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MANAGEMENT

12.23.98  
Beware Entrepreneurs Bearing Gifts!
Do your clients really want those holiday tokens of appreciation?

It's that time of year when it may seem mandatory to send your best clients gifts to show your appreciation. But it's a strategy that doesn't always work -- and may not even make sense.

Take Laura Ries. She vividly recalls the unexpected gift her family's marketing-strategy company got last Christmas from a client in Brazil. It was a 14-inch by 14-inch oil painting of her father, copied from a photograph. Dad looked like a Mafia don, she remembers. "We thought, 'My God, what are we going to do with this?'" says Ries, president of Ries & Ries in Atlanta. "My Dad said, 'I don't look that horrible, do I?'" At least in terms of originality, it topped a gift from the year before -- a two-foot-long, shrink-wrapped sausage.

It's easy for entrepreneurs -- whose customers are fewer and more important to them than might be the case with, say, General Motors -- to get caught in the gift-buying whirlwind. Just be aware that you could end up with a preholiday headache, waste precious time and resources -- and still not impress anyone. Ries hung the portrait of her father on an obscure wall at home, and she threw the sausage away.

Many small-business owners have come to this conclusion already: Nearly two-thirds of the entrepreneurs polled by American Express last summer had no plans to give gifts this holiday. And of the one-third of respondents who will give gifts, only 14% say they budget for it. For those who budget, 52% will spend $1,000 or more -- enough for a bonus for a hard-working employee.

HOLIDAY MARKETING. There are those who think that gift-giving is indispensable. Richard F. Beltramini, a professor of marketing at Wayne State University in Detroit, believes it should be part of a company's business plan. "The most important thing is tying it in with your overall marketing communication strategy," he says, suggesting that owners should place as much emphasis on gift-giving as on a logo, signs, business cards, and advertising.

Beltramini conducted experiments with a national manufacturer of industrial goods that convinced him there's a direct correlation between gifts and sales. He divided the sales force of the company into three groups, then had them call on a test group of 300 clients. Although Beltramini won't reveal what they were selling, he says the items were identical and ranged in price from $3,000 to $10,000.

The first group presented clients with gold-plated scissors and letter-opener sets worth $40; the second offered $20 silver-plated sets; and the third group gave nothing. Beltramini says the group that gave no gifts saw no statistical increase in sales. The group that offered $20 gifts saw a 50% increase in sales six months later. Finally, the group that showered clients with $40 gifts produced a 500% sales increase six months later. "My research shows there is a statistically positive increase in sales attributable to the giving of business gifts," Beltramini says. He cannot, however, explain why sales increased so dramatically based on such modest gifts -- and why the gap was so great between the $20 and $40 groups.

Does this mean well-served clients who are happy with your product will dump you for a gold-plated letter-opener set? Probably not. Eileen Bruckman, women's buyer for Urban Outfitters, the Philadelphia-based clothing-store chain, says it wouldn't make a difference to her if her clients sent gifts this year. "We buy from the people who make the best product for our company," she says.

The irony is, fashion manufacturers feel intense pressure to give gifts, but it's not quite kosher for buyers to accept them. "We don't try to bribe anyone with cash or anything. We just try to buy them a nice suede blouse at Banana Republic," says one New York fashion designer who runs her own business and insists on anonymity. "I want to thank them for helping me have a good year. But I don't want to be the one, when all their presents arrive, who didn't send them a gift."

If you're hell-bent on giving gifts this year, etiquette experts lay out the following rules: First, send something your clients' companies will allow them to accept. Next, don't send the same gift to everyone: Only so many will like the shrink-wrapped sausage. Finally, don't send clients anything too expensive. It might make them uncomfortable -- or make you look like a wastrel.

"You have to pay attention to the 'Who, what, where, why, and when' of the gifts," says Hilka Klinkenberg, founder and managing director of Etiquette International, a New York City business consultancy. "Wrapping and packaging is just as important." That suggests another expense of gift-giving -- advice such as Klinkenberg's.

GENEROSITY BITES. There are also the risks of giving to your employees. They can easily detect an empty gesture. Elizabeth Stellmacher, a graphic designer for a small company in Baraboo, Wis., received a five-foot-long whaling harpoon as a bonus two years ago. She was flabbergasted. "I enjoy fresh-water fishing for perch and crappies, Northern pike, and wall-eyes," she says, "but not for seals and whales." Stellmacher suspects that her boss found the harpoon lying around the house and wrapped the first thing at hand.

Even the tax implications for gift-giving aren't especially favorable. Roger Harris, president of Padgett Business Services USA Inc., an Atlanta-based accounting firm that specializes in small business, says you can only deduct $25 per individual for gifts to nonemployees. As for employees, the IRS looks at anything of real value as compensation and subjects it to taxation, though it doesn't set hard rules.

With that in mind, Cormac L. Kinney, chief executive and founder of NeoVision Hypersystems Inc., a New York consultancy that makes software for professional traders, says he's not giving his clients anything. "Although it might be a nice thing to do, we don't have the infrastructure or really the need to have that kind of a personal contact," he says. "If you treat your customers well and give them a good product with service, that should be enough." He'll have an annual Christmas party for customers. And during 1999, he plans to give his clients something they can use -- free consulting or extra systems support.

After being on the receiving end, Laura Ries doesn't send holiday gifts to her clients. "One of the best things you can do for your clients over the holidays is leave them alone. Don't call them. Don't bother them," says Ries. "Everyone is so stressed about buying family gifts...it's too much. Most people would rather just forget about Christmas altogether." Or, at least, not bring it to work.

By Jeremy Quittner in New York
Jeremy_Quittner@businessweek.com


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