National Brands, Local Growth: Competition or Cooperation?


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Even for national brands, all business is local. And that’s because branding and advertising influence consumer purchase decisions at the local level.
In fact, we spend nearly as much ($178 billion) on auto insurance – a product generally purchased with a local agent – as we do on all retail e-commerce categories combined ($186 billion).

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National Brands, Local Growth: Competition or Cooperation?

  1. 1. National Brands,Local GROWTHcompetition or cooperation?
  2. 2. The “Local Business” PerspectiveMany products of national brands are sold by locally-owned or operated businesses, such as auto dealers, insurance agents, pest controlcompanies, cable resellers, hotels or franchisees of national chains. These local businesses leverage the national brand’s business model andbrand equity, and in return, create human connections with local customers to grow their business and provide revenue back to the national brand.Marketing is tough for these local businesses. Just ask them.We spent dozens of hours interviewing local representatives ofnational brands, and found that:• Local businesses do not consider themselves to beInternet-savvy. They are generally masters of humanconnections, using personal relationships to growtheir business. However, they lack the necessaryskills to navigate the fragmented and complex digitaladvertising ecosystem.• Local businesses are often skeptical of local marketingsolutions and choices in marketing programs “can beoverwhelming”. Since 2007, the number of media sourcesused by local business has jumped by 90%.42introductionEven for national brands, all business is local. And that’s becausebranding and advertising influence consumer purchase decisions atthe local level.In fact, we spend nearly as much ($178 billion) on auto insurance – aproduct generally purchased with a local agent – as we do on all retaile-commerce categories combined ($186 billion).1So it’s not surprisingthat national advertiserscompete fiercely forattention at the local level,spending $42.5 billion onlocal media advertisingin 20122. This number isexpected to increase morethan 20% by 2017.For these national brands, many factors have been building over thepast 10 years to create serious challenges for their advertising.• Increasing Complexity: Digital media, mobile in particular, isfragmented and evolving. Smartphones are quickly becomingour primary way to conduct local searches. Yet customers canbe hard to find as they spend time across an array of mobilechannels, ad networks and publishers.• Unfamiliar (and Inadequate) Outcomes: Many digital mediaofferings for local businesses don’t speak their language (phonecalls, leads), pricing by impressions or clicks.• Competing Agendas: It’s difficult for national brands to manageaffiliates, resellers and local agents advertising, which can oftenbe “off message” and competitive with one another.A national brand must be able to spend efficiently and effectively atthe local level and measure its results. In this paper we examinethe topic of “National Local” advertising from three perspectives: thenational marketer, the local business affiliated with the national brand,and the consumer. We use data from thousands of digital advertisingcampaigns, hundreds of thousands of digitally-sourced leads(phone calls and form fills), and dozens of hours of interviews with localbusinesses.Our analysis found:• Coordination significantly lowers marketing costs.Competing locally can double the cost of acquiring customers. Acentrally-managed program solves problems of competition andconsistency.• Local businesses are overwhelmed. They would prefer tospend more on digital advertising aimed at customer acquisition,and yet are underprepared to do so.• Consumers prefer human connections. Consumers preferphone calls over digital interactions for most local service-based businesses.• Funds are available. In most cases, brands already have thebudget to fund these programs through co-op advertising. Thismarket is estimated at $50 billion3, with less than one percentcurrently flowing into the digital advertising ecosystem. Thatmeans the remaining 99% goes to offline advertising.We conclude that co-operative digital advertising programs betweennational advertisers and local businesses are an attractive solutionto these challenges and promise both greater scale and improvedeconomics for brand and local business.Billion on local mediaadvertising in 20122$4220073.0 3.1 2009 2010 2011 2012Average number of media sourcesused by local businesses
