Small-business quarry: neither fish nor fowl: to hunt down small-business customers, you can't treat them like big businesses; nor can you engage them like ordinary retail customers. The secret is to approach them as a 'different breed of consumer.' Here's insight into how banks today are successfully marketing to the small-business community.

• Author: Bernstel, Janet Bigham

Since the "late 1990s, "large banks have been bundling products and increasing loan portfolios with zeal in order to attract the small-business market. And why not? Small business, defined as firms with less than 500 employees, represents 99 percent of all U.S. business, according to the Small Business Administration. These companies accounted for more than $8 trillion of the nation's $19.4 trillion in corporate wealth in 2000.

From self-employed nannies to newspaper publishers to warehouse superstores, the small-business arena is an extremely varied market. Different types of small business offer different opportunities, and big banks are aggressively courting them at all levels.

"You can see signs everywhere in banking that business is recovering, and if I'm a small bank, I'm worried right now about what a good job the large banks are doing," claims Bill Madway, president of Madway Business Marketing in Bryn Mawr, Pa., adjunct professor of marketing at Villanova University and former director of the Small Business Development Center (SBDC) at the Wharton School in Philadelphia. "They're encroaching on the territory that has really been the province of smaller banks, such as micro small business, and they're cleaning tip."

For one thing, larger banks can offer a full array of services at a much better price than small banks due to economies of scale. So a smaller bank must exploit its own arsenal of advantages or lose out, advises Madway. He sees two main advantages:

1. Preference. People have a built-in preference for dealing with a smaller bank. They feel they're going to get a better deal and more respect.

2. Personalization: Smaller banks can compete with larger banks on personalized service and personal involvement, As Madway says, "They know the neighborhoods."

   He also advises banks to stop chasing the new customer and focus on existing clients. Otherwise, the existing client will eventually migrate all his business elsewhere.

   "As clients get bigger, they may outgrow their small bank," says Madway. "So the bank has to press that advantage by figuring out a way to cost-effectively provide a wider range of services and retain that personalized feel."

   Think consumer, not corporate

   One key to effectively marketing to the small business, says First Charter marketing director Kevin Toomb, is to change your mindset. Based in Charlotte, N.C., in the "valley of the shadow of the giants," Toomb says the bank can easily sell the idea to small...