SMEs under-invest in advertising

31 January 2014
LONDON: Small businesses in the UK are far less likely than larger firms to invest in advertising, despite evidence that ads from smaller companies are relatively more effective, a new report from Deloitte and the Advertising Association (AA) has suggested.

Advertising Pays 2, launched by the business services firm and the trade association at the AA's Lead 2014 event in London yesterday, suggested that small and medium sized enterprises (SMEs) in the UK account for 99% of the nation's total companies, 50% of the workforce but just 18% of adspend.

Separate data released by the AA and Warc earlier this year forecast that £17.8bn was spent on ads in the UK in 2013, up over 5% from the year before.

The new report found that only a minority (30%) of small companies invest in advertising at all. But Deloitte and the AA also found that every £1 spent on SME advertising has eight times the relative impact on growth as the same amount spent by their larger counterparts.

Karen Fraser, a director at the AA, argued that higher small business adspend would fuel a sustainable economic recovery in the UK and boost exports. "If we were to export at the same rate as our EU counterparts, we would add £40bn to the UK economy [each year]," she said. "And advertising is a crucial part of this."

She suggested that SMEs could look to government assistance schemes – of which there are more than 700 – to help boost their adspend, but added that knowledge of such schemes remains low. "It's just a question of good comms spreading the message," she said.

Meanwhile, Laurence Green, founding partner of UK advertising agency 101 London, told delegates that smaller businesses avoided advertising for financial reasons. "Most SMEs are travelling with their noses to the windscreen, looking to the short term and at cash flow. From this point of view, advertising looks like a cost. But the truth is it's a worthwhile long-term investment," he said.

As evidence for this, Green cited examples such as a campaign for Gu, a small dessert company. Through a perception-changing TV ad supported by Facebook and outdoor posters, sales increased by 24% in one year, generating £6.5m in sales. Gu, and its agency adam&eveDDB, also won at the 2012 IPA Effectiveness Awards for this campaign.

Debbie Klein, CEO of the Engine Group, an agency network, added that digital was lowering the barriers to entry for smaller companies, allowing firms to bypass agencies entirely and launch their own "self-serve" search and social campaigns.

She agreed that SMEs were under-represented on agencies' client rosters. "The vast majority of our sustainable relationships are with large clients", she added, "and other agencies will say the same."

Data sourced from Deloitte, Advertising Association; additional content by Warc staff
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