How to Get 77,000 Customers

Once upon a time, printed flyers, shoe leather and friends who owned their own businesses framed the marketing plans used by waste haulers.

Certainly, old fashioned, low-technology marketing remains important to acquiring collection accounts. But in an increasingly sophisticated information age, technology offers a host of new and effective tools for marketing waste businesses.

How important is modern technology to marketing waste management services? Ask Stericycle Inc., Deerfield, Ill. Founded in 1989, Stericycle's medical waste management business burst into the black in 1997, following nine years of patient and strategic application of technology to both the operational and marketing sides of the business.

With the exception of a single year, Stericycle's revenues nearly doubled every year between 1992 and 1997. Still, between 1992 and 1996, the company lost money. In 1997, the company logged its first profits: about $1.5 million. Last year, revenues rose by about 50 percent; net income has yet to be calculated.

Company officials refuse to speculate about the future because of federal regulations related to corporate organizational activities.

The point is, Stericycle has surged into second place in the competitive medical waste management industry. The company now serves the disposal needs of medical facilities in nearly 40 states plus the District of Columbia through 20 locations, including seven medical waste treatment facilities.

Stericycle's geographic reach spans 45 percent of the population in the United States and more than half of the nation's 622,000 healthcare providers. Of this potential $500 million market (about one-half of the estimated $1 billion U.S. market for medical waste disposal services), the company serves approximately 77,000 customers, up from 12 - yes, 12 - in 1992.

Stericycle brought in most of those customers by aggressively acquiring other medical waste disposal companies. Overall, the company has acquired 29 competitors since 1993.

On the marketing side, technology has proved indispensable in making acquisitions profitable. The marketing principles that Stericycle applies to its business are the same that other waste management companies use.

"The economics of the business revolve around market density, service level and the revenue available in a given service geography," says Mark Miller, president and CEO of Stericycle. "The medical waste disposal business potentially involves hundreds of thousands of customers. Few, however, generate large amounts of revenue. Many may pay only a few hundred dollars per year for our services. The issues for us are to find ways to become more efficient in managing information, acquiring accounts, servicing accounts and making accounts profitable."

Familiar issues. Many waste management companies today use technology to control operational costs by routing trucks, auditing weights, generating invoices and tracking receivables. Stericycle has taken this one step further by applying it in strategic ways to build profitable account densities in the markets it serves.

Strategy First "Most of the companies that have gotten into the medical waste disposal business did so in the 1980s, when the first regulations governing disposal came out," Miller says. "The market strategy was simple: Because of these new regulations, you need a service. We provide a service that will enable you to satisfy the regulations.

"These companies made their appeals through "Yellow Pages" advertising, flyers and door-to-door selling," he continues. "But no one tried to figure out how to satisfy the particular needs of individual customers in relation to these regulations. In other words, a dentist has certain kinds of disposal needs and problems, a group medical practice with a laboratory has another set of problems and a hospital has still different problems. We decided that technology could help us address these different kinds of customers with individually tailored appeals."

For Miller, using technology as a marketing tool made sense for one important reason: The company already was invested in technology to manage the operational side of the business. Why not add marketing to the mix?

For example, why not share route management data with the marketing department? Why not equip the marketing department with Geographic Information System (GIS) mapping capabilities and use easily available demographic data to find prospective customers along existing routes?

Why not make the company's customer database available to the marketing department, which could develop new value-added services for categories of customers - hospitals, blood banks or pharmaceutical companies, for instance?

If these ideas work, why not map prospective customers and create categorized service offerings for entirely new geographical areas and then acquire medical waste disposal companies servicing regions with profitable account densities?

"This kind of marketing strategy lends itself to computerization and database management," Miller says. "And it really dovetails with the information management side of waste management."

Whether Stericycle aims to increase business in an existing market or to start in a new market from scratch by selling accounts or buying them through acquisitions, the marketing department first evaluates potential revenues and potential costs by analyzing characteristics of the region [See "Evaluating the Potential" on left].

Executing The Strategy "Once we've studied this framework and decided to enter a geography, we develop business through telemarketing," Miller says.

But the term telemarketing may be a misnomer.

"Our approach isn't like the phone calls you get at home from people soliciting magazine subscriptions," he says. "We don't get a list from the Yellow Pages and just start calling. That wouldn't work. Instead, before we call anyone, we spend a lot of time thinking through the operational nuances important to prospective customers."

