Alternative Segmentation of the SMB Market

In segmenting the small business market, we always either speak of industries and verticals, or national advertisers who spend locally vs. SMB-local advertisers. Sometimes franchisees are thrown into the discussion (there are reportedly 320K in the US).

Not even the US government knows how many national advertisers there are that buy local media or have a local presence. I spoke to someone at the SBA at some length about this question recently.

There is however is an interesting, and perhaps more productive way to segment the local market. That way was described to me by Wayne Reuvers, CEO of Live Holdings. This is the way his company looks at the local market:

  1. Branded branches,” (e.g., Bank of America), which reportedly comprises 60% to 65% of the advertiser spend. This might be thought of in the conventional approach as the “national-local” segment.
  2. Co-op sellers (e.g., insurance or real estate brokers/agents), which represents the second largest part of the local ad spend at 305 to 35%. In the conventional way of thinking, this group comprises the franchisees (in many cases) and the national-local segment as well in some cases.
  3. Independents, comprise 1% to 2% of the overall local ad spend. This is a numerous group but with little to spend relatively speaking. These are the lawyers, plumbers and so on.

This segmentation may be much more helpful for publishers and sales channels in formulating ways to think about an approach to the market.

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Update: People are commenting and disputing these percentages. Live Technology is the source of the percentages and we can validly debate them. The point I’m trying to make is that this is an interesting, alternative conceptual approach to segmenting the market.

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14 Responses to “Alternative Segmentation of the SMB Market”

  1. Tim Cohn Says:

    Are his percentages for both off line and online spend?

    Nationals undoubtedly comprise a large segment of local advertising both off line and on – possibly more than 50% – but to say Independents only represent 1% to 2% of local advertising dollars spent sounds illogical.

    If the independent local advertisers spend were only 1% to 2% of a local advertising market, then it wouldn’t be necessary to have local daily newspapers, multiple yellow pages or several local radio and television stations provide advertisers with their advertising options -the entire local advertising market for independent advertisers would be an media conglomerate’s afterthought ran by a CSR from their cubicle in New York.

  2. Greg Sterling Says:

    Well the precise figures aren’t mine. But the alternative segmentation is what I thought was interesting.

  3. Tim Cohn Says:

    Indeed it is.

    Anyone selling local advertising would be well served by first becoming acquainted with his top down view of local advertising buyers.

  4. justin Says:

    Yea, this is interesting and important but the numbers are strange Greg. Simply put, if you see the traditional local advertising marketplace at about $110B annually. And if you see the traditional YP marketplace (lawyers, plumbers) at $14B annually, then 1-2% doesn’t sit well. Certianly some of the YP business is the national-local but traditionally that has been around 15%. So even then, there is a big disparency. Interesting non-the-less.

  5. Greg Sterling Says:

    The % of spend may be off or incorrect. But the conceptual framework is correct I think.

  6. Tim Cohn Says:

    Conceptually he is correct.

    I think the question is what percentage of Co-op sellers’ ad budgets figures are for use at their discretion vs. % of co-op dollars received and budgeted for specific brand support.

    Also, do Real Estate agents receive the majority of their ad budget from their franchisor if they have one or from their direct customer – the home seller?

    What percentage of a car dealers advertising budget is manufacturer co-op dollars vs. the dealers overalll advertising budget?

    I can see where he came up with 1% to 2%, but I think Justin’s Yellow Pages argument alone supports 10%. Add newspapers, radio and tv and I think you can only increase percentages.

    BTW: Have you ever tried to recoup co-op advertising dollars?

    In my experience, its was kind of like searching for and using coupons.

  7. Wayne Reuvers Says:

    Nice debate – but let me clarify a few things as these figures come from me:

    Firstly, I see the local marketing opportunity made up of SMEs, not just SMB. In our view, “enterprise” is an enterprise that operates as it’s own entity. For example, a Best Buy store is actually an SME – they have complete responsibility for their own P&L – and they do advertise locally. So is a Home Depot store, as is the local Deli (SMEs encompass SMBs).

    Let’s look at Branded Branches (60-65%):
    These are enterprises that are required to execute all marketing, advertising and communications under a brand. It includes everything from a branch of a large bank, a McDonald’s franchise, a Century21 agent, a Best Buy store, a Lowes Theater, a Chrysler dealership, etc. Interestingly, a huge number of these also advertise in the YellowPages (almost all of them).

    The co-operative sellers (30-35%):
    These are companies with their OWN brand that sell products or services branded by others. The Best Buy does sell other companies products, so they do also “sorta” fall into this category, but it’s easier to leave them in the Branded Branches category. Examples here include a local deli that is selling P&G, General Mills, Pepsi and Coke products, a restaurant that receives co-op from the beer distributors, Joe’s Cellular that sell T-Mobile, VZW, etc., and the local hardware store, the local appliance store, etc. ALL of these execute marketing an communications with the help of the larger brands that do not have branded branches – Coke, P&G, Sony, Nike, Boar’s Head, a huge list. These folks also advertise in the Yellow Pages.

    The independents (1-5%)
    These are folks that typically sell services only. Local contractor, small law firm, accountants, small agency, independent plummer, etc. Yes, they do advertise in the Yellow Pages, but are the total base of the $14bn in advertising. I estimate they are about 40% of YP. And they do very little outside advertising, mainly stationary, a flyer in the local deli or a small classified ad in the local paper.

    In terms of the local market expenditure, I include measured media (about $110bn-$135bn) and unmeasured which includes DRM, FSI, in-store, alternative media, stationary, sales materials, merchandise, directory, event, which ads up to about $125bn. Total is around $240bn. Chrysler’s 4257 dealers spend $384,000 on average each – a total of $1.6bn. That’s 60% more than the brand spends nationally.

    For some reason, everyone thinks that local marketing will be dominated by SMB’s. SME’s will continue to dominate, those with brands will continue to account for 60%+ going forward.

    As for co-op collection, the largest co-op advertising industry is cellular – and the wireless operators cover 60-70% of the media spend. 28% of Whirpool’s products are sold through non-branded co-operative sellers (small appliance stores), and they contribute about $240m a year to these. Most of these brands fight to get their brand out through the players. Coke and Pepsi are great examples, as are MillerSAB and AB.

    Finally, Brand is about Emotion, Local is about Promotion.

  8. Reuvers Responds to ‘SMB Segmentation’ « Screenwerk Says:

    [...] Responds to ‘SMB Segmentation’ Last week, I posted “Alternative Segmentation of the SMB┬áMarket.” There were lots of comments about the math and some about definitions. Live Technology [...]

  9. Scott Huddle Says:

    Wayne, this is a really interesting conceptual framework. Do you have sources for your numbers, though? Or can you more completely describe the methodology that you used for coming up with this?

  10. Tim Cohn Says:

    Where is Telemarketing?

  11. Greg Sterling Says:

    What do you mean Tim?

  12. Tim Cohn Says:

    Isn’t telemarketing a form of advertising?

    Is telemarketing included in the measured or unmeasured media figures?
    If so, under which one?

  13. Another (Limited) Way to Segment SMBs : Selling to Small Businesses Says:

    [...] The above breakdown comes courtesy of Greg Sterling, who highlights some research by Wayne Reuvers, CEO of Live Holdings. [...]

  14. Juhani Polkko (@juhani) Says:

    Tim, I would think this from the push/pull perspective – advertising pulls people’s to a ‘point-of’sale’ where the sale (push) occurs. Outbound telemarketing pushes ‘point-of-sale’ to the customer without ‘pull’, so I wouldn’t categorize is as “advertising”.

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