The New Word of Mouth?

The decision by General Motors (GM) to pull back on Facebook advertising (Financial Times, 16 May 2012) was jumped on by social media sceptics questioning its effectiveness as a business tool.

Many small businesses must now be thinking: “If GM can’t afford it, then how can an organisation running on a micro-fraction of their budget even consider it?”

The balance between austerity and investment in growth is not just a problem for world leaders. Every business, however small, has to make regular decisions based on this issue. The only way for a business to survive without even a modest marketing spend is to rely on the simplest form of PR – word of mouth recommendations, complemented by repeat business from satisfied customers.

It seems that 54% of us say that word of mouth is the main driver of our decisions to buy. So despite technical advances and the millions invested in building brands, we are still mainly influenced by people we know.

Yet, however loudly a business, product or service is endorsed between friends, there does come a time when a network or community is no longer large enough to generate enough sales. Depending on their main customer targets, a business may then investigate advertising in local or even national media.

Even with discounts, advertising rates can go from hundreds of pounds in a local or online publication, to many thousands in a national newspaper. However, initial outlay is not so important as return on investment. Profitability is more likely to kick in faster, the more core target customers reached by the advertisement.

GM sold 2.28 million cars worldwide in the first three months of 2012; altogether there are over 31 million cars on UK roads. GM can advertise in a national newspaper knowing that a worthwhile percentage of its readers will have heard of its brands and will be on the market for a new car in the near future.

Compare this to the issues faced by a much smaller business – say, a hotel specialising in weekend walking breaks. Buying space in a national magazine for walking enthusiasts is expensive and may still not reach the more casual weekend walkers they hope to attract. Most forms of advertising and marketing will be a case of hit or miss.

They need the power of word of mouth, but magnified.  We’re back to Facebook again. Using Facebook they can drill down to reach their ideal customers; for example, young professionals living in a city but who list walking or the countryside as an interest.

The hotel only pays to reach those it has a good chance of attracting and will convert to strong leads. It does take a little knowledge about Facebook, but not every business needs to employ a specialist agency as there are some good, affordable online courses available that can teach you all you need to know.

In a recent real-life case, an Irish hotel demonstrated the potential to earn over three-quarters of a million euros in just 24-hours after an offer was claimed by around 27,000 people. If an ad or offer is attractive enough, others will do the work by recommending it to their friends and distribution becomes viral.

It is estimated (although unconfirmed) that GM spends around $40 million on its Facebook presence of which $10 million previously went into advertising. Once a business gets a feel for Facebook there are many alternative avenues to explore other than advertising. So don’t dismiss social media just because of one huge global corporation. Just see it as the new word of mouth.