorded
  their business titles were either Managing,
  Marketing or Sales Director, or Marketing
  Manager.
• Representing 99 of all businesses in the UK (1)
  , the small and medium sized enterprise (SME)
  sector is an important source of business for
  asset finance companies.
• Invigors is a specialist, independent consulting
  firm focusing on the asset finance sector, with
  relevant expertise in marketing to SMEs.
• We can also undertake more formal benchmarking
  exercises, with a defined group of companies.

• 4.1m companies, based on DTI SME definitions.
  Definitions vary between DTI, Companies Act and
  European Commission a synopsis of SME
  definitions and various SME demographics is
  available from Invigors, upon request.

3
Summary of findings opportunities for marketers

• There appear to be marketing-led opportunities
  for asset finance companies who are able to find
  new ways to market to SMEs.
• No respondents believed their marketing highly
  effective or better than competitors
• Similar approaches to differentiation were used
• Similar segmentation techniques were used
• Over half of respondents believed that their
  companys sales to SMEs could be increased by
• Improved marketing
• More analytical marketing
• A wider range of financial services
• Changing the way the company did business.
• Improvements appear possible across planning,
  contact management and measurement. Analytical
  and measurement disciplines appear to be an area
  of particular weakness.

4
Summary of findings multi-channel marketing

• Intermediaries are heavily used by asset finance
  companies targeting the SME market, most notably
  equipment vendors and resellers. This may change
  the focus and nature of asset finance marketing,
  but not its importance.
• Telephone based activity appears to be the
  dominant means of contact with SMEs. Web-based
  marketing looks set to grow over the next two
  years. Promotional activity may provide
  opportunities for sales growth.
• There appears little difference in the focus
  between new and existing customers, despite
  potentially higher profitability and sales
  efficiencies associated with repeat business from
  existing customers.
• There appears no relationship between the extent
  of use of intermediaries and the targeting of
  existing customers for repeat business. Where
  these occur in parallel, there may be potential
  for channel conflict with the intermediaries.
• On average, asset finance companies have 7 points
  of contact with each SME customer each year.
  There appears to be significant potential to
  re-engineer customer contact processes to
  generate additional sales opportunities.
• Government grants or subsidies are not being
  leveraged by asset finance companies targeting
  the SME sector. Recent changes to the Small
  Firms Loan Guarantee scheme may provide increased
  opportunities in this area.

5
How asset finance firms look to differentiate
from competitors

• Most asset finance companies seek to
  differentiate by service quality and quality of
  sales staff.
• Other elements of the mix were much less used,
  suggesting that customers may often be faced with
  several, similar (undifferentiated) offerings.
  This would lead to increased importance upon
• Customer access (routes to market)
• Low interest rates (and as a result, lower
  profitability)
• Awareness of competitors is low (see slide 15),
  indicating that differentiation is not well
  planned or executed.

6
Remote contact strategies dominate for the SME
market

• Telephonebased activity appears to be the
  dominant means of contact with SMEs
• Most respondents were either heavy or moderate
  users of telesales.
• Low levels of promotional activity suggests this
  contact is either general in nature, or driven by
  policy events e.g. end of lease, refresh etc
• Web-based marketing appears to be growing, as the
  most frequently cited area of increased activity
  in the next 2 years
• Face-to-face sales activities were used less
  often
• Cost-effectiveness of current direct sales
  activity may be a challenge
• However, distribution channels were used that
  still provided face-to-face contact with end
  customers (see slide 7)
• Promotional activity may present an opportunity
  for sales differentiation, especially where
  finance delivery is otherwise commoditised

No use
Heavy use
Moderate use
Light use
7
Multiple routes to market are used

• Almost 90 of respondents targeted equipment
  vendors as a means of generating SME business and
  almost half used brokers (1).
• This may be a reason why marketing to SMEs is
  less well developed
• Marketing to and through these intermediaries
  should assume increased importance
• Other routes to market were employed
• Two-thirds of respondents used local business
  networks.
• A minority of respondents also used complimentary
  professional services businesses.
• These approaches are likely to reflect the
  locally limited geographical scope and local
  loyalty of many SMEs.

