BIA/Kelsey's Local Commerce Monitor, Wave 16 - Core Highlights

LCM Wave 16 Highlights:
Core SMBs
October 8, 2012

2BIA/Kelsey Local Commerce Monitor™ (LCM), Wave 16, Q3 2012
Proprietary and Confidential. Copyright © 2012 BIA/Kelsey. All Rights Reserved.
Data:CoreSMBs
LCM Wave 16 Highlights (Core SMBs)
 Executive Summary
 Ad Spend & Media Mix
 SMBs‟ Web Presence
 Engagement with Customers
 Appendix

Data:CoreSMBs
Executive Summary
 This Advisory presents the key top-line findings of our just-completed LCM
Wave 16 survey (for the Core sample*).
 Total spend on advertising and promotion is fairly stable, at about $3,000
annually. Spending intentions for the next 12 months are robust.
 The migration from traditional to digital/online media continues.
 SMBs continue to diversify the media they use for advertising and
promotion, now using 5.8 different media on average (a large increase).
 Social media, propelled by Facebook, appears to be rapidly evolving into a
core medium for SMB advertising and promotion.
 Mobile platforms, and the advertising/promotion formats that ride on them,
have gained significant traction since Wave 15.
*Since LCM Wave 14, we have surveyed two distinct samples of SMBs: Core and Plus
Spenders. The Core sample consists of SMBs that spend an average of about $3,000
annually on media for advertising and promotion. Details on each sample are in the
Appendix, slide 31.

Data:CoreSMBs
Executive Summary
 SMBs are increasing their engagement with customers in a variety of
ways, including loyalty programs.
 SMBs are building a deeper and broader web presence, manifested by an
appreciably greater investment in online assets*. In fact, at a recent
growth rate of about 29%, spending growth in online presence outpaced
the roughly flat spending for total advertising/promotion spending.
 This Advisory is being sent to the clients of all our Advisory Programs.
Shortly after receiving this Advisory, the clients of each of our six
individual Advisory Programs will receive findings from LCM Wave 16
with data and analysis tailored to their specific Advisory program.
*Defined in the survey as: “[Spend for] Updating, maintaining and operating your company's online
properties. These include your: Website, business profile pages, landing pages, pages on
Facebook or other social networks, pages on Google or similar providers, blog, etc.”

Data:CoreSMBs
LCM Wave 16 Highlights (Core SMBs)
 Appendix

Data:CoreSMBs
Total Spend on Advertising & Promotion
(Last 12 Months)
Sample Size = 300
Q103
$3,176 $3,041 $2,948
$-
$1,000
$2,000
$3,000
$4,000
$5,000
LCM Wave 14
(4Q2010)
LCM Wave 15
(4Q2011)
LCM Wave 16
(3Q2012)
*The wave-to-wave differences are within the surveys‟ margins of errors. There may be a slight downward drift of a few
points annually, but we can‟t determine that conclusively from these results.
Source: BIA/Kelsey's LCM Wave 16, Q3/2012 (and prior waves, if relevant). Methodology: Online panels. Findings may
not be statistically significant. Most questions are asked to the full sample of approximately 300 in each Wave. However,
where the sample size less than 300, that question has been asked of a subset of the full sample.
Total annual spending on advertising and promotion (for the prior 12 months)
registered again at approximately $3,000. This may suggest a slight downward drift
in this type of spending* (the data below demonstrates a 3-year CAGR of -3%).

Data:CoreSMBs
Spending Intentions for Next 12 Months
Sample Size = 300
Q104
40.0%
3.7%
48.0%
8.3%
0%
10%
20%
30%
40%
50%
Increase Decrease Maintain Not sure
Net Increasers:
36.3%
Source: BIA/Kelsey's LCM Wave 16, Q3/2012 (and prior waves, if relevant). Methodology: Online panels. Findings
may not be statistically significant. Most questions are asked to the full sample of approximately 300 in each Wave.
However, where the sample size less than 300, that question has been asked of a subset of the full sample.
Respondents reported fairly strong spending intentions for advertising and
promotion spending – with a net of 36% intending to increase spending.

