Marketing Budgets Show Modest Growth

The survey also shows that business confidence towards marketing has picked up throughout the year, with a rate of decline easing in the first two quarters of 2006 before showing a small rise in Q3.

The IPA says that the survey is consistent with a further rise in GDP growth in Q3, driven by a rising corporate profits, as marketing spend is upped in line with improved sales and profits, and in support of new product launches.

However, despite the latest upward revision, 2006 is set to see the weakest growth of marketing spend since 2002.

In Q3, a net balance of 2.6% of companies reported an increase of their total marketing budgets, the first rise since Q1 2005. In addition, 22% of companies increased marketing budgets against 19% reporting a decline.

Q3 was the eighth consecutive quarter where initial budgets for traditional marketing were revised down, although the rate of decline slowed for the third consecutive quarter from the peak seen in Q4 last year, to a marginal pace of 1.1% reporting a decline.

The report shows that the initial 2006 budget setting for traditional media marketing was the least buoyant for three years, and due to budget cuts throughout the year, the sector may even see a fall in spend with the autos, media, FMCG and retail sectors reporting the most pronounced downgrades.

Internet marketing budgets are continuing to outperform all other sectors with 24.1% of companies raising budgets across all main business sectors, led by IT and computing, similar to the strong gains seen in all previous quarters.

In addition, the survey shows that 11.5% of companies now allocate more than 15% of their total budget to internet marketing, a figure which has more than doubled since 2000.

However,49.2% of companies still allocate 1% or less of their spend to the internet, a figure which has fallen from 75% in 2000.

Direct marketing budgets show the largest gain for a year and a half with a net balance of 10.1% companies reporting an increase, growing its share of total marketing spend at the expense of traditional media budgets.

Upward budget revisions for DM were attributed to new product launches and events, plus past success with DM campaigns.

Gains were most notable in the financial services, public and charities, travel and entertainment and FMCG sectors.

Chris Williamson, Bellwether Report author, NTC Economics, said: “The latest Bellwether data suggest that a recovery in marketing spend, and in particular adspend on main media, may be stronger in the second half of 2006 than many are current expecting.

“This is not altogether surprising; corporate profitability is currently at a 40-year high, meaning funds available to marketing departments have risen more than many companies were expecting at the start of the year.”

Jim Marshall, chairman, Starcom, chairman, IPA Media Futures Group, said: “The survey shows that confidence in marketing and advertising is returning, yet with a high degree of caution.

“This is reflected with traditional media continuing to suffer as companies opt out of a commitment to long-term branding. Overall it gives cause for a reasonable degree of optimism, tinged with caution.”

Wayne Arnold, managing director, Profero, chairman, IPA Digital: “The latest Bellwether survey continues to show increasing belief marketers are having in the internet as a communications channel.

“The report also indicates there is plenty of room for growth with 49.2% of companies still only allocating 1% or less to the internet. It is our belief we can expect to similar outstanding growth in the sector for some time to come.”

Meanwhile, Merrill Lynch recently lowered its global ad forecast, and is now expecting 1.3% ad growth in the UK this year, a slowdown from last year’s 2.5% growth (see Merrill Lynch Lowers Global Ad Forecast).