From the January/February 2010 issue of ISO&Agent.
Many marketing methods are available to ISOs and acquirers that want to reach merchants and sign new clients. Unfortunately for merchant-service providers, not all marketing tactics are equally effective at piquing merchants' interest.
"There are so many variables" present when creating marketing campaigns, including the type of communication, the message, the target audience and the timing of the effort, says Michael Mattos, president and CEO of enCards Inc., an Aliso Viejo, Calif.-based ISO. "I wish there was an instruction manual or some form that says 'This is proven,'" but many times it is "hit or miss," Mattos says.
One of the reasons marketing methods may be hit or miss for some ISOs is because merchants vary greatly in size, geographic location and business needs, says Philip J. Philliou, a partner at Philliou Selwanes Partners LLC, a New York-based consulting firm. Merchants "have different business problems, and cards solve different needs for different businesses," he says.
Finding cost-effective marketing methods that attract merchants can be difficult, which means ISOs should have a plan that distinguishes them from competitors'.
Merchants receive multiple solicitations from service providers each week, says Mattos. When talking with an agent, he says, a merchant often will say "You are the third person this week talking about card processing."
Though a marketing instruction manual may not exist for ISOs, companies can take steps to increase the effectiveness of their efforts. Avoiding generalized tactics in favor of targeted campaigns and gaining referrals from existing clients and retail associations are more likely to gain new accounts for merchant-service providers, some observers believe.
"Scattershot" Approach
ISOs that refuse to tailor their marketing to fit each merchant segment's needs may not see a return on their investments, note some observers. A general approach to marketing for ISOs seeking new clients is more likely to fail than would a campaign that targets specific merchant segments, they claim.
"A lot of ISOs fail, and they spend a lot of time and a lot of money in marketing that is ineffective," says Philliou. "Marketing that is generic, purely price-based and scattershot in approach is rarely successful."
Such marketing tactics solely work to create an overall market awareness of a business, but they do not help to acquire new accounts, notes Philliou. Instead of taking a general approach to marketing, ISOs should educate their sales staffs about specific merchant categories, such as health care, and target the categories with tailored marketing campaigns that address each segment's specific payment needs, he says.
Being a generalist ISO is difficult, agrees Jeff Marcous, president of Dharma Merchant Services, a San Francisco-based ISO. To be more successful with marketing, an ISO should "find a niche and find out where there are needs that are being unmet" within it, he recommends.
Dharma Merchant Services specializes in serving environmentally friendly and socially responsible companies, and to support its niche the ISO uses such "green" tactics as buying recycled paper and recycling waste in its office, says Marcous. "You just can't call yourself a green company and market yourself that way," he says. Adding environmentally friendly practices at the company helped to develop a network of businesses within Dharma's market niche with which to work.
Simply cold-calling merchants within a segment without developing an understanding of their business will lead to failure, agrees Philliou. "If you don't know their language, you will fail. You will lose the call and the prospect in the first five minutes," he says.
An ISO's conversation with a prospective client in a specific segment never should begin with price, says Philliou. Instead, it should begin with a topic important to that merchant. For health care, the conversation may be about how much in uncollectable funds the merchant experiences annually, he says.
ISOs should develop strategies for understanding and penetrating a merchant segment before approaching the market, says Philliou. "If you are an ISO that understands health care enough to at least connect with a health care provider, they often will recommend you to someone else," he says.
Recommendations Helpful
Recommendations to potential clients from existing ones and from retail associations often are the most effective type of marketing for an ISO, note observers. Indeed, referral recommendations from clients and retail associations account for roughly one-third of merchant acquisitions, says Adil Moussa, an analyst with Aite Group LLC, a Boston-based consulting firm.
Referrals are responsible for 29% of merchant acquisitions overall, with 19% of new accounts coming from association and value-added reseller referrals and 10% coming from other merchants, according to "Merchant Acquiring in 2010," an Aite report released in November. Aite surveyed 45 ISOs and acquirers between July and October for its report.
Referrals are very "powerful," says Marcous. Dharma Merchant Services tracks the leads that come into the company, and they mostly come from associations, merchant clients and other environmentally friendly groups, he says.
"The way we market ourselves is through relationships with different types of companies," says Marcous. "It's never a direct result of us going through some marketing thing." Dharma spends little on marketing because most of its efforts are referral-based, and the only funds Dharma spends on marketing involve membership in associations and trade show booths, he adds.
Similarly, enCards has "dabbled in many types of marketing techniques" but achieved unreliable results with most methods, says Mattos. Most of the ISO's business comes from referrals. Because of this, enCards is deliberate in providing customer support and asking for referrals, he says.
ISOs should be aware of their reputations because of the effect positive referrals can have in gaining additional clients, notes Moussa. "A lot of ISOs are not really paying attention to what's being said about them, to the image they have," Moussa says. ISOs should respond to online feedback about their business and increase satisfaction in their customer service to raise their chances of receiving positive referrals, he says.
Less Effective Methods
ISOs often go through multiple marketing techniques to determine which ones are less effective, note observers. The marketing efforts responsible for acquiring the least amount of merchants are telemarketing at 6%, cold calling at 4% and direct-mail campaigns at 1%, according to the recent Aite report.
EnCards "has tried many different techniques" with mixed results, says Mattos. "No pattern has emerged for what is effective in reaching different categories," he says.
Most recently, the ISO launched a social-media campaign that uses online social-media networks such as Facebook, Twitter and MySpace, Mattos says. "We're taking it slow and doing some testing," he says. "We're going with a conservative approach until we identify that something is making sense and money."
EnCards has spent roughly $25,000 in the first six months of the program to test it out, but the campaign is "not a great success yet," Mattos says.
Similarly, Equity Commerce LP has tried varying marketing methods. The Hagerstown, Md.-based ISO now focuses its marketing on recruiting new agents to sell for the company instead of attracting new merchant accounts, says Jerry Julien, Equity Commerce executive vice president of business development.
The ISO previously tried direct-mail postcard campaigns and telemarketing to attract clients. "We really didn't see a return on investment for any marketing sales efforts like that," says Julien, "Merchants are just inundated with mail, and [promotional materials] tend to just go into the garbage can."
Equity Commerce produces some marketing materials for its agents, but many of them already create their own custom marketing materials, says Julien, adding the company's marketing plan is less costly for the small company than others they have tried. "We're giving a lot away on a residual split. We can't then go and spend a lot on a marketing campaign for the agent," he says.
The least effective marketing campaigns for Dharma have included print media, says Marcous. "We've tried print ads, and those have just been the worst," he says. "They garnered almost no response."
The majority of ISOs are interested in better understanding the effectiveness of acquisition methods, according to the Aite study. Sixty percent of ISOs Aite polled said they were "somewhat likely" to "very likely" to study the efficiency of different acquisition methods this year, 31% were "not at all likely" or "neutral," and 9% already had completed such a study in 2009 or 2008, according to the report.
Though ISOs want to learn more about effective marketing methods, few have staff members dedicated to a marketing department, according to the Aite report. Only 3% of survey respondents' employees were allocated to a marketing department, which garnered the least employees of the departments listed, according to the results.
Participating ISOs allocated most employees to the sales department (43%), followed by operations (19%), customer service (18%), information technology and tech support (7%), administration (6%), and product development (4%), according to Aite.
Marketing is not an exact science, a fact many ISOs have discovered after launching multiple marketing campaigns and witnessing their failure to attract new merchants. However, while no instruction manual exists for constructing the perfect marketing campaign, ISOs can increase the likelihood of experiencing a return on their investments if they create marketing targeted to specific merchant categories and strive to gain referrals from retailer associations and existing clients.