Data:CoreSMBs
Percentage of Budget for Digital/Online
(Last 12 Months)
Sample Size = 187
27.5%
24.3%
27.6%
0%
10%
20%
30%
LCM Wave 14
(4Q2010)
LCM Wave 15
(4Q2011)
LCM Wave 16
(3Q2012)
Q301
*As with some other findings, this observed increase is within the margin of error, but may be directionally correct.
This metric is self-reported by the respondent, based on recollection.
not be statistically significant. Most questions are asked to the full sample of approximately 300 in each Wave.
A modest increase was observed in the percentage of total advertising and
promotional spending that went to digital/online media in the last 12 months*.

Data:CoreSMBs
Percentage of Budget for Digital/Online
(Next 12 Months)
Sample Size = 187
Q302
29.0%
26.0%
29.0%
0%
10%
20%
30%
40%
LCM Wave 14
(4Q2010)
LCM Wave 15
(4Q2011)
LCM Wave 16
(3Q2012)
*As with some other findings, this observed increase is within the margin of error, but may be directionally correct.
The pattern observed in the forward-looking estimate in Wave 16 is similar to what has been
observed previously – SMBs intend to spend a little more of their total budget for
digital/online media than they did in the prior 12 months*.

Data:CoreSMBs
Media Used for Advertising or
Promotion
Sample Size = 300
S11
63.0%
53.0%
31.0%
27.0%
22.0%
19.0%
0%
10%
20%
30%
40%
50%
60%
70%
Partial List
*Note that this metric is purely “binary”, indicating the percentage of respondents that use a given media, irrespective of
spending level. We measure spending with additional metrics.
Source: BIA/Kelsey's LCM Wave 16, Q3/2012 (and prior waves, if relevant). Methodology: Online panels. Findings may not
be statistically significant. Most questions are asked to the full sample of approximately 300 in each Wave. However, where
the sample size less than 300, that question has been asked of a subset of the full sample.
As in prior waves, we see a wide diversity of media usage in Wave 16. We were surprised to
see the very high penetration of social media, which 63% of respondents report they now
use. In addition, more than one-half (53%) use print or online Yellow Pages directories*.

Data:CoreSMBs
Media Fragmentation Increased
3.0 3.1 3.1
4.6
4.4
5.8
0.0
2.0
4.0
6.0
2007 (Wave
11)
2008 (Wave
12)
2009 (Wave
13)
2010 (Wave
14)
2011 (Wave
15)
2012 (Wave
16)
A key finding in Wave 16 is that media fragmentation increased significantly – as
measured by the average number of different media used for advertising and
promotion. The 5.8 different media now used, is almost a 90% increase in the
number of media used just 3 years ago.
Note: Each survey wave
typically identifies a couple of
additional media to choose
from, so there may also be a
slight “longer menu” effect
reflected in this data.

Data:CoreSMBs
Total Ad Spending Varied Considerably
by Age of Business
$2,324
$3,592
$2,941 $2,900
$0
$1,000
$2,000
$3,000
$4,000
$5,000
0-3 Yrs. 4-6 Yrs. 7-10 Yrs. 11+ Yrs.
Overall average @ $2,948
*Note: In calculation of each metric above, “outliers” spending more than $40,000 annually were excluded.
Q101
Sample Size=300
As in prior waves, we also found considerable variation in total spending for advertising and
promotion by the age of the business, with a noticeable peak in spending for businesses that
have been in business 4-6 years. This is intuitively reasonable, since these businesses have
survived the initial shake-out phase, and are still building their customer bases.