  3. 3. • Local targeting of advertisements is extremely important. Localbusinesses such as auto dealers, insurance agents or hoteliersoften compete with other businesses within a few miles or a fewblocks from each other.• Local businesses focus much of their time on customer retention,and yet prefer to spend their advertising dollars on customeracquisition. According to BIA/Kelsey, 2012 local ad spend that“was primarily for customer acquisition outnumbered those thatsaid their ad spend was primarily for customer retention by about7 to 1.”5• Customer acquisition programs are crucial to local businessviability. For local businesses, the percentage of business thatcomes from new customers averages 40% each year.6The “National Brand”PerspectiveNational brands rely on local businesses to invest in marketing effortsto grow their business, and yet these local marketing efforts canbe counterproductive.One issue is brand consistency. National brands spend billions ofdollars on core brand advertising principles of “frequency, consistencyand relevance.” These efforts are designed to build awareness andfamiliarity with a brand, enter a consumer’s consideration set and drivea purchase at the local level.A second issue is overpaying for branded search advertisements. Webelieve best practices for branded search advertisements include asingle national campaign that includes the consistent, relevant brandmessaging with a call to action and a single local campaign that drivesa consumer to the appropriate local operator.Our analysis of National Local campaigns shows that this maximizesleads. With a coordinated program that advertises the nationalbrand “National Widgets” and where to purchase the product locally“Seattle Widgets Dealers”, the brand can expect nearly double theleads at a modest increase in cost-per-lead. When the program isuncoordinated, and there are multiple parties competing for the samelocal buyer, brands see significant increases in cost per lead, and paythe maximum allowable cost-per-acquisition. It also creates a worseconsumer experience as the most applicable local businesses are notnecessarily presented first or at all to the consumer because they arepushed out by those willing to bid up. Competitive local campaigns,particularly in dense geographic areas, can more than double cost-per-lead, and can be even higher when authorized resellers or affiliatesare involved in the auction.A third issue is lead allocation. The Seattle area has hundreds ofinsurance agents and hotels, and has dozens of auto dealers. Manyof these businesses compete for the same customers under the samebrand and would expect any national program to fairly distribute leadsamong them.One potential solution raised by the industry is latitude/longitude data,which promises to deliver a consumer to the closest location. However,numerous reports show that only 5%-10% of local mobile traffic hastrue lat/long data7. Even if this problem is solved, lead allocation wouldbe difficult due to the fact that consumers may be interested in a localbusiness, but not necessarily the closest one to them when they aredoing a search. For example, we may be searching at work when weare looking for a solution closer to home.A fourth issue is responsiveness at the local level. In a study of morethan 150,000 phone calls across many local business categories, morethan 20% of phone calls generated by digital advertising campaignsgo unanswered by the local business, and the majority of these phonecalls are during business hours. National brands, therefore, musthave an effective way to record and remarket to these leads and/orcoach their local affiliates on the importance of answering the phone orfollowing up promptly.A fifth issue is pricing and the benefits a national brand can provide alocal business through a centrally-managed program. Local marketingsolutions must be priced to include the cost of media to acquire a lead,in addition to the cost of managing the local account. A National Localprogram reduces much of the overhead in a local marketing solution bycoordinating and managing the program centrally.Where could national brands fund programs to address this need?One source might be existing co-operative advertising programs thathave not yet been widely adopted in the digital advertising space.Co-operative advertising programs, where brand and retailer shareadvertising costs, are estimated to be a $50 billion market with“significantly less than one percent” being spent digitally.3The “Consumer” PerspectiveData on consumer interactions with local advertising campaignsis a bright spot for national advertisers that are investing in localleads campaigns. For starters, consumers are actively reachingout to businesses over-the-phone in large numbers from digitaladvertising campaigns.We examined data from more than 10,000 digital campaigns acrossmore than 40 small business categories where consumers were offeredboth a form-fill option to contact a local business and a telephonenumber and consumers opted to make a phone call 81% - 89% of thetime. In addition, consumers are exhibiting a high degree of urgencyAutomotive25% unanswered callsMultifamily Housing40% unanswered calls3
