• A SURVEY OF SMALL BUSINESSES’ USE OF MARKETINGTOOLS

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A SURVEY OF SMALL BUSINESSES' USE OF MARKETING
TOOLS
Robert E. Stevens, Northeast Louisiana University
C. William McConkey, Northeast Louisiana University
David L. Loudon, Northeast Louisiana University
Paul Dunn, Northeast Louisiana University
ABSTRACT
This paper reports the results of a national mail survey of small businesses to investigate their use of
various marketing tools, their relative effectiveness, marketing personnel/budgets, and the use of
outside marketing services. One thousand questionnaires were mailed to a randomly selected sample
of small businesses. Forty-three were returned due to moved/no forwarding address or business no
longer in operation. Thus 957 questionnaires were delivered and 168 questionnaires were returned for
a response rate of 17.6 percent. Direct mail, TV ads, magazine/trade publications, and bro-
chures/catalogs were rated as the most effective marketing tools by respondents. More marketing
activities were not employed due to concerns about cost effectiveness. Over 90 per cent of the
respondents did not know their company's SIC code, indicating limited knowledge and access of
secondary data sources.
INTRODUCTION
While small business owners and managers must wear many "managerial hats," one that may often
feel uncomfortable is marketing. Marketing is often an afterthought because of the need to concen-
trate on production and financial considerations in launching and running a small business. This study
investigates the use of various marketing tools, their relative effectiveness, and the use of outside
marketing services by small businesses. No previous studies of this topic were identified in a review
of the literature.
The causes of failures as reported by Dun and Bradstreet, however, illustrate that marketing is often a
problem because a large percent of failures can be attributed to a lack of or poor marketing among
businesses.
METHODOLOGY AND OBJECTIVES
Data for this study were gathered via questionnaires mailed to a sequentially selected probability
selected sample of non "Professional" small businesses (fewer than 100 employees) located
throughout the contiguous 48 states. The mailing list from which the sample was drawn was obtained
from Dun and Bradstreet.
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To guide the research, the following objectives were specified:
1) To evaluate the extent and usefulness of marketing tools such as brochures, TV advertising and
trade shows.
2) To determine the use of outside marketing personnel to plan/ implement marketing activities.
3) To determine the levels of marketing expenditures and reasons why more marketing activities are
not utilized.
To improve the accuracy of the questionnaire, a pretest was undertaken involving a mailing of 100
questionnaires to local small businesses. These respondents were asked to evaluate the questionnaire
and note any unclear questions or choices of answers. Using this input, the revised questionnaire was
mailed to the national sample. The questionnaire included a cover letter explaining the nature of the
project and asking for their cooperation and a pre-addressed, postal permit return envelope.
Out of the one thousand questionnaires which were mailed out, 957 were actually delivered and 168
were returned yielding a 17.6 percent response rate. Budget restraints limited the use of pre- and post-
contact mailings which would possibly have increased the response rate. Areas of questioning
included business characteristics, use of various marketing tools, external marketing service providers,
and marketing expenditures. The business characteristics measured included years in business,
industry, and level of employment.
The resulting data were processed using the SPSSX statistical package to permit more extensive
analysis. Two analytical approaches were used in the study. First, percentages and mean responses
were computed for the purpose of determining the direction of response patterns. Second, respondents
were grouped by industry and size to analyze differences in responses.
OVERALL FINDINGS
As noted earlier, 168 respondents completed and returned the questionnaire within the four week cut-
off period. Characteristics of the businesses surveyed represented a wide variety of firms based on
length of time in business, industry category, and two major groups based on number of employees.
The length of time in business of respondents is shown in Exhibit 1. While about 10 percent have
been in business less than five years, 27.4 percent have been in business for over 30 years. These
categories represent the extremes in terms of business experience of respondents.
EXHIBIT 1 Length of Time in Business
Category Percent* ----------------------------------------------
Less than 5 years 10.1% 5 to 10 years 25.0 11 to 15 years 13.1 16 to 20 years 14.3 21 to 25 years 6.0
26 to 30 years 3.0 Over 30 years 27.4
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*Does not add to 100% due to rounding.
Respondents were also questioned about the size of their business. These results are shown in Exhibit
2. Almost all of the businesses surveyed had less than 99 employees and 50 percent had less than 20
employees. Thus these respondents could truly be classified as small businesses reflecting the
accuracy of the mailing list in targeting small businesses.
EXHIBIT 2
Maximum Number of Employees Last Year
Size Category Percent* ----------------------------------------------
Less than 20 50.0% 21 to 99 48.6 100 to 249 1.2
*Does not add to 100% due to rounding
Another characteristic measured was types of industries the businesses represented. While many
different industries were surveyed, the largest groups of respondents were: retailing, manufacturing,
services, construction, and others. Many of the businesses were involved in more than one industry as
reflected in the percentage of responses shown in Exhibit 3.