(1) In terms of the structure of market
distribution, this figure is under-represented as
some respondents were finance brokers
8
There is limited variation in terms of
segmentation approaches

• The main criteria for segmenting SMEs is by
  industry sector (78 of respondents)
• One third of respondents did not segment by
  company size and 11 treated all SMEs equally,
  despite the significant size (and related
  behavioural) differences that exist within the
  SME category
• Almost a quarter carried out specific
  segmentation by customer profitability, plus
  almost half by credit quality, suggesting strong
  database use of financial metrics
• No lessor carried out behavioural segmentation,
  which may provide opportunities for
  differentiation
• For example, a valid segmentation of growth v
  stable businesses should be possible through data
  mining

9
Targeting of new and existing customers, and
intermediaries

• Most companies target new and existing customers,
  and intermediaries
• Intermediaries appear to be targeted most
  heavily this may be where greatest
  differentiation is required
• There appears little difference in the efforts
  applied to targeting new or existing customers,
  despite potentially higher sales efficiency (and
  profitability) in targeting existing customers
• Other factors may be limited frequency of SME
  asset investments required growth necessitating
  new customer acquisition or an emphasis within
  the sales function on new customers
• There appears no relationship between respondents
  using intermediaries and the level of targeting
  existing customers
• There is potential for channel conflict, unless
  the approach to repeat business is agreed with
  the intermediary

10
Using contact points to generate sales
opportunities

• On average, asset finance companies have 7
  contacts with their SME customers each year.
• The level to which these contacts were used to
  generate sales opportunities varies significantly
• E.g. one company that had at least 12 customer
  contacts per annum used only quarter of these to
  create new opportunities
• As a result, there appears to be significant
  potential to re-engineer customer contact
  processes to generate additional sales
  opportunities with existing customers.
• Done well, this is likely to be a low cost means
  of improving performance

11
Government grants arent being leveraged by
leasing companies to encourage investment

• Two thirds of respondents never used any form
  of grant support to make financing to SMEs more
  attractive.
• There may be a number of reasons for this,
  including-
• Bureaucracy e.g. DTI involvement in approval of
  all Small Firms Loan Guarantee transactions (now
  changing) (1)
• Low awareness within asset finance companies
• Insufficient volumes of niche funding to justify
  search and application processes
• Quality and/or applicability of the government
  support
• Recently introduced changes to the Small Firms
  Loan Guarantee Scheme (1) may encourage its
  increased use by asset finance companies

(1) For more information http//www.sbs.gov.uk
12
Is marketing being used effectively?

• Less than half of respondents believe their
  marketing to be effective. None believed it was
  highly effective, or better than competitors
• Asset finance marketing to SMEs does not appear
  to be highly tuned to their specific needs
• Assuming improvement is possible, marketing-led
  opportunities will exist that will generate
  growth and competitive advantage.

13
Marketing-driven developments can increase sales

• Respondents confirmed a number of ways in which
  they could increase sales to SMEs
• Two thirds believed improved marketing would
  increase sales
• Over 50 believed extending the product range
  would increase sales
• Over 50 believed more analytical marketing would
  increase sales
• This indicates significant marketing-driven
  opportunity to achieve competitive advantage and
  business growth for asset finance companies
  targeting this market
• However, it also suggests a failure amongst
  marketing practitioners to create an effective
  business case to realise this opportunity.

14
Limited use of marketing analytics

• In general, marketing analytics are not heavily
  used in the SME market
• This is likely to contrast sharply with consumer
  finance companies operating in the micro-business
  and SOHO segments
• Market research appears to be used heavily by a
  small number of companies, and little by other
  respondents
• This may increase insight amongst a few companies
  to drive competitive advantage