Data:CoreSMBs
Spend on Acquisition vs. Retention
 Wave 16 has a new question about the purpose of spending for advertising and
promotion. We asked respondents how they would categorize their spending – if
most spending went for customer acquisition or for customer retention.
 Key findings:
 28% said their ad spend was roughly 50/50 against these two purposes.
 Almost the same percentage, 29%, said they couldn‟t tell or didn‟t know.
 Of the remaining 43% that were able to identify a dominant purpose for their
ad spending, those that said their ad spend was primarily for customer
acquisition outnumbered those that said their ad spend was primarily for
customer retention by about 7 to 1*.
 This metric measured ad spending alone, and did not cover other efforts, such as
marketing, customer service, etc. These other efforts may be skewed more
heavily towards customer retention.
*The denominator used in this calculation was the number of respondents that said spending was primarily for one purpose or the
other, not the total base. Of respondents in that category, some 86% said their ad spend was primarily for customer acquisition.

Data:CoreSMBs
Spend on Acquisition vs. Retention
Sample Size = 300
Q101AA
37.3%
28.0%
22.3%
6.7%
5.7%
0% 5% 10% 15% 20% 25% 30% 35% 40%
>50% for Acquiring
Roughly 50/50
Hard to Say
Not sure
>50% for Retaining
The new question on the purpose of advertising and promotion spending produced
results strongly weighted towards customer acquisition. (See contextual comments
on previous page).

Data:CoreSMBs
LCM Wave 16 Highlights
(Core SMBs)
 Appendix

Data:CoreSMBs
$719
$876
$1,190
$0
$500
$1,000
$1,500
LCM Wave 14
(4Q2010)
LCM Wave 15
(4Q2011)
LCM Wave 16
(3Q2012)
Annual Spend on Website
& Online Properties
Q307
Sample Size = 178
Note: Data above (average annual spending) is based on respondents that provided a number. “Don‟t Know” responses
were excluded in these calculations.
SMBs continue to increase their annual spending on their website and other web properties.
The Wave 16 annual spend of almost $1,200 represents a CAGR (compound average growth
rate) of about 29% over the last few years. This is a sharp contrast to the total spend for
advertising and promotion, which primarily reflects media spending, which has been at best
flat for the last 3 LCM waves (and may even be drifting downwards, per slide 6).

Data:CoreSMBs
$719 $876
$1,190
$3,176 $3,041 $2,948
$0
$1,000
$2,000
$3,000
$4,000
LCM Wave 14
(4Q2010)
LCM Wave 15
(4Q2011)
Online Presence
Media Advertising
Media Advertising/Promotion
CAGR= -3%
Spend on Advertising/Promotion vs.
Online Presence
Q307
Sample Size = 178
Comparing the last three Waves for spending on advertising/promotion vs. online
presence, it‟s conceivable that if trends continue, the two “buckets” of spending
may approach parity in a few years. (Of course, three years of data isn‟t enough to
project a trend with confidence, particularly in a volatile industry.)
Online Presence
CAGR= 29%

Data:CoreSMBs
Online Properties
 We asked respondents if they had various online properties, including the
basic two shown on the next slide: website, landing page. (We‟re still
interpreting the findings, which were were quite a bit different from the Wave
15 readings; the reasons for the differences aren‟t readily apparent in some
cases.)
 We were surprised by the lower readings on websites and landing pages
than in Wave 15. In Wave 15, 66% of respondents said they had a website,
whereas in Wave 16, this reading dropped to 50% (with another 20%
reporting they plan to add a website in the next 12 months).
 Possible reasons for this difference include:
 Misinterpretation of the question (the wording changed in Wave 16).
 A genuine drop in the percentage of SMBs that have websites (e.g., in
favor of other types of web presence, particularly a Facebook page).
 A possible abandonment of old websites that would cost too much to
rebuild to current standards.
 A skew in the sample (although the samples were very similar in
firmographics, and other responses were consistent).