EXHIBIT 3
Industry of Respondents
Industry Percent* ----------------------------------------------- Agr./fores./fisheries 1.8% Mining 1.8
Construction 19.0 Manufacturing 22.6 Transportation 6.5 Fin./ins./real est. 3.6 Retailing 28.6
Wholesaling 15.5 Services 22.6 Other 18.5
*Does not add to 100% due to multiple responses.
USE OF MARKETING TOOLS
As shown in Exhibit 4, yellow page ads, direct mail, newspaper ads/inserts, and brochures or catalogs
were the four most frequently used marketing tools. The two least frequently used tools were TV ads
and billboards.
Differences among four of the industry groups in terms of their use of various marketing tools is
shown in Exhibit 5. Manufacturers are heavy users of brochures/catalogs, yellow page ads, direct mail
and the heaviest users of trade shows & magazine/trade publication ads.
Retailers are most likely to use newspaper ads/inserts, yellow page ads, direct mail, and brochures but
are also likely to use broadcast media (radio/television). Service providers are heavy users of yellow
page ads, and are the heaviest users of brochures/catalogs, direct mail and telemktg. Construction
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companies rely on yellow page ads, brochures/ catalogs, newspaper ads/inserts & trade shows for
promoting their businesses.
EXHIBIT 4
Marketing Tool Usage: All Respondents
Marketing Tool Percent Using --------------------------------------------- Yellow page ads 60.5% Direct
Mail 53.0 Newspaper ads/inserts 49.4 Brochures or catalogs 46.9 Mag./trade pub. ad 34.6 Radio 31.5
Trade shows 30.2 Telemarketing 21.0 TV ads 16.0 Other 13.0 Billboard 9.9
EXHIBIT 5
Marketing Tool Usage By Industry Group
Percent Using-
Mkt Mfg- Re- Tool Cont tail Svcs % % % % Yellow page ads 50.0 75.0 73.7 62.5 Direct Mail 55.6
50.0 65.8 34.4 Newsp. ads/ins. 21.1 81.3 44.7 37.5 Brochures/cat. 50.0 45.8 55.3 43.6 Mag./trd pub.
ad 52.6 37.5 36.8 28.1 Radio 13.2 56.3 26.3 21.9 Trade shows 47.3 28.9 31.6 34.4 Telemarketing 13.2
16.7 23.7 18.8 TV ads 0.0 34.2 12.5 6.3 Other 5.3 12.5 13.2 6.3 Billboard 0.0 22.9 5.3 12.5
RANKING OF MARKETING TOOLS
Respondents were also asked to rank the various marketing tools in their effectiveness in attracting
new customers. To avoid the difficulty of trying to rank all ten tools, they were asked to rank the three
most effective by using a 1 for the best, 2 for second best, and 3 for third best. The ranking of
marketing tools is shown in Exhibit 6. Direct mail, TV ads, and magazine/trade publication ads were
ranked as the most effective techniques. These were followed by brochures/catalogs and trade shows.
These rankings were, of course, different depending on the industry of the respondent.
EXHIBIT 6
Ranking of Marketing Tools: All Respondents
Marketing Tool Rank -------------------------------------
Direct Mail 1 TV ads 2 Mag./trade pub. ad 3 Brochures or catalogs 4 Trade shows 5 Yellow page
display ads 6 Newspaper ads or inserts 6 Radio ads 8 Telemarketing 9 Billboard ads 10
The rankings of the effectiveness of the various marketing tools by four industry m groups are shown
in Exhibit 7. Manufacturers ranked direct mail, magazine/ trade publication ads, and
brochures/catalogs as the three most effective marketing tools. Retailers ranked yellow page ads,
newspaper ads/inserts, and radio as the three most effective. Service companies ranked yellow page
ads, telemarketing, and direct mail as their top three while construction companies preferred direct
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mail, brochures/catalogs (tied for the most effective), and yellow page ads.
OTHER DIFFERENCES AMONG INDUSTRY GROUPS
Cross-tabulations of the data by industry groups were utilized to determine what other differences
might exist among
EXHIBIT 7
Ranking of Marketing Tools By Industry Group
Rank ---------------------------- Re- Marketing Tool Mfg tail Svcs Cont ---------------------------------------
----------------
Yellow page ads 4 1 1 3 Direct Mail 1 4 3 1 Newspaper ads/ins. 6 2 5 5 Brochures or cata. 3 5 4 1
Mag./trade pub. ad 2 7 6 7 Radio 7 3 7 5 Trade shows 2 6 2 4 Telemarketing 5 9 7 9 TV ads 9 8 9 8
Billboard 8 10 10 10
businesses in their use of various marketing tools. Two statistically different (.05 level) differences
were detected: (1) Service companies employed fewer full-time salespeople; and (2) Retailing,
wholesaling, and service businesses were the least likely to engage in data-based marketing.
