According to a study of more than 200 small and medium sized enterprises by SmallBusiness.co.uk, 36 per cent of company owners rate word of mouth as working best for their company, above other specified marketing strategies.

Advertising (31 per cent) was the next most popular choice, followed by social media (8 per cent).

Sending direct mail (5 per cent), cold calling (3 per cent) and sending email alerts (1 per cent) were the least useful options, according to respondents.

Chieu Cao, co-founder of deal website Huddlebuy.co.uk, says, ‘Successful small businesses quickly learn about their customers and adapt their marketing activities to fit. Many startups have no choice but to rely on low cost and creative means such as word of mouth and social media due to a limited budget.’

Matt Hutchinson, co-founder of flat and house share website SpareRoom.co.uk, feels that word of mouth is a pivotal means of marketing. ‘Word of mouth has been crucial to the success of the website. Now we’ve made the top ten UK property sites (data from Hitwise) we are on people’s radars and, hopefully, by providing a consistently good service we’ll continue to get recommendations from happy users. There’s nothing more effective than that.’

Scott Knox, managing director of the marketing trade body Marketing Agencies Association adds that businesses need a clear strategy to go with the marketing plan. ‘Whichever channel a business decides to use, it is the creative idea and smart strategic thinking that will ultimately gain the best cut through. Of course the marketing channel will always play a vital role in bringing that message to life, but it is so important for entrepreneurs and business leaders not to lose sight of creativity, irrespective of the industry you work in.’

Word of mouth boosts sales

Small businesses are overlooking the most cost-effective way of increasing awareness of their product and thereby losing out on a great deal of sales, according to business growth consultancy The Quantum Organization.

Research from Quantum found that four out of five enterprises are not taking advantage of word of mouth referrals, despite the same proportion believing it to be the most important way of gaining new customers.

Having an existing customer recommend a product or service to a friend or acquaintance gives it credibility and means the prospective customer is more receptive.

“Sadly the results of this survey illustrate my experience that many businesses are missing out on a low-cost way of boosting sales by ignoring the power of word of mouth,’ laments Andy Lopata, managing director of networking group Business Referral Exchange. ‘Much time and money is spent on mainstream marketing strategies but many businesses still leave referrals to chance.’

‘Companies of all types and sizes can easily implement systems to encourage referral business from existing customers and contacts,’ believes Quantum marketing manager Vince Golder, who reckons three-quarters of new business can come through word of mouth, but most businesses only get about 20 per cent of the referrals they should be getting.

He advocates a structured approach to gaining referrals. ‘Spontaneous word of mouth is unpredictable and uncontrollable, whereas a structured referral system is proactive, predicable, measurable and manageable.’

The most effective method of boosting referrals is by offering an incentive to existing customers, such as rewards or discounts for referring new customers. And offering staff an incentive, such as a small bonus or gift or extra time off can encourage them to invite friends and family to investigate your product or service.