Data:CoreSMBs
Online Properties
Sample Size = 300
Q303A
6.0% 10.0%
23.7%
39.0%
20.0%
20.7%
50.3%
30.3%
0%
20%
40%
60%
80%
100%
Website Landing Page
Currently have
Don't have, likely to add
next 12 months
Don't have, and not likely
add next 12 months
Not sure
We also got a lower reading for SMBs with landing pages. In Wave 15, 44% of
respondents said they had a landing page, whereas in Wave 16, the reading was
just 30%. Another 21% said they are planning to add one in the next 12 months.

Data:CoreSMBs
Mobile Websites Rapidly Gaining Traction
15%
22%
52%
11%
Currently Have
No, but will Add in Next 12 Mo's.
No, and won't Add in Next 12 Mo's.
Not Sure
**A website optimized for access from a cell phone or other mobile platform.
*Per the note on slide 5, we typically see a fall-off in stated intentions of one-quarter to one-half. So for this metric, that
would translate into incremental additions of mobile websites in the 11%-17% range, not the expressed 22%.
not be statistically significant. Most questions are asked to the full sample of approximately 300 in each Wave.
Findings on mobile were some of the most dramatically different from Wave 15 to Wave 16. A
year ago, in Wave 15, only 8.7% of respondents reported having a mobile website*. In Wave
16, however, there‟s a dramatic increase to 14.7% that report having a mobile website, with
another 22% saying they intend to add one within the next 12 months**.

Data:CoreSMBs
(Core SMBs)
 Appendix

Data:CoreSMBs
Percentage of Business From New
Customers (Last 12 Months)
Sample Size = 265
Q202
39.8%
43.7%
39.0%
0%
20%
40%
60%
LCM Wave 14 (4Q 2010) LCM Wave 15 (4Q 2011) LCM Wave 16 (3Q2012)
One of the basic tracking questions is “What percentage of your business came from new
customers, in the last 12 months.” This metric stays fairly consistent wave to wave, at roughly
40%. Taken together with the findings on the purpose of ad spending (heavily weighted
towards customer acquisition), this underscores the importance of the new customer
acquisition process for SMBs.

Data:CoreSMBs
Customer Engagement:
Monitoring Customer Comments Online
57.0%
17.0%
24.0%
2.0%
Yes
No, but will Start
No, and won't Start
Not Sure
would translate into incremental additions of the monitoring of customer comments in the 8%-13% range, not the
expressed 17%.
As part of our increasing attention to social media, we ask several questions about
how respondents deal with customer comments that are posted online (in various
locations). A full 57% say they already monitor customer comments online, and an
additional 17% plan to start within the next 12 months, for a total of 74%.

Data:CoreSMBs
Customer Loyalty Programs Very Popular
Sample Size = 300
Q114
34.0%
21.3%
43.3%
1.3%
0% 10% 20% 30% 40% 50%
Currently Have
No, but will Add in Next 12 Mo's.
No, and won't Add in Next 12 Mo's.
Not Sure
55.3%
would translate into incremental establishments of loyalty programs in the 10%-16% range, not the expressed 21%.
We added new questions about customer loyalty programs, which we defined as “offering
discounts or special promotions to frequent customers.” The most basic question asked if the
SMB had such a programs, and if not, if they intended to add one. More than one-half (55%)
of respondents reported they either have a loyalty program or intend to offer one in the next
12 months*.

Data:CoreSMBs
(Core SMBs)
 Appendix

Data:CoreSMBs
Appendix: Addition of Tabs to Indicate
Survey Sample
 There is now a “tab” along the right-hand edge of each slide. This
indicates at a glance which LCM data sample (Core or Plus
Spenders) is being used on that slide. We think this is important
now that we have a Plus Spenders sample of 300 respondents as
of Wave 16, and will be publishing more material on Plus
Spenders.
 Although many slide decks will draw exclusively from a single
sample (either the Core sample or the Plus Spenders sample), the
addition of this tab will be a convenience, and will reduce the
potential for ambiguity in interpreting the LCM survey results.

