Business confidence jumps in Q1 with marketing spend up again

The latest IPA Bellwether survey published today reveals that marketing budgets were revised up in Q1 for a third successive quarter in response to new product launches, expectations of better economic conditions and higher rates of return on investment.

With 22% of companies reporting an upward revision compared to 21% that reported a reduction, the upward revision was marginal with a resultant net balance* of 1% (up from 0.6% in Q4). *net balance calculated by subtracting the percentage reporting a downward revision from the percentage reporting an upward revision

Revisions to total marketing budgets

Analysis of marketing budgets in Q1

This increase in Q1 spend contributed to the first rise in annual spend in four years, nearly a quarter signalled a rise compared with 22% that saw a decrease, resulting in a net balance of 2.5%.

Yet business confidence has bounced back to the highest level in two years among marketing executives in relation to their own companies’ prospects with a net balance of 19.1%, up from -12.4% in Q4. And for executives’ views for the industry in which they operate the net balance surged from -44.9% in Q4 to a six-quarter high of 1% in Q1, the largest quarterly jump in the history of the report.

Marketing executives’ business confidence

In spite of the rise in confidence companies are still displaying caution though, planning to increase their budgets for the new accounting year (2012-13) to the smallest extent in three years.

By sector, internet advertising budgets were revised up to the greatest extent of all categories (net balance of 7.8%) and the main contributor to the overall upgrade. Within internet advertising, online search/SEO spend was also revised up though to a lesser extent (net balance of 4.7%). Sales promotion was unchanged. Main media was revised down, as was direct marketing and ‘all other’ (below-the-line) (see chart 2 for more detail).

This upward revision to spend adds to evidence that the UK economy skirted recession in Q1.

Nicola Mendelsohn, IPA president and executive chairman and partner at Karmarama, said: “It’s encouraging to see that marketing budgets are up again for the third quarter running, leading to the first rise in annual spend in four years. Business confidence is returning which is also welcome news. Companies have also set their budgets higher for 2012, albeit with a much greater degree of caution than in recent years due to the continuing uncertain economic climate. Yet there is no doubt that key events such as the London 2012 Games and the Queen’s Diamond Jubilee will do much to ensure that marketing spend continues to rise.”

Chris Williamson, chief economist at Markit and author of the Bellwether, added: “Companies’ views on their financial prospects have risen to the highest for two years, but the brighter outlook has yet to be fully reflected in plans for marketing spend.

“Although current marketing budgets were revised higher for the third consecutive quarter, the increase was only marginal. Furthermore, although companies have set their marketing budgets higher for 2012-13 on average, they have started 2012 with the most cautious approach to spending for three years.

“This perhaps reflects a more pragmatic approach to budget setting, given that initial increases in budgets were steadily revised away in the past two years, as weaker than expected sales caused firms to cut marketing costs. However, with the coming year seeing events such as the Olympics, Diamond Jubilee and Euro 2012, it is likely that the year will again see an increase in marketing spend.”