What do marketers want from their customer relationship management service vendors — limited, but best-of-breed offerings, or one-stop shops?
To a certain extent, the service provider industry is “voting with its feet” on this question. According to Petsky Prunier LLC, a New York-based investment banking firm that tracks merger and acquisition activity, there were more CRM deals struck during the first half of 2003 (16) than within any other marketing sector.
The total value of the deals was $2.2 billion, topped only by the nine deals made by interactive service marketers that were valued at $5.2 billion.
But are these deals indicative of a widening base of competencies within individual firms? One trend Petsky Prunier has observed is that direct marketing service providers are organizing their expertise into either production-centric or data-centric silos.
Production-centric services include those capital intensive, manufacturing-like activities such as printing, fulfillment and lettershop operations. They rely on cost management and scale of operations to generate their profits, and tend to be lower-margin operations.
Data-centric services include data analytics, consulting and creative capabilities. Unlike production services, which tend to be commodities, these rely more on proprietary knowledge as part of their value propositions and can apply premium, or at least more elastic, pricing structures.
When data-centric and production-centric firms link up, they bill themselves as “full-service” providers. According to Petsky Prunier, services that feed into each other in a progressive, step-by-step fashion are often complementary, and support a full-service model. But the investment bank cautions, at a certain point the full-service model breaks down.
While direct mail marketers rely on both sets of services, according to Petsky Prunier “there is neither the market demand nor business model rationale for direct marketing service providers to offer both sets of services.”
In fact, the desire for best-of-breed services is often the mark of a more sophisticated direct marketing operation. According to Petsky Prunier, both individual firms and industries first looking into direct marketing are attracted to one-stop shops, which in turn rise to meet their particular needs.
Petsky Prunier recommends that vendors considering mergers ask themselves several key questions, including: What services do my clients currently buy from others that we could be providing? What services provide greater margins than my core offerings? What is my competition offering to my clients that could woo away their business?
