By Alison Diana, InformationWeek February 17, 2011

Local businesses are turning to inexpensive social media to promote their products and services, but the few that have experimented with group discount offerings from online sites are unlikely to repeat the experience, a new report from MerchantCircle found.


In the past 12 months, there has been a 40% increase in the number of local businesses using Facebook to market their wares, according to the quarterly Merchant Confidence Index survey of more than 8,500 small and local business owners across the United States. Today, 70% use the social media site of 500 million-plus accountholders, compared with 50% last year, the report said.


This makes Facebook the most widely used marketing method among local merchants, with 66% of local businesses tapping Google to educate consumers about their goods, according to the study.
Social media as a whole is viewed as being highly effective by 37% of respondents. Search engine marketing was viewed as most effective, according to 42% of those polled, while 36% said email was the most effective tool, the MerchantCircle report said.


"Online marketing continues to be a challenge for most local businesses, and many merchants are working with very small budgets and almost no marketing resources," said Darren Waddell, VP of marketing at MerchantCircle. "The marketing methods we see gaining the most traction are therefore the ones that offer merchants simplicity, low costs, and immediate results."


Perhaps Facebook's name-recognition and its immediate integration with the social media site helped propel the company's location service past competitor Foursquare: 32% of respondents use Facebook Places, and another 12% said they plan to use this tool in the coming months. By comparison, Foursquare use is up only 2% from last year, with about 9% of those polled using this service, the study found.


Twitter is gaining traction among local businesses, with almost 40% of those queried now using the microblogging site to build awareness and community, up from 32% in the same period a year ago, said MerchantCircle.


Mobile marketing, however, is not enjoying the same widespread adoption. Fewer than 15% of merchants use any mobile marketing or advertising, and fewer than half have any plans to do so in the coming months, the report said. Cost is not the main concern: 74% of merchants said they do not have a good idea of how to reach consumers via mobile marketing, according to MerchantCircle.


Likewise, group buying services — such as those offered by Groupon and LivingSocial — are getting a lukewarm welcome. To date, 11% of respondents have offered a "daily deal" on a group buying site, but one-fifth plan to do so in the near future, the poll said. Of those who have used such a service to promote their business, the majority — or 55% — said they would not do so again, MerchantCircle said.


Local merchants may want to reconsider: The combination of location-based ads and mobile devices fuel consumer store visits, a separate study by JiWire found. One-fifth of mobile users went to a physical store as a result of seeing a location-based ad, the Mobile Audience Insights Report, released earlier this month, found. Further, 17% spent money because of the ads, the study said.


"Consumer demand for location-based services and reception to location-based advertising continues to increase dramatically, with companies like Groupon, Facebook, and now even Google getting into hyperlocal deals," said David Staas, senior VP of marketing at JiWire, in a statement. "Localized ads help consumers find the best deals and venues in their area and as location-based services become more mainstream, people are becoming more willing to give their location to reap the benefits of relevant promotions and discounts."


Many local businesses typically have limited time and money to invest in marketing. In fact, last year the majority spent less than $2,500 a year marketing their products and services, and 60% do not expect to increase this budget in 2011, the MerchantCircle report found. One-fourth cited high costs as their primary complaint about online marketing, according to the study.


Lack of time was the top challenge for 37% of responding merchants, who were unable to investigate or take advantage of new or unproven online marketing tools or techniques, the poll said.


Instead, many smaller businesses continue to use traditional offline marketing methods — but their reliance on these tools is declining. In 2010, their use of print advertising dropped to 27% from 40%; Yellow Pages advertising fell to 35% from 45%; and their investment in direct mail campaigns decreased to 28% from 39%, according to MerchantCircle. But 24% of respondents cited coupons or direct mail as one of their top three most effective marketing tactics; 23% cited Yellow Pages as a top tool, and 20% credited print newspaper ads as one of their top three marketing instruments, the study said.


Online marketing companies, which once focused almost exclusively on national brands, now are looking closer at smaller businesses, a move that could eliminate some of the complexity and cost for local merchants. Indeed, 51% of local businesses get at least one online marketing sales call a week; 10% get called almost daily, MerchantCircle found.



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