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.

Despite billions of dollars being spent on advertising, direct mail, promotions, and countless other marketing techniques, 78 percent of Americans say word-of-mouth recommendations — especially from family and friends — most influences where they shop and dine.

Recognizing the impact word-of-mouth has on their business, more than 90% of business owners feel customer recommendations are more effective than paid advertising. In fact, almost half of small businesses rely exclusively on word-of-mouth as their only form of marketing.

But businesses face a great challenge in leveraging word-of-mouth into measurable results. That’s why Buzfactor is developing new technologies that let businesses create word-of-mouth marketing campaigns, track their effectiveness, and measure the impact on sales right down to the customer and transaction level.  In effect, we are creating social graphs that map businesses directly to their best customers.

Over the past several months, we’ve surveyed almost 5,000 consumers in 26 major markets to learn more about how word-of-mouth affects consumer decisions. Stay tuned as we’re going through all the data now and will be posting more results soon.