MARKET TRENDS: Word-of-Mouth Marketing Still on Top

A majority of business owners surveyed in the latest Wells Fargo/Gallup Small Business Index cite word-of-mouth and local publications as the top two most effective forms of advertising. The study found that of the 55 percent of business owners surveyed who spent money on advertising in 2005, 67 percent did so in their local newspaper or magazine. Results also confirm that more than half of small business owners surveyed believe that customer recommendations are more effective than paid advertising.
 
“Small businesses traditionally have a very strong community focus, and it is clear from these results that this extends to how they prefer to advertise their businesses,” says Rebecca Macieira-Kaufmann, executive vice president and head of the small business segment for Wells Fargo. “A small business owner is more likely to talk to their hairdresser, their plumber or their neighbors about their business, rather than spending their hard-earned capital on advertising. Those who do advertise clearly prefer their local community newspaper or business journal.”
 
Many small business owners are also turning to the Internet for their information needs. Advertising on the Web allows small business owners the ability to combine their paid advertising dollars with their preference for word-of-mouth advertising. According to the study, 49 percent of business owners surveyed have paid to advertise on the Internet over the past two years, and when asked if they anticipate spending on Internet advertising over the next two years, this number increases to 57 percent.
 
Advertising is not the preferred option for all small businesses. Forty-five percent of small business owners surveyed did not advertise in the past year, and, of that group, 62 percent chose not to advertise because they felt it wasn’t appropriate for their businesses. Additionally, 16 percent said they didn’t advertise because it was too costly.
 
Since the third quarter of 2003, the Wells Fargo/Gallup Small Business Index has surveyed small business owners on a quarterly basis on their perception of current conditions and future expectations relating to financial situation, revenues, cash flow, capital spending, number of jobs and credit availability. This fourth quarter 2005 Index showed a one-point increase over the third quarter, bringing the total to 107, indicating that small business owner optimism was essentially unchanged and remained steady for 2005. The higher the Index score, the more positive and optimistic small business owners feel.