  4. 4. to make a purchase in nearly every category. As an example, in the car rental categoryroughly 80% of phone calls were for same-day rentals. Our conclusion is that consumersoverwhelmingly prefer a human connection for most service-based business purchases.In addition, many of these consumers are new prospects – precisely the targets of anational brand’s television, radio and other “brand-building” campaigns. In a study ofmore than 65,000 calls to auto dealers, we found more than 60% of callers were bonafide new prospects as identified via phone tree.Fragmented Mobile Playing FieldThere are two ways to look at mobile search. One is through the lens of the traditionalbrowser-based search players, where Google owns roughly 95% market share in theUnited States.8The other is through the lens of a fragmented mobile world where half ofconsumers say that they use applications to conduct local searches and nearly 40% ofconsumers use directory sites or apps as a secondary source of search.9So which lens is more relevant for National Local advertising campaigns? The latter.Google is as essential for any local advertising campaign as is the publisher that has themost reach. It is also the most expensive publisher due to its efficient marketplace. Whencomparing apples-to-apples, Google can be twice as expensive to generate a qualityphone call as other mobile publishers. And measuring apples-to-apples is important. On average, only 40% of phone calls from Google are newcustomer prospects, with most of the remainder being wrong numbers, spam phone calls or customer service calls.10 Publisher diversification isa critical component to extending the reach of any program.National Campaigns, Local GROWTH:What Will The Future Hold?For brands with a local presence, marketing budgets will continue to be reallocated toward digital campaigns that produce local leads, andapproaches that cooperate with local operatives have the promise of lower cost-per-lead and greater scale. Based on the observed trends anddata, we believe that successful National Local campaigns will share the following attributes:• National Local campaigns will be funded by the national brands “in cooperation” with local operatives so that each party has “skin inthe game”.• Local businesses will require that national campaigns have conversion tracking elements, as well as the ability to fairly allocate leads fromcommon geographic areas.• National brands will need the ability to filter, verify and capture leads that are underutilized by local businesses due to poor call handling orafter-hours phone calls.• National brands will require a solution with dedicated training and service for local agents to ensure local business satisfaction.• National brands will require diverse and broad publisher solutions to diversify from Google and to keep average cost-per-lead down.• National brands will increase their spending on marketing analytics technology to help explain the success of its television and other offlinebranding campaigns and provide cross-channel attribution solutions.Mobile Callers to Auto DealersMobile Callers to Auto Repair Shops60% NewprospectsFollow-upsfor sales40%NewprospectsFollow-upsfor service59%41%4
  5. 5. About the authorJohn Busby is Senior Vice President of the Marchex Institute. TheMarchex Institute is a research and analytics team that publishesfindings on mobile advertising and the growing digital call advertisingindustry. It also provides custom research and consulting services forkey customers on their mobile and call-ready advertising campaigns.Previously, Mr. Busby served as vice president, product engineering.Prior to joining Marchex in 2003, he held various product andprogram management roles at InfoSpace’s consumer and wireless divisions, Go2netand IQ Chart.Busby holds a bachelor’s degree from Northwestern University.About Marchex InstituteThe Marchex Institute is a team of senior analysts and scientists dedicated to improvingthe digital call advertising industry and mobile advertising campaigns.About MarchexMarchex, Inc. delivers customer calls to businesses and analyzes those calls socompanies can get the most out of their mobile advertising.Marchex supports its customers through a unique technology platform that has threeprimary components: (1) Call Analytics, which powers all of our advertising solutions,and allows partners to leverage data and insights that accurately measure theperformance of mobile, online and offline call advertising; (2) Digital Call Marketplace,which annually connects millions of consumer calls to our advertisers from a rangeof mobile and online sources on a Pay For Call basis; and (3) Local Leads, a white-labeled, full-service digital advertising solution for small business resellers that drivesquality phone calls and other leads to their small business advertisers.Marchex is based in Seattle. To learn more, please visit Investor RelationsTrevor Caldwell, 206-331-3600Email: ir(at)marchex.comorMEDIA INQUIRIESMarchex Corporate CommunicationsSonia Krishnan, 206-331-3434Email: skrishnan(at)marchex.comNotes and References1. Auto insurance was $178 billion in 2012 - e-commerce revenue was $186 billion in 2012- BIA/Kelsey, 2013 Local Media Forecast3. Co-Op Advertising: Digital’s Lost Opportunity, 2012Rebecca Lieb, The Altimeter Group / IAB / LocalSearch Assn4. BIA/Kelsey LCM Wave 16, Oct 2012 – Surveys of smallbusiness owners5. BIA/Kelsey LCM Wave 16, Oct 2012 – Surveys of smallbusiness owners6. BIA/Kelsey LCM Wave 16, Oct 2012 – Surveys of smallbusiness owners7. Marchex Institute, 20125