22% of small businesses use Facebook Ads

The Merchant Confidence Index is a quarterly survey conducted by MerchantCircle, a network of over 1.6 million local business owners in the US. The sixth edition of the survey, conducted between April 30, 2011 and June 6, 2011, was sent to a random sample of MerchantCircle's member base. There were 4,942 total responses from local business owners across the US (no incentive was offered to complete the survey). Responding businesses classified themselves as legal and financial services, automotive, health and beauty, entertainment, travel and more, with 78 percent of respondents employing fewer than five people.

The data reveals that Facebook ad offerings are making inroads with local merchants, which could put pressure on companies like Google and Groupon for share of local marketing budgets. Thanks to huge consumer adoption, ease-of-use, and low barrier to entry, Facebook continues to be the most popular way for merchants to market their business: 66 percent use the social network for marketing. Facebook Ads is benefitting from the social network's high level of adoption with a 94 percent awareness rate among local merchants.

While only 22 percent of merchants report having used Facebook Ads since its launch, nearly two-thirds (65 percent) of these say that they would use the service again, citing ease of use (67 percent) and the ability to start and stop campaigns (65 percent) as the top reasons for continuing. On the other hand, of the 35 percent of merchants who said they would not advertise with Facebook again, 69 percent said that the ads did not help them to acquire new customers, and 35 percent said the ads were too expensive.

When it comes to daily deals, 52 percent of merchants say that familiarity with Facebook and Google would lead them to choose Facebook Deals or Google Offers over competitive offerings like Groupon and LivingSocial. Other reasons for choosing Facebook Deals include bigger audience size (26 percent) and better local targeting (21 percent), while those more likely to use Google Offers cited Google's bigger audience size (42 percent) and Google's brand reputation (34 percent) as top reasons.

The popularity of location-based marketing services has dropped over the past quarter. The previous survey in January 2011 found 32 percent said they were using Facebook Places to market their business and nine percent were using Foursquare, while this quarter's data shows that 22 percent of businesses are using Facebook Places and just seven percent are using Foursquare.

"Facebook and other social networks have already established themselves as important marketing channels for local businesses, and the company is effectively parlaying this popularity into local ad sales," Darren Waddell, vice president of marketing at MerchantCircle, said in a statement. "Most local merchants are working with very small budgets and tend to prefer marketing methods that are easy and familiar, so it stands to reason that many merchants will gravitate towards a well-known brand such as Facebook when it comes to trying locally targeted display ads and group buying."