Small Businesses Likely To Stick With What They Know

Recession Likely to Slow Shift to Online Ad Spending

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Greg Sterling
Greg Sterling

Much is being written in Ad Age and elsewhere about the recession's impact on major brands and their ad spending. Are they shifting marketing online? Are they freezing budgets? Are they cutting media?

But what about the other end of the spectrum: U.S. small businesses. What are they doing and how has the economy impacted their marketing and ad spending? Does their world parallel the Fortune 500 or is it altogether different?

Like their larger counterparts, small marketers have recently begun to shift ad dollars online. But the recession is likely to instigate a retrenchment into what this group knows -- and that's not the web. Before we get to the discussion, let's understand the small business market.

According to the most recent available U.S. government data (from 2004) there are slightly more than 25 million businesses in the US, employing just over 115 million people. Almost 20 million people are self-employed.

Of the total 25 million businesses, including those self-employed, about 99% qualify as small businesses (SMBs), with fewer than 99 employees. And 91% have four or fewer people working for them.

SMBs spend many billions of dollars on advertising and marketing annually. It's difficult to get at the numbers with any precision because much of it is happening under the radar. But we can safely say that it's in excess of $40 billion annually. Small business software vendor Intuit has argued that the number exceeds $100 billion, when all forms of marketing are taken into account.

Are You Currently Advertising Online?

Are You Currently Advertising Online?
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Are You Currently Advertising Online?

SMBs have historically contributed billions in ad revenues to the yellow pages industry, newspapers, direct mail, radio, spot cable TV and, to some degree, outdoor. And vanguard SMBs "built" the Google empire long before brands and major agencies decided to include paid search in their ad budgets.

So what's happening right now in the trenches of SMB ad spending?

Like brands, mainstream SMBs have been making the transition to online advertising over the past several years. They have been slowly shifting more of their marketing dollars from traditional media to the Internet -- but it has been an incremental process with many fits and starts.

An online survey conducted this August by Opus Research, among more than 1,000 US small businesses, took a snapshot of SMB advertisers and their thinking about the next 12 months.

SMB Ad Spending Intentions: Next 12 Months

SMB Ad Spending Intentions: Next 12 Months
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SMB Ad Spending Intentions: Next 12 Months

As with larger enterprises, these findings show an intention among SMBs to shift more of their marketing spend online. This survey was taken, however, before the bottom dropped out of the economy. Indeed, an American Express survey of 602 small businesses in early October found that 79% of respondents reported decreasing sales and that 52% were "cutting back or delaying marketing initiatives" as a reaction.

Inertia and resistance to "experimental" platforms or programs are holding brands back from social networks or mobile for example. In a similar way, the recession has caused many small businesses to "stay put," hesitate and not try anything new. For a large number of SMBs that includes online advertising.

Small businesses are time starved and face budget and personnel constraints not experienced by larger enterprises. In addition, unlike brands and agencies, SMBs are also (still) very confused about all their online options and what precisely they should be doing with their limited marketing budgets.

Main Reason for No Online Marketing Today

Main Reason for No Online Marketing Today
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Main Reason for No Online Marketing Today

Whether you're a CMO of a major brand or a small business owner with two employees, the seemingly "rational" response to this recession would be to take dollars from less efficient or underperforming media and shift them online. However that's only happening here and there; though there are more aggressive examples like the US auto industry, which is being driven by dire necessity to cut traditional media spending.

The hesitation to more fully embrace the internet and digital media may be based on somewhat different factors for brands and SMBs but the result is similar: limited movement of ad budgets online.

If we step back, however, the shift is taking place. But the recession is generally proving to be barrier rather than an accelerant of internet ad spending, as we might have expected. It appears to be delaying online spending adoption or increases at both ends of the spectrum.

Yet when the recovery finally comes we're likely to see internet advertising dramatically pick up steam among brands and SMBs alike.

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