How SMEs make marketing add up
Successful small businesses are investing in growth without breaking the bank.
Small and medium-sized enterprises (SMEs) are struggling to put marketing spend on their agenda in 2015, even though the majority believe they would benefit from a boost, with the average annual budget standing at no more than the typical salary of a young marketing executive.
Marketing Week has gathered data from a variety of sources on the marketing capabilities of small businesses, finding that budget, expertise and time represent significant barriers to their ambitions of putting marketing plans into action, though they are also adopting strategies to overcome these.
Every £1 spent on advertising benefits an SME eight times as much as it would a larger firm, according to a report released by The Advertising Association in 2014 using econometric analysis by Deloitte. But new research by eBay, shown exclusively to Marketing Week, reveals that only one in five small businesses believe that increased marketing spend or improved marketing will be their key path to growth this year, leaving a large majority who do not view it that way.
This is despite the fact that 57% think they would benefit from a marketing boost to help them achieve their full potential, according to a report by energy brand Opus into the way 500 UK SMEs see marketing and PR. Almost three quarters say marketing is important to them, but 40% say a lack of budget is the biggest barrier to companies doing more marketing and PR, followed by a lack of expertise (25%) and time (25%).
“A significant number of small business owners see marketing as a cost. That is one of the challenges.”
Karen Fraser, Credos
However, there are plenty of ways for SMEs to drive growth through marketing without breaking the bank, as a number of successful small businesses are showing. For drinks brand Fever-Tree, which provides premium tonic water to hotels and bars as well as being sold in supermarkets, the importance of marketing heightened as the company grew.
The brand admits that because budgets are limited it’s still important to be targeted with marketing. In the early stages of growth the brand needed to get its core message out about premium tonic so educated bar, restaurant and hotel owners when selling in the on-trade, in order to teach customers about the product.
The brand also used co-promotional partnerships with gin brands such as Bombay Sapphire and Tanqueray, with coupons on the necks of bottles that included messages about choosing premium mixers for premium gin.
“Everyone here believes that marketing is a really important part of the business,” says Saskia Meyer, marketing manager at Fever-Tree. “Having a great product is fantastic but we have worked hard on the marketing to get the message out to the right people.”
UK’s economic engine
The Centre for Economics and Business Research (CEBR) estimates that the average spend per SME on marketing is £24,000 per annum. The Advertising Associations report also highlights that many SMEs are cautious about spending as it shows that they account for only 18% of total UK ad spend, even though they make up 99.3% of UK companies and one third of combined private sector revenues, according to government statistics.
In an election year, all political parties see SMEs as being fundamental to the UK economy. In Conservative chancellor George Osborne’s final budget of this parliament last month, he announced several measures affecting SMEs, including abolishing the annual tax return by moving to an automatic digital system by 2020, national insurance cuts for the self-employed and the availability of ‘ultrafast’ broadband to almost all UK business premises.
The start-up world was also promised support for financial technology (fintech) companies to get access to bank data to improve services, an investment in the ‘internet of things’ and a boost for the north of England through the establishment of tech incubators in Manchester, Leeds and Sheffield.
Although SMEs lack the budget and staffing of bigger, more established brands, they are also more agile and focus on tactics that gain return on what can be precious investment. Factors that these businesses have to take into account include whether spend is worth it, at what point in the growth journey it is needed and what type of marketing to invest in.
“I can’t see a situation where you wouldn’t want to spend money so that more of your potential customers know that you and your products exist,” says Karen Fraser, director of Credos – the Advertising Association’s think-tank.
Fraser adds: “There is a significant number of small business owners that see it as a cost, they are not seeing it as an investment in the future of their business. That is one of the challenges for the industry to get that message across.”
The ability to spend on marketing, however, is a question of value and timing as well as cost for SMEs.
FanFinders, a marketing and insight company that connects brands to new parents, sees the value in marketing but its approach is to assess the options before committing spend by looking at where competitors are.
Nick Hadfield, director of FanFinders, says: “As a up-start company you find those niches that [competitors] are not in, which are surprisingly high in number given you have got companies in the market that have been there for a long time.
“When you’re already known about, you don’t have to necessarily be innovative to keep your name out there. We have had to be innovative to do that.”
A similar story can be seen for business-to-business SME Instinct Studios, a fintech company that works with financial service organisations to simplify the world of finance by improving digital customer experiences across the web and on mobile devices. The company competes with players with bigger marketing budgets and admits that, like Fanfinders, it can’t afford to be in every space its competitors are in, but instead targets customers carefully. It uses events, direct marketing and LinkedIn to grow the business.
This does not come without its challenges. Jeremy Mugridge, marketing director at Instinct Studios, says: “We have a very high-quality proposition, which means our marketing must reflect this. We must accept that we can’t afford to do everything we’d like to. Whatever we do needs to be polished but this requires a certain level of investment, which means the budget soon gets eaten up.”
The eBay study reveals that over half (54%) of SME owners feel very or fairly optimistic about 2015, with a fifth (21%) looking to hire up to five additional staff this year. Laundrapp is one of those SMEs, having recently announced a seven-figure investment in marketing and plans to expand its team, as it sees marketing as key to its growth (see box out, below).
However, for small companies hiring a marketing team can be a luxury. Spice Kitchen, an online spice retailer, does not employ dedicated marketing staff; instead it hires freelances according to the company’s needs. It uses a website where businesses can hire people by the hour for tasks and advises other SMEs to take the “dipping in and out of marketing activity” approach when small.
Founder Sanjay Aggarwal has a degree in management and marketing and uses his own knowledge to push marketing strategies that he thinks will drive the business. The brand originally set up an online store with eBay two years ago but now sells on 12 other portals, including Notonthehighstreet.com.