While none of these findings was surprising, the finding related to databased marketing does create
the potential for application of these techniques to small businesses in these industries. As these
businesses continue to install computers, there will be many opportunities to create seminars and
software applications for these businesses.
WHY MORE MARKETING IS NOT USED
Respondents were also asked why they did not engage in more marketing activities. The major
concern was the benefit/cost trade off expressed in both the "costs too much" and the "costs outweigh
benefits" responses. In other words, the value of marketing to the firms in terms of increased
revenues, profits, and position is questionable. The results are shown in Exhibit 8.
EXHIBIT 8
Why More Marketing Isn't Used
Reason Percent --------------------------------
Costs outweigh benefits 48.8% Costs too much 46.3 No competitive pressure 16.0 Not enough
knowledge of what to do 15.4 Other reasons 13.6
MARKETING BUDGETS/PERSONNEL
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About 74.1 percent of the firms responding reported that they made some allocation for marketing
expenditures. The median amount of those making some allocation was 9.5 percent of sales and the
highest percentage was 20 percent of revenue. This included total expenditures for all marketing
activities such as promotion, sales personnel consulting fees, and other marketing personnel.
Many of the companies employed part- or full-time marketing personnel. Part-time personnel were
used by 19.8 percent of the firms and 22.5 percent had full-time marketing staffs. When asked about
marketing expenditures for next year, 29.7 percent reported plans to increase expenditures while the
majority, 70.3 percent, planned to keep their expenditures the same or reduce them.
USE OF EXTERNAL MARKETING SERVICES
Respondents were also asked whether they had used external marketing service providers. Their
replies are shown in Exhibit 9. Advertising agencies were the most frequently used service provider.
Almost 23 percent had used the services of an ad agency. The second most frequently used external
service was manufacturers' agents and brokers. These service providers were used by about 18 percent
of the respondents. While only 4.3 percent reported using a marketing research firm, 21.8 percent
stated that they had completed some type of formal marketing research. Evidently, most of these
projects were completed by internal staff or by consultants.
EXHIBIT 9 Use of External Marketing Services
Percent Service Provider Utilizing -------------------------------
Advertising agency 22.9% Mfgs' agent or broker 17.9 Marketing consultant 9.3 Export firm 6.8 Mkg
research firm 6.8 Pub. relations firm 4.3
SIC CODES
One of the most surprising findings in the study was the small share (8.7 percent) of respondents who
knew their Standard Industrial Classification (SIC) code. This means over 90 percent of these small
business operations do not know about the wealth of data that is available to them through secondary
data sources, such as the Census of Business, Census of Retail Trade, etc.
In essence, they are foregoing the availability and use of these data sources which could be accessed
by a trip to most libraries. Such "free" data could provide a whole array of useful data for analysis and
planning. The revelation that most firms do not know their SIC designation is significant. Small
businesses are missing a tool that can possibly improve marketing.
The STC system classifies establishments in the United States according to their economic activity.
The U.S. Government Printing Office in Washington, D.C. publishes the Standard Industrial Clas-
sification Manual which designates industries by assigning them a four digit code number.
This provides a business with a practical classification system for industrial customers. By itself, SIC
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will not tell the small business operator who the customers are, their potential, etc.; but by linking the
SIC system with industrial guides, customer information is more accurately available. For example, if
the SIC classification for existing customers is known then all other businesses with the same code are
potential customers. Additionally, if firms utilize the input-output models published by the U.S.
Department of Commerce they can identify the SICs that purchase from other SICS. It is, therefore,
important for firms to understand their SIC classification code.
SUMMARY
A wide variety of marketing tools have been used by the respondents surveyed. They have most
frequently used yellow page ads, direct mail, newspaper ads/insert, and brochures/catalogs. However,
they ranked direct mail, TV ads, and magazine/trade publication ads as the three most effective tools.
The two most frequently used external marketing service providers were ad agencies and
manufacturers' agents and brokers. The two most infrequently used were public relations firms and
marketing research firms.
Over 90 percent of the respondents did not know their company's SIC code number. This means that
the wealth of secondary data available though libraries is not known or not accessed by most of these
respondents.
While most of the respondents had used a wide variety of marketing tools, there is still concern about
the effectiveness of engaging in more marketing activities. This was reflected in high concern for
costs and costs/benefits of engaging in more marketing activities.
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