Bellwether: Confidence drops to nine-quarter low

Marketing budgets were revised down in Q2 for a third consecutive quarter, as companies attempted to reduce operating costs and protect profit margins amid concerns around the economic outlook, according to the latest IPA/BDO Bellwether survey.

With 22% of companies reporting a downward revision against 20% that reported an increase, the resultant net balance was -2.2%. Yet the rate of budget trimming was the lowest in this period (up from -5.1% in Q1, and -5.4% in Q4).

Marketing executives’ confidence for their own companies has dropped to the lowest in nine quarters, with the net balance dropping from 12.8% in Q1 to 3.3% in Q2.

By sector, direct marketing budgets were revised up and at the most pronounced rate in three quarters. Internet advertising budgets were also revised up but at the smallest rate in two years. Sales promotion budgets had the sharpest downgrade to spend. ‘All other’ (below-the-line) and main media budgets were also cut (the latter in part due to the easing in growth of internet spend).

Andy Viner, head of media, BDO LLP, said: “Marketing spend has proven to be a good barometer of the economy in recent years. The latest IPA/BDO Bellwether report signifies renewed caution from marketing executives as corporates continue to monitor discretionary expenditure to protect profit margins and strengthen balance sheets. Marketing budgets have now been revised downwards for the third consecutive quarter albeit at a slower rate, providing further evidence that the outlook will be tougher and more subdued for the remainder of the year, even when compared to previous forecasts only a few months ago.

“The survey also indicates that confidence generally in the marketing services sector has dropped further in recent months. This is unsurprising against a backdrop of above target price inflation, muted pay growth and a generally uncertain economic environment.

“Fortunately, the outlook for 2012 is looking more positive. There is certain to be an uplift in marketing expenditure connected with the 2012 London Olympics which will provide a welcome fillip to the marketing services industry after a challenging couple of years.”

Nicola Mendelsohn, IPA president, executive chairman and partner , Karmarama, added: “The economy is going sideways and this seems to be the way it is going in the advertising marketplace too. The decline in confidence doesn’t augur well, but is not surprising amidst a continuing climate of concern surrounding the financial and political outlook both at home and internationally. But we should take some comfort from the fact that the rate of budget trimming is at its lowest in three quarters, and that there are advertisers maintaining spend nevertheless.”