Aggarwal, who also runs a recruitment firm for the dental profession called DentRecruit, believes that for a small business word of mouth is vital. He says: “There are certain elements of our business which are important to our customers that we never realised were – that has only come from talking to them.”
Spice Kitchen also runs social media competitions to build engagement with customers and sends out samples to influential bloggers to build PR coverage. It has plans to appear at food festivals and is currently rebuilding its website as the business grows.
The flexibility of the ‘dip in dip out’ approach to marketing could be a positive upshot of being an SME. Tanya Lawler, vice president of eBay in the UK says: “I believe SMEs have a great ability to be agile and flexible, adapting their marketing strategy and spend to their customers’ changing needs and tastes, as well as the external market and seasonal trends.”
However Ed Relf, chief executive of Laundrapp and former chief marketing officer of Mind Candy, stresses the need to spend on marketing. He believes that smart businesses are marketing-led but that this requires marketing budget to be at the top of company forecasts and for any strategy to be “baked in” from the beginning.
“If you’re not spending you’re not acquiring customers and if you’re not acquiring customers you won’t build a successful business,” says Relf.
Lawler at eBay says: “For SMEs, the ability to reach customers wherever they are and engage with them at the right time in their busy lives is fundamental, and requires a strong media mix.
“Naturally, for digital SMEs looking to drive traffic to their stores, the focus has to be online and mobile as that’s where shoppers are. However it doesn’t mean that more traditional channels such as radio should be discounted – these are still great ways of connecting to audiences,” she adds.
FanFinders focuses its spend on digital and hires based on what expertise the company needs. There are only six people in the team in total. Director Hadfield believes that large-scale above-the-line (ATL) campaigns are not as easy to track in terms of performance as digital marketing.
He says: “In an SME, unless you have millions of pounds worth of investment, you don’t have the opportunity to burn money, and if you do you go out of business – it’s as simple as that. Fortunately for us we have a digital marketing expert in the team who has been incredibly effective.”
This is directly opposite to the strategy of Laundrapp, which is launching advertising in order to grow users but argues that using redemption codes on its advertising means it can track where users are coming from and therefore where to invest its marketing.
Spice Kitchen sees ATL as a long-term goal because of the expense and has an eye on video in the short term – particularly as other food brands and chefs are launching Vine-style 15-second videos about recipes and food on Instagram.
Because of its size at the moment, Spice Kitchen’s Aggarwal says measuring return on investment is “futile”, because most of what its doing is long-term brand recognition and is difficult to measure the individual strategies it is employing to get there.
Ultimately it has to be right for the target audience, warns eBay’s Lawler: “No matter how the technology develops and how quickly the adoption of that technology accelerates, responding to what the customer wants and how they want it will always remain the focus for successful brands.”
The diversity of SMEs in the UK means that marketing investment from these businesses comes at various points in the growth journey and in various forms. What is clear is that at some stage it is needed for a small brand to excel and go up against bigger players.
Above-the-line investment for a digital start-up
An SME that launched in January this year is not shying away from the value marketing will bring to its growth.
Laundrapp, an app for on-demand laundry and dry cleaning services, has doubled the size of its marketing team and is currently looking for a creative agency to help scale the business, boasting a seven-figure marketing budget.
New marketing plans include TV advertising, direct mail, print ads, PR, social media advertising and paid search marketing across the three locations it has already launched in – London, Birmingham and Edinburgh. Outdoor advertising on the London Underground and at key locations such as Canary Wharf launched at the end of last month.
Ed Relf, chief executive officer at Laundrapp and former chief marketing officer of Mind Candy, the entertainment company behind Moshi Monsters, says: “The company is 15 people at the moment, but the marketing team consists of five people so they are a third of the company. Marketing is an essential part of what we do.”
Relf believes that traditional channels will achieve cut-through for the digital start-up, particularly for acquiring app users.
“There is something that comes with above-the-line that you don’t quite get with digital, which is that when people see it, its real and it’s tangible,” he says. “I think there is credibility associated with it and therefore trust.”
The brand also uses an attribution tracking model to measure the return on investment from using big outdoor and print advertising. It attaches redemption codes to campaigns in order to track where users have seen an advert and when.
Relf says: “It’s not revolutionary but it works. It is the only way we can attribute those big above-the-line channels, to see new user acquisition and to calculate spend per acquisition.”
Be as targeted as possible. In the food and drink world the crucial part of marketing is the packaging because it’s such a good touch point for consumers and a great opportunity to get key messages out. In our consumer world that is an important part of the marketing mix that sometimes doesn’t get included.
I’m a great believer in connecting with other similar businesses, finding out what they do and supporting them – that kind of networking is crucial. You can read all the books you want but if you speak to people who are doing it already, you can gain that information much quicker.
Don’t get carried away with vanity marketing. We used to get a lot of bookings from [Google Ad Words] but we saw everyone else in the same space using it, and costs were rising so we stopped it. You have to look at the return you are going to get back. Always track what you are spending and what comes from it.
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I know it’s tough for SMEs to get their heads round advertising as an investment – I’m trying to get some of them to use me as an ad-hoc Marketing Manager.
I checked some numbers from various sources for the Top Ten 2013 UK advertisers and concluded they spent a combined average of around 0.5% of their annual revenue (not profit) on advertising.
A sole trader not yet VAT registered generates under £82,000 income a year, and 0.5% of this would equate to an advertising spend of £410 at most. Diseconomies of scale mean Marketing is disproportionately more expensive for SMEs, even more so for the smallest ones, and is thus perceived as a higher risk outlay.
And by the time an SME works out what a worthwhile budget would be to run a viable level of marketing activity, and the average budget figure quoted was £24,000, they often tend to do something else with the money that a) does have a more guaranteed outcome, and b) won’t take up as much of their time.