Digital-marketing-services businesses that can figure out how to access this largely untapped market could gain enormous value. Some leading-edge companies, in fact, have already moved into local markets and begun generating digital results for their customers.
Consider the case of Yelp, a local search company based in San Francisco. According to the findings of a 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 revenues 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.
The results of our second survey also demonstrated the varying effects of online advertising. Arts and entertainment, home services, automotive, hotels and travel, local services, and nightlife, for example, achieved the most significant revenue impact from Yelp. (See Exhibit 2.)
The survey thus highlights the need for companies to adopt targeted approaches, and it underlines a key message for local advertising and online-marketing-services providers. Digital-marketing-services businesses that can navigate the small-business market and help small companies recognize the tangible benefits of advertising will capture significant growth for both themselves and their customers. To achieve that goal, however, such providers should take a few lessons to heart.
Tailor your offers and pricing strategies to the customer. The needs of small businesses, the results they achieve, and their levels of sophistication all vary by category and industry. Companies that want to seize the opportunity to sell local online advertising should customize their offers and associated pricing according to their clients’ needs, the verticals they occupy, and the value they deliver.
For a category such as quick-service restaurants, for instance, that might mean creating a bundled offer of check-in deals and coupons. Note that the same bundle may not be as relevant for a business in another category, such as home services, which might not have as many repeat purchasers.
Embrace advocacy-based marketing. The small-business marketplace comprises a large number of companies that spend relatively little on online advertising. That structure, coupled with word-of-mouth referrals, means that companies should focus on using referrals—especially from key people in the industry—to drive small businesses to their doorsteps. This is true even for the few organizations that have local feet-on-the-street sales capabilities.
Strategies that use LinkedIn, Facebook, and Twitter to harness the power of brand advocates, therefore, are proving to be more effective than traditional marketing tools, such as outbound call-center phone messages, door-to-door sales, and direct e-mail marketing.
Help small-business owners see the tangible benefits of online advertising and promotion. Established companies and startups alike are developing dashboards of information about the effectiveness of their online advertising efforts. Presented in a meaningful and user-friendly way, this information allows companies to make better marketing decisions. The Holy Grail of digital advertising is to help large and small businesses clearly view their spending practices across channels and to give them a reliable and credible metric for calculating the payback on their online-marketing investments, regardless of the advertising vehicles they use.
Some of the near-term opportunities will involve broad-based tools that go beyond simplistic ROI analyses. For instance, companies that learn how much a given offer changed the average basket size at purchase or how many check-ins or queries were generated from a particular ad could improve the effectiveness of their promotions. Methods such as these will allow small businesses to turn what has been an underexplored territory into a source of competitive advantage.
Companies that can redirect the billions of dollars of small-business-advertising spending toward digital marketing will unlock enormous value. 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.