Is advertising a waste of time for small businesses?

Posted 24 April 2015.

​By Paul Head, CEO, CAANZ

​Many small businesses would appear to think the answer to this question is a yes, or a maybe at best.

According to the Small Business Sector Report 2014 by the Ministry of Business, Innovation and Employment, 97 per cent of enterprises in New Zealand are small businesses. These 459,300 firms include the 326,000 with no employees, 97,400 micro (1-5 employees), and 35,900 small (6-19 employees).

Furthermore, small businesses contribute nearly 30 per cent of New Zealand’s GDP. The high proportion of all enterprises that are small businesses is similar to the pattern found in most OECD countries. Yet despite these numbers, small businesses don’t appear to be investing in marketing to the same degree as larger businesses, relative to their size.

Whilst there’s no hard data for New Zealand, a recent study by the Deloitte in the UK entitled “Advertising Pays 2 - How advertising can unlock UK growth potential” paints an interesting picture of how SMEs use advertising, and it’s likely that things in New Zealand are somewhat similar. In the United Kingdom small businesses account for 50% of jobs, 40% of GDP, but only 18% of advertising turnover.

The Deloitte study makes a number of interesting findings;

  • SMEs are less likely to develop a consistent, planned advertising campaign. By designing each advert in isolation, many SMEs get less long-term value from advertising than they otherwise could.
  • They are less likely to measure the results of their advertising, particularly where doing so requires additional resources. As a result, it is more difficult for them to calculate an accurate return on investment and harder for them to improve and refine their campaigns over time.
  • Although the study finds evidence of significant barriers to the use of advertising by SMEs, it also finds evidence of benefits to those who do advertise:
  • Even among micro-businesses, a majority (59%) of those which advertise reported a direct increase in sales, and nearly two-thirds of all SMEs that advertise believe their investment in advertising represents value for money.
  • Many high-growth SMEs have had success with low-cost and local advertising. This includes making use of local radio and newspapers which offer an opportunity to attract a regionally specific audience, or online pay-per-click services that allow SMEs to monitor their advertising closely.
  • Among SMEs that advertise, the strongest results are achieved when businesses use multiple advertising channels and develop a structured campaign, rather than relying on an occasional advert or just using one channel. The 64% of all SMEs that believe their advertising has been a success rises to 83% for those who have a structured multi-channel campaign.
  • And perhaps most importantly, high-growth SMEs are more likely to advertise. Some 61% of high-growth SMEs are knowledgeable about marketing – they advertise, consult marketing advisers, or have their own marketing experts. Only 43% of SMEs not experiencing growth do any of these things. In fact, the study finds that an additional £1 spent on advertising by an SME has eight times the effect on sales relative to its size.

The empirical data out of the UK proves that advertising pays. Not just for large organisations or the Top 200 advertisers, but for SMEs who are the engine room of the economy.

SME’s that invest in a structured way in advertising are significantly more likely to be growing. If as I suspect, New Zealand is similar to the UK, SME’s in this country are significantly underweight in their use of advertising and marketing, the impact being that a sector or full of talent and innovation is not maximising its potential to create new revenue, jobs and growth.

If this is the case, SMEs clearly need better support and education to understand the benefits that advertising can offer. The industry must do more to explain the commercial benefits of advertising and consider ways to make its expertise more accessible to companies of all sizes. And from the perspective of my industry, advertising already contributes billions of dollars to the to the New Zealand economy. The findings from this UK study suggest the potential is even greater.

So the answer to the question “Is advertising a waste of time for small businesses” is, in my view and that of Deloitte in the UK, a very emphatic no.