Q2 2005 Bellwether:Growing Concern Over Economy Leads To Budget Cuts

The latest IPA Bellwether survey has signalled a downward revision to current marketing budgets in Q2 – the first budget cut recorded for nearly two years.

Published by NTC Research on behalf of the IPA, the Q2 Bellwether Report shows a trimming of marketing budgets, reflecting weaker than expected sales and profits as well as growing concern over the economic outlook both at home and abroad.

Marketing budgets for 2005 had initially been set higher than the previous year (the latest survey shows that 2004 had been by far the best year for marketing spend since the survey began in 2000). However, the buoyant confidence seen at the start of the year has been eroded over the last six months, with the Q2 survey signalling the first downward revision to current marketing budgets since the autumn 2003 survey.

Commenting on the findings, Chris Williamson, author of the report, said:”Marketing spend is closely linked to profits and sales levels, and the Q2 Bellwether survey tells us that companies have seen their financial situations deteriorate between the first and second quarters of 2005, and are not expecting an imminent turnaround. Marketing spend was therefore reduced for the first time in nearly two years in order to cut costs. This suggests that UK economic growth is likely to have slipped further from the 0.4% quarterly rate of increase seen in Q2 and is set to remain weak in Q3 and perhaps even Q4.”

Media adspend, which accounts for around one-third of all marketing spend, has been hit hardest by the budget cuts, seeing the sharpest revision of all the Bellwether categories. The downward revisions made to media budgets – which have been cut to a greater extent than total marketing spend – was the third successive quarterly downward revision and was also the largest seen for two years. This is mainly due to the switch from spend away from advertising in the main media towards comparatively lower-cost direct marketing and internet-related activities, designed to boost sales in the face of sluggish demand.

Jim Marshall, Chairman IPA Media Futures Group and Chairman, Starcom UK Group said: ” Following a pretty buoyant first quarter, advertising expenditure to all the main media has been hit by a recession in consumer expenditure. This in turn has hit advertiser’s profits and, more significantly, their longer-term confidence. At the moment there is some concern for the remainder of the year because we believe that, unless there is a reduction in interest rates, consumer expenditure and advertiser confidence is unlikely to increase significantly.”

Current budgets for internet-related marketing activities were revised up sharply again in Q2, with the extent of the rise only slightly below that seen in the previous two quarters. The rate of increase was the strongest of all the Bellwether sectors, with the data suggesting that the internet now accounts for around 4% total marketing spend.

IPA: 020 7235 7020 www.ipa.co.uk