Data:CoreSMBs
Appendix: Notes on Interpreting the
Findings About Intentions
 In several questions, the LCM survey asks respondents about their
intentions regarding use of specific media or platforms in the next 12
months. For example, one of these questions is about their
intentions to add a mobile website (if they don‟t already have one) –
slide 20.
 We report the findings in our results, although these are only
intentions. Of course, there is a fall-off between expressed intentions
and actual follow-through, when we ask the same question a year
later. The amount of fall-off is typically between one-quarter to one-
half of the expressed intention.

Data:CoreSMBs
Appendix: Wave 16 Process Notes
 This report presents the findings from Wave 16 of our annual LCM
survey (Local Commerce Monitor), administered Q3, 2012. The last
few waves, we have given the LCM survey to two separate groups
of SMBs:
 A Core sample, for which there is no minimum annual spending
requirement (although the average annual spend typically falls
around $3,000).
 A Plus Spender sample, for which there is $25,000 minimum
annual spending requirement.
 In Wave 16 we used 300 respondents for the Plus Spender sample,
the same size as our Core sample. (In the previous two waves, the
Plus Spender sample was one-half the size of the Core sample).
This increase in the size of the Plus Spender sample will support
more granular conclusions from the Plus Spender sample, as well
as direct comparisons to the Core sample.

Data:CoreSMBs
Appendix: Wave 16 Process Notes
 Wave 16 included many new questions and response options.
 In particular, there are additional survey questions (and response
options) in the areas of:
 Online presence
 Use of social media
 Use of mobile platforms
 Use of video
 Attitudes and intentions about customer loyalty programs
 Use of specific vendors for selected purposes (e.g. email,
website registration, SEM purchases, etc.)
 We will publish additional Advisories and Client Information Bulletins
with the findings from our Wave 16 LCM survey, for both the Core
and Plus Spender samples, in the next couple of months.

Data:CoreSMBs
Appendix: LCM Surveys
 The LCM survey is a “tracking” survey, monitoring changes over
time in a wide variety of metrics relating to
usage, spend, attitudes and intentions of SMBs regarding SMB
advertising, promotion, marketing and related services.
 The key goals are to understand:
 Media usage
 Media budget allocation
 Usage of specific features and capabilities (e.g. video)
 Performance assessments (ROI) of various media
 Attitudes towards emerging media
 Usage of specific vendors for several

Data:CoreSMBs
*Calculations of averages exclude outliers. Outliers are defined as:
 Core: Spending over $40k annually.
 Plus Spenders: Spending over $500k annually.
 UK: Spending over $500k annually.
UK spending data is converted from British Pounds Sterling to US Dollar equivalents.
Plus
LCM Survey Minimum Annual
Spend
Average Annual
Spend*
Core No Minimum ~$3,000
Plus Spenders $25,000 ~$82,600
UK No Minimum $2,000-$3,000
The full „family‟ of LCM surveys now consists of the following:

Data:CoreSMBs
 The LCM survey (Local Commerce Monitor) is our flagship
survey, started in 1999.
 LCM sample size is approximately 300 respondents per wave (for
both Core and Plus Spender samples, as of Wave 16). The
samples are drawn from seasoned panels managed by long-
established operators.
 The survey takes respondents ~20 minutes to complete (~65 total
questions).
 Most recent waves:
 Wave 16, conducted Q3 2012

Questions and Comments:
Julie Tsoi (pronounced “Choy”)
BIA/Kelsey
Director, Business Development, Western US, Asia & Australia
(650) 969-2425 office
(650) 353-6743 mobile
jtsoi@biakelsey.com
www.biakelsey.com
Copyright © 2012 BIA/Kelsey. All Rights Reserved.
This published material is for internal client use only. It may not be duplicated or distributed in any manner not permitted by contract.
Any unauthorized distribution could result in termination of the client relationship, fines and other civil or criminal penalties under
federal law. BIA/Kelsey disclaims all warranties regarding the accuracy of the information herein and similarly disclaims any liability for
direct, indirect or consequential damages that may result from the use or interpretation of this information.

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