Stericycle tries to find out what's important to a customer in a specific location to determine what information the company can provide that will make a prospect want to talk to its sales representative.

"For example, if a new regulation is issued, we might call a physician's office and offer to send information about what this regulation means," he says. "We've found that a prospect often will wonder why his current provider failed to mention this, or any other regulatory change for that matter. Later, we'll call back to make sure the information arrived and ask if we can answer any questions.

"That's one example of an information service that we use as a telemarketing sales tool," he continues. "We have different kinds of services that we use to market to different kinds of practices. A pediatrician has different concerns than an orthopedic surgeon, and we try to tailor our appeals to the concerns of specific practices."

Stericycle uses telemarketing to promote guaranteed cost saving programs to prospects in specific categories of the healthcare business. "We study the business, identify the costs and develop a program in which we take the risks of eliminating cost from the system," Miller says. "Medical professionals respond to these programs because they are under pressure to reduce costs in their organizations."

Technology helps to streamline the process of service changes. "If a customer asks to change a pick-up schedule, we don't have to say 'we'll get back to you,'" Miller says. "Automated routing makes it possible to respond immediately to these kinds of requests."

In fact, Stericycle looks at a schedule change as a marketing opportunity. Suppose a physician changes a pick-up from every Monday to every other Thursday. The marketing department can look for additional business to pitch along the new Thursday route as well as the old Monday route.

Miller cautions others against applying conventional telemarketing techniques to waste management marketing. The Stericycle approach presupposes an understanding of the subtleties of telemarketing.

"People in our organization have had decades of experience in telemarketing to healthcare professionals, he says. "There is an art to engaging people on the telephone. I think the reason you don't see widespread use of these techniques is that providers will try it, do it wrong, fail and give up."

Success Breeds Technology Stericycle studied the art of telemarketing and developed such a successful approach that the company now faces challenges created by success.

Acquisitions and general growth have created a widespread network of many offices with different technical systems - some manual, some automated, each different from the next.

Efficiency concerns related to continuing growth now require technological consolidation. Recently, Patrick Cott, the company's director of management information services, initiated an effort to integrate Stericycle's various management and marketing technologies into a unified system from Transcomp Systems Inc., Orange, Calif. "Eventually, the data generated in each of our locations will flow into it," Cott says.

The system, which runs on a Windows NT platform, manages customer information including pricing and pricing exceptions. It also handles order entry and billing. Accounting processes, which provide general ledger, inventory, receivables and payables functions, have been built into the system with the help of Solomon Software Inc., Findlay, Ohio.

In addition, the system has integrated route management software by CAPS Logistics, Atlanta.

This enables Stericycle to record geocodes for each customer, as well as office hours, number of containers at each location, truck size, traffic patterns to and from the location and other routing data.

"We can ask the system to route seven trucks to 300 pick-up locations," Cott says. "The system also will provide directions for drivers and plot the locations on a map."

From the beginning, however, Cott wanted to ensure that the marketing department could tie into and use the system.

Stericycle was able to integrate its telemarketing systems using an open architecture approach. Now, "we can build and maintain a single master database of customers and prospective customers."

In other words, the marketing department does not need to build a separate database of prospects who must be re-entered or exported, and then imported into the system when they become customers.

"The open database in this system means that our marketing people can use the main database, enter information that distinguishes prospects from customers and query the system to generate lists related to marketing efforts aimed at both existing and prospective customers," Cott says. "Using a single database makes everything easier. We can introduce new products and services to existing customers, and market to new customers using the same technology."

The Stericycle approach makes a compelling point: Haulers that are considering investing in operations management technology should consider systems that can accommodate marketing requirements as well.

Going from 12 to 77,000 customers in seven years proves that the time and money invested in technology pays off.

Prior to increasing market share in an existing area or breaking into a new region, Stericycle Inc., Deerfield, Ill., conducts thorough market research. The company considers seven important characteristics when evaluating a region's potential revenue.

1. Total population;

2. Number of medical service providers in the region;

3. Categories of medical service providers: hospitals, dental practices, nursing homes, veterinary offices, physician practices, laboratories - any and all of the categories of customers that require medical waste disposal services;

4. Proximity of these practices to one another, including market density, cost to provide services and whether it is possible to build a profitable business in the region;

5. Number of medical waste disposal companies operating in the region and their relative positions in the market;

6. Pricing levels the market will bear; and

7. Whether the area will grow or shrink due to shifting population and business trends.