Through the second half of the 1990s traditional federal marketers have experienced significant market-share erosion, and many of them don’t know where the buyers are going.
I’m here to tell you where the bodies … er, buyers, have disappeared to: credit card sales to direct marketers hit $1.2 billion in federal fiscal year 1998 and should top $2 billion in fiscal 1999. If you add in sales of office supplies and industrial supplies, the fiscal year 1998 numbers go up to $1.5 billion, and fiscal year 1999 numbers should be $2.5 billion.
Traditional government marketers (systems integrators, government resellers, manufacturers and others selling direct to Uncle Sam) are left wondering: who are these body snatchers?
Well, we all know about the invasion in the computer category and the radical growth experienced in this market. But what about more mundane products – hammers and nails, footwear, office supplies, automotive supplies, medical and research supplies, even trinkets like those pens you get at every trade show?
These business-to-business mailers have also experienced significant growth in the past few years, though in less sexy categories.
In my government mailroom travels, I see hundreds of catalogs targeting various white-collar and blue-collar federal workers: mailing supplies, office supplies, food service, automobile supplies (The federal government maintains the two largest land fleets with the Army and the U.S. Postal Service.), heavy material handling equipment, medical and research supplies, furniture, law enforcement equipment, prefabricated buildings, footwear, uniforms – and on and on.
Keep in mind two things. First, the government (federal, state and local) buys all legitimate business products and services, representing all categories of white-collar, blue-collar and professional workers, including lawyers, pipe fitters, secretaries, research scientists, custodians, accountants, air traffic controllers, auto mechanics – you name it, they’re there. And they are reachable.
The second thing is that since the procurement reforms began in 1993 (at the federal level), micropurchases (any purchase under $2,500) do not require any government contract. And most of these purchases are made with government credit cards.
The rise of the micropurchase category was dramatized in federal fiscal year 1998, when one of the top categories was prescription drugs. What apparently happened is the Department of Veterans Affairs dropped major contracts with pharmaceutical firms in favor of each VA facility buying the drugs, via credit cards, from Web and catalog marketers of pharmaceuticals. In doing so, the VA saved thousands of man-hours by jettisoning the cumbersome contract procurement method and replacing it with the just-in-time Web/telephonecredit-card ordering process.
I am looking for more agencies to adopt the Web telephone credit-card combination to see the savings enjoyed by the VA, which is perfectly in line with all the federal laws passed since 1993 to streamline the federal procurement process.
And as the feds enjoy the savings and streamline the procurement process, look for state and local government to start doing more of the same. Many state and local governments have adopted less aggressive credit card purchasing programs. Usually the per-purchase limit is $500 to $1,000, not the $2,500 enjoyed by the feds, but this still falls in line with the average order size of many BTB catalogs.
The value-adds brought to the government market by these catalogers are identical to those they enjoy in their other market segments:
• Delivery: faster than most, if not all, traditional federal vendors.
• Product range: at least as good as the traditional sources.
• Customer service: pleasant, knowledgeable people on the phone.
• Cost/Price: competitive.
And traditional federal vendors are scrambling to understand why and how their market share, once nearly inviolable, is shrinking. And if they figure it out, they then have the daunting problem of combating the service offered by catalogs.
One government reseller I know has reduced its average delivery time from 22 days to seven days (this took two years), and isdeservedly proud of this accomplishment. But the catalogs against which it competes are delivering most items in 24 to 48 hours.
What does the future hold? Serious money for those who can define and reach government audiences with real discriminators, including customer service – nobody likes buying from disinterested or rude people.
But keep in mind that the ethical rules are definitely different. One vendor, apparently trying to capitalize on the end of the federal fiscal year, offered a free carryall for any SmartPay (government credit card) order over $2,000. The company received a letter from the Office of Government Ethics stating that this violated federal ethics laws and that this offer should be withdrawn immediately.
Market share is available in this always-growing market segment. There is real money to be made here. But understand that some real work is necessary in order to identify your audience and to stay within the bounds of ethical propriety.
Mark Amtower is a partner at Amtower & Company Federal Direct Marketing, Ashton, MD. His e-mail address is [email protected]