15
There is potential to improve planning, contact
management and measurement
How much does your company .? (overall
responses)
Have clear marketing objectives for the SME
market Have a clear marketing plan for the SME
market Communicate internally for consistent
marketing and sales Match sales distribution to
SME population distribution Combine segmentation
and risk based pricing to maximise returns Have
well-established processes to generate repeat
business Modify marketing communications to
specific SME segments Use every customer
touch-point as an opportunity to generate sales
leads Use market research to test sales and
marketing propositions before launch Measure
marketing activity to improve future
performance Measure customer satisfaction across
multiple touch points to improve business
performance Monitor competitor performance to
retain a competitive advantage
Planning
Contact mgmt
Measurement
Fully
Not at all
1 2 3
4 5
16
There is potential to improve planning, contact
management and measurement areas for development

• Overall low / medium responses suggest that there
  are many areas in which marketing improvement can
  be realised
• Prioritisation will be required based on
  definable business benefit
• Contact management appears to be more developed
  than planning or measurement
• As no respondents used contact management a lot
  (see slide 14) there may still be room for
  improvement
• Analytics and measurement appear to be an area of
  particular weakness
• Despite relatively high levels of direct
  marketing (multiple approaches, see slide 6),
  asset finance companies appear to be poor at
  measuring marketing activity with the result
  that marketing ROI will not be optimised.
• Limited matching of sales distribution to the SME
  population distribution suggests local over- or
  under-sales representation, with consequent loss
  of sales effectiveness
• Low levels of competitor monitoring will limit
  the effective development of differentiated brand
  positioning and new sales initiatives and make
  response to competitor action slow
• Low use of market research to test new sales and
  marketing propositions before launch indicates
  either limited innovation and differentiation, or
  significant commercial risks in terms of securing
  forecast new business growth

17
Other challenges and improvements identified by
respondents
Main challenges facing companies marketing to
SMEs were
Main improvements respondents wanted to see in
their companys marketing to SMEs were

• Customer ownership for repeat business
• Ownership conflict for customers generated by
  brokers / intermediaries
• Minimum ticket size
• Ability to fund smaller SME transactions
• Technology values reducing
• Resourcing
• To design, implement and monitor marketing plans

• Increased contact and communications with SMEs
  in particular face to face, seminars and business
  meetings, direct mail, advertising and
  promotions.
• Development of an effective and sustained
  strategy covering SMEs and other customer groups
• Increased resourcing

18
About Invigors

• Specialist, independent consulting firm focusing
  on the asset finance sector
• High performance team with complimentary skill
  sets
• Pro-active, hands-on approach, delivery focus
• Tailored solutions, flexible resourcing and
  billing to fit client needs
• Relevant areas of expertise
• Marketing planning and management
• Marketing analytics, profitability analysis,
  segmentation, CRM and database marketing
• Market research, intelligence, analysis and
  benchmarking
• Project management (marketing projects and
  cross-functional process re-engineering)
• Market entry and new product development
• Technical leasing, tax and accounting support
• Sales acceleration, sales management, coaching
  and training
• General management and issue resolution

19
Client endorsements
As our aim is to work as partners that our
clients can rely on, time after time, we make
sure we understand your business requirements and
focus on delivering tangible business benefit.
This is what our clients say

• Invigors gave us a new business model to
  increase sales, improve margins and give us
  greater differentiation .. I would recommend
  Invigors to any company reviewing its use of
  vendor finance
  Marketing Director, global manufacturer
• Invigors over-exceeded. They have confirmed my
  faith in consultants
• Business
  Development Director, UK leasing company
• Strong problem-solving skills very bright .
  considerable vision, drive and energy
• European Managing Director, global leasing
  company
• Astute, resourceful and extremely reliable,
  thoroughly recommended
• Managing Director, operating lease arranger
• "Service was excellent and the project 'did what
  it said on the tin' - you can't ask for more than
  that."
  European Managing Director, bank-owned leasing
  company

20
Contact information

• For more information about this report or
  services available through Invigors, please
  contact
• Peter Hunt
• Partner
• Invigors LLP
• Antrobus House
• 18 College St
• Petersfield
• Hampshire GU31 4AD
• England
• peter.hunt_at_invigors.com
• T 44 (0)845 003 1000
• M 44 (0)7952-118236
• www.invigors.com