Q3 2005 Bellwether: Marketing Budgets Continue To Drop

According to the latest survey, economic growth looks set to remain below its long-term trend rate in coming months, with the Q3 Bellwether data suggesting that the UK will struggle to repeat the economic growth of 0.5% seen in Q2 during the final two quarters of the year, putting growth for 2005 at under 2%.

The Bellwether also illustrates how media adspend has been cut to a greater extent than total marketing spend, correctly anticipating the recent drop in advertising expenditure growth recorded by the Advertising Association (AA) for Q2 (see UK Adspend To Rise By 2.3%).

Media adspend budgets were revised for the fourth quarter in a row in Q3, with the decline the largest of all the Bellwether categories, with just 16% of companies reporting an upward revision compared to 22% showing a decline.

The Bellwether showed a reduction in sales promotion budgets for the third quarter running in quarter three, with declines seen in business services, media, autos and consumer durables sectors, although less dramatic than the cuts seen in Q2 2005.

After being unchanged in Q2, direct marketing budgets were on average revised upwards in Q3, suggesting a shift away from media adspend and sales promotions (see Q2 2005 Bellwether: Growing Concern Over Economy Leads To Budget Cuts).

Budgets for all other marketing were revised down for the third consecutive quarter, with downwards trends seen within all divisions, most notably in industrial, auto and media sectors.

Internet advertising expenditure, however, continued to be revised up in Q3, showing the strongest upgrade of any category of marketing covered by the Bellwether.

Respondents to the survey reporting an increase stood at 27%, compared to just 3% reporting a decline, with the rise enjoyed in Q3 equal to the strong growth seen in Q1. According to the survey data, the internet now accounts for approximately 4% of total marketing spend, up from less than 2% five years ago.

Commenting on the Bellwether findings, Chris Williamson, author of the report from NTC research said: “Although official data showed corporate profits to have risen in Q2, the Bellwether survey clearly shows that companies are battening down the hatches as consumer spending remains subdued and energy prices stay high.”

He continued: “Marketing budgets are typically one of the first areas of expenditure to be cut when business conditions deteriorate, so unless firms see demand for their goods and services pick up in the near future, the marketing budget cuts signalled by the Q3 Bellwether report are likely to be followed by cuts in other types of expenditure, notably investment and employment.”

Martin Sorrell, chief executive WPP Group added: “The Q3 Bellwether report confirms what we have been seeing in the UK, and indeed France and Germany – clients spending cautiously overall, particularly in traditional media, and increasing spending in the direct, internet and interactive media.”