Q4 2006 Bellwether: Marketing Budgets Stabilise

Contrasting with the sharp downgrades seen earlier in the year, the report says that this reflects improving business conditions. It adds that budget setting across the whole marketing spectrum will be the most buoyant in seven years for 2007-08.

Total marketing budgets were revised down in Q4, but only very marginally. However the internet saw by far the strongest upward revision, with the sharpest gain since the first quarter of 2000.

Although traditional media still holds the lions share of marketing spend, the internet is now estimated to account for 5% of all marketing budgets.

The last Bellwether Report saw a slight upward revision to marketing budgets, which signalled an end to the consecutive budget cuts seen over the previous five quarters (see Marketing Budgets Show Modest Growth).

The report adds that despite the improved performance in the second half of the year, 2006 is likely to have seen the weakest growth in marketing communications since 2002.

In Q4, 17% of companies reported increased total marketing budgets while 18% reported a decrease, so there was only a marginal net decline.

Although traditional advertising continued to lose share of total marketing spend the overall reduction was slight. 18% of companies reported a downward revision but 15% reported an increase.

Internet marketing budgets out performed all other sectors in Q4, with a net balance of 31.5% of companies reporting an increase across all business sectors.

Direct marketing was the only main category of marketing (ie excluding the internet) to see a rise in budgets in Q4, with a net balance of 4.1% of companies reporting an increase. Upward budget revisions were linked to new campaigns to meet business expansion as well as a shift in strategy towards direct marketing.

By sector, increases to budgets were most widely reported in IT and computing, travel, entertainment, and the financial services. Budget cuts were most widely reported in FMCG, industrial and utilities and the autos sector.

Non-traditional marketing, including the internet and sponsorship is so far showing the strongest growth in future spend, followed closely by direct marketing and traditional advertising.

Chris Williamson, Bellwether Report author, NTC Economics, said: “What stands out from the Q4 survey is the resurgent growth of marketing signalled for 2007, with spend buoyed by healthy profits and business confidence. The strength of marketing spend, and economic growth as a whole, may well exceed many people’s expectations.

“Also, while growth of internet marketing far surpassed that all other categories in Q4, main media advertising is by no means ready to be written off, with main media budgets set to show the strongest growth for seven years in 2007.”

Sir Martin Sorrell, chief executive, WPP, said: “Again the IPA Bellwether Report reflects our experience. The UK, although recently our weakest market internationally, is stabilising and growing again. Q4 was stronger and budgets for 2007 are promising. Again direct, interactive and internet are the star functional sectors.”

Robert Lerwill, CEO, Aegis group, added: “The IPA’s forecast for year-on-year improvement in total marketing spend chimes with our own Carat forecasts for 2007. It’s little surprise that digital is powering ahead. Digital excitement shows no sign of abating, with ever more clients catching on.

“Today’s report shows that while the early adopters were already allocating over 10% of their total marketing budgets to digital last year, almost half of all companies were still investing less than 1%. The growth continues to come on all fronts: from those who went digital early and like the results, as well as from the later developers, who don’t want to miss out a minute longer.”

Revisions To Current Marketing Budgets, By Sector, Q4 2006
	Q1 2006	Q2 2006	Q3 2006	Q4 2006
Total marketing	-6.2	-1.6	2.6	-0.7
Media adspend	-15.8	-7.5	-1.1	-2.9
Sales promotion	-6.6	-7.5	0	-5.0
Direct marketing	-0.8	0.9	10.1	4.1
All other marketing	-11.9	-5	2.4	-2.9
of which internet	25.8	24.4	24.1	31.5
Source: IPA Bellwether Report, January 2007