Small businesses lagging behind in digital advertising: Boston Consulting

Though an estimated 23 million small businesses power the US economy, but these businesses are failing to keep up with big companies in the online advertising world.

A new survey by The Boston Consulting Group (BCG) of 550 small-business owners found that only 3 per cent of their companies' advertising budgets flows online compared with 15 per cent of advertising budgets flowing online in the national market dominated by large companies.

Small-business advertising dollars are still primarily being spent on traditional marketing vehicles, such as Sunday circulars and coupon mailers. The findings are detailed in the article Unlocking the Digital-Marketing Potential of Small Businesses published on bcgperspectives.com.

What's more, the BCG survey found that many small businesses (defined as having fewer than 100 employees) are not fully aware of all the digital-advertising options available to them.

And to the extent that they are aware of those options, they are often not sure what to do with them. This is why digital-advertising activity in the US is driven by large companies.

''Most small businesses operate the old-fashioned way, with little recognition of the internet as a channel or a source of leads,'' says Sebastian DiGrande, a senior partner and co-author of the article. ''Many small-business owners are not even aware that they have an online profile that they could be actively managing on many popular sites.''

He noted that only 15 per cent of the small-business owners in BCG's survey knew that they had a free Yelp profile, for example, and only 11 per cent had already claimed it.

''These findings may come as a surprise, given the explosive growth that digital marketing has experienced in social media and mobile communications and the high percentage of small businesses that say they are promoting themselves widely on e-mail, websites, Facebook, and Twitter,'' adds John Rose, a senior partner and co-author. ''In fact, our survey suggests that when it comes to actually spending their advertising dollars, small businesses continue to favour very traditional channels.''

Rose, DiGrande, and other co-authors David Knox and Kate Manfred in BCG's technology, media, and telecommunications practice explore the challenges that digital content and online-advertising companies face to effectively serve the advertising needs of small businesses and to bring their digital spending into balance with the rest of the industry.

The authors also quantify the significant upside potential that some businesses have already achieved with their online presence.

According to a second BCG survey of nearly 4,800 small businesses, companies that had a Yelp profile but did not advertise on the site nevertheless reported generating incremental revenue of $8,000 from Yelp annually - a kind of passive halo effect.

The return is even more powerful for small businesses that actively shaped their digital presence through advertising campaigns on Yelp. The survey found that those companies achieved an average uplift in annual revenue of more than $23,000.

Providers of local advertising and marketing services online should take a few lessons from the survey to heart, the authors say:

• Tailor offers and pricing strategies to the customer
• Embrace advocacy-based marketing
• Help small-business owners see the tangible benefits of online advertising and promotion

''Companies that can redirect the billions of dollars of small-business-advertising spending toward digital marketing will unlock enormous value,'' the article concludes. ''And the opportunity benefits everyone: successful campaigns will simultaneously fuel the growth of small businesses and media and marketing companies - if both players can learn to leverage local advertising.''

Note: The survey, designed and analyzed by BCG's Center for Consumer and Customer Insight, was conducted at the suggestion of local search firm Yelp, which contributed to the costs associated with fielding the survey by a third-party market research company.However, the survey findings and conclusions are solely the work of BCG.