The Midmarket Elephants Who Never Forget

6 April 2004—Last month’s CeBIT show underscored the emphasis that service firms are placing on the midmarket as a source of growth this year. With SAP, Microsoft, and other leading firms’ booths dedicated to the needs of midmarket buyers, it is clear that marketing investment in capturing and keeping these clients is on the rise.

It makes perfect sense: The midmarket in Europe represents one of the key areas of growing demand for technology-based services in the short term. But marketing and selling effectively to midmarket firms may require important changes in the way enterprise-oriented services organizations do business.

A recent ITSMA roundtable in Frankfurt, Germany, hosted by BearingPoint, highlighted some of the challenges of reaching the midmarket (defined here as firms in the €25–250 million range).

Compared with larger enterprises, firms in the midmarket often share characteristics that services marketers need to take into account, including:

- A much higher proportion of private and owner-managed firms
- A much closer relationship of business leaders to their employees and to
  the daily operations of the firm
- A stronger role of business leaders in IT buying decisions (although that is
  certainly growing in larger enterprises as well)
- Greater pride within many firms in the success of the business

But there is one characteristic of many midmarket firms that is especially important and could threaten the chances of all but the most committed suppliers. With so many midmarket firms in private and often family control, they inevitably take a longer-term view than their publicly listed counterparts. They also experience lower employee turnover than public companies because the latter form the breeding ground for those job-hopping their way to the top. These two facts add up to a longer institutional memory than is common in the large enterprise sector.

Why should this matter? Well, about 10 years ago, many IT services companies decided that the midmarket represented a significant opportunity for them. They worked hard to develop new business when all of a sudden their larger clients discovered e-commerce and the year 2000. The focus quickly shifted to more lucrative deals in the enterprise sector—leaving some of the midmarket customers high and dry.

The problem now is that, like elephants, those customers do not forget. As suppliers again turn to the midmarket in 2004, they are meeting even higher levels of skepticism and resistance than they are seeing in their larger clients.

Participants at the ITSMA roundtable suggested that companies looking to grow in the midmarket face four major challenges:

• Adapt both business models and services/solutions to ensure appropriate offers and capabilities.
• Target the right customers from the many thousands across different industries.
• Build a credible and relevant brand for midmarket buyers.
• Work on a sufficiently local level to create a serious alternative to existing local firms.

Roundtable participants also cited several important lessons from recent experience:

• Demonstrate your commitment to potential buyers. It still appears that many suppliers are just dipping their toes in the water and addressing this market in the short term because they have to. Such half-hearted efforts won't work. To really succeed, you need to invest in knowing your targets’ business just as you do for your larger clients.

• Be clear about which types of customers you do and do not want to engage. Prioritizing prospects by industry is important, but other types of segmentation are also important. For example, several suppliers are focusing mainly on the most ambitious or rapidly growing firms within different industries and are positioning themselves as the right suppliers for companies determined to grow rapidly. But not all midmarket firms want to become large enterprises; many are comfortable remaining "lifestyle" businesses that will never be sold or reach dizzying global heights.

• Getting the attention of buyers in midmarket firms relies heavily on issue-led communications and influencer relations—particularly with local influencers such as business associations or other local suppliers such as banks. Demonstrating success with other midmarket firms is especially useful because it will encourage the peer referrals on which these buyers rely. A local sales presence is also necessary for converting interest into deals, and good salespeople will understand and empathize with the issues of running a midsize company.

Finally, the overriding question is how best to profit in the midmarket. The answer may lead you to change your business model for these buyers by establishing a new subsidiary or new teams within your existing business, using cheaper channels such as the phone or Web for service, and/or by working through partners. Offers may need to be more modular or packaged in a way that represents clear, sustainable value for you, your buyers, and your partners. On-demand services are a great example of this strategy.

Interestingly, the general priorities for working effectively with enterprise buyers in Europe are not that different. ITSMA's top issues for 2004—strategic thinking, differentiation, personalized communications, effective partnerships, and clear ROI—could have been written with the midmarket in mind. But the execution will be different. As marketers, we need to adapt each of these approaches for our midmarket buyers. More than anything else, we need to remember that those buyers will be slow to forget.

—Bev Burgess, info@itsma.com

Special thanks to all participants in ITSMA's Marketing to the Midmarket roundtable discussion in Frankfurt on March 25. To learn more about how marketers are tackling their top priorities for 2004, join ITSMA at our Annual European Forum, May 18–19, in London.

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About ITSMA
ITSMA specializes in helping companies market and sell services and solutions more effectively. As a membership organization, we provide research, consulting, and training to the world's leading technology, communications, and professional services providers to generate increased demand, strengthen customer relationships, and improve brand differentiation. ITSMA is based near Boston, and has offices in London and Tokyo. Learn more at www.itsma.com.