Advertising is the price you pay when customers don't talk about your business.

A recent survey (n=315, +- 6% at 95% confidence level) conducted by Buzfactor found that a recommendation has 15 times more influence on where a person shops and dines than advertising. When asked, “How likely are you to try a restaurant based on a friends recommendation?”, only 3% responded ‘not likely’ while 71.2% said they ‘would likely or very likely’ try the restaurant.

Interestingly, we found that customers recommend their favorite local businesses as many as 27 times per year and, with recommendations likely being acted upon 71.2% of the time, each customer evangelist a business has potentially generates 19 new customers for their business. Perhaps most important, when asked, “Are the businesses you recommend most often national chains or local businesses?”, 86% of consumers said the businesses they most often recommend are local.  With 6 of every 7 recommendations going to a local business, positive word-of-mouth represents a very effective way for local businesses to compete against the much larger advertising and marketing budgets of national chains, thus levelling the playing field.

In collaboration with the American Chamber of Commerce Executives, SCORE and the Association of Small Business Development Centers, Constant Contact recently conducted its 2009 Small Business Attitudes & Outlook Survey. From April 30, 2009, through June 12, 2009, a broad representation of more than 3,000 businesses were surveyed to better understand how current economic conditions were impacting small businesses. When asked, “What is the biggest challenge you have in running your small business?”, 71% responded that “effectively reaching my audience with limited marketing resources” is their biggest challenge. So, perhaps, it is not surprising to find that small businesses identified sales and marketing as the two areas in which they need the most help.

In response to current economic conditions, 29% of small businesses have actually reduced their marketing budgets. However, businesses are continuing to shift more of their marketing online and, as a result, the majority of these cutbacks are coming at the expense of traditional media. In fact, a recent Forrester survey of more than 200 marketers found that “60% planned to increase interactive budgets by pulling back spending on traditional outlets.” According to Forrester, “the biggest victim of the trend will be direct mail, which stands to be slashed by 40%. Print will not fare much better, with spending on newspapers expected to be cut by 35%, and magazines by 28%.”

Today 25% of small businesses now regularly use online marketing and more than half (56%) frequently use email, however, the vast majority (89%) still rely most on word of mouth to find new customers.

The Borrell Associates report, “Say Goodbye to Yellow Pages,”  projected a $5 billion decline in print directory advertising in the next 5 years. Our latest survey of retail and restaurant owners certainly doesn’t do anything to dissuade that opinion. When asked, “What has the biggest impact on your businesses ability to attract new customers?”, only 1% of the retail and restaurant owners and managers we surveyed said it was the YP.

Although word of mouth is far and away the most important factor across all businesses, digging a little deeper into the data,  it is even more important among small businesses with 90% saying it most impacts customer acquisition.  Interestingly, the results seem to indicate that larger businesses have a greater reliance on discounts and coupons while medium size companies rely more on traditional advertising - but across all segments, one thing is clear, businesses recognize positive word of mouth is critical to attracting new customers.