Bellwether Q1 2011: Companies are taking a cautious approach but outlook is positive

Marketing spend was down again in Q1 2011 in response to public sector spending cuts and rising costs, according to the latest IPA/BDO Bellwether survey.

With 25% of companies reporting a downward revision against 20% that reported an increase, the resultant net balance of -5.1% was the second-lowest in five quarters (Q4 was the lowest at -5.4%).

Companies’ confidence has also dipped to a two-year low following a -0.5% decline in GDP in Q4 2010.

However, marketing executives were slightly more optimistic regarding their own firms’ financial prospects (a net balance of 12.8%, up from 10.8% in Q4).

The Q1 downgrade to budgets was markedly less severe than that seen throughout 2009 and much of 2008. Budgets for the new accounting year have also been set higher than 2010 actual spend.

By sector, budgets were revised up across main media, primarily reflecting stronger growth of internet advertising budgets, and companies are planning to increase their media spend versus 2010 levels.

All other (below-the-line such as PR and events) budgets saw the highest cuts, followed by sales promotion. Direct marketing spend was revised down for the first time in one and a half years.

Andy Viner, head of media, BDO LLP, said: “The reduction in marketing budgets for the second successive quarter supports our anecdotal evidence that companies are taking a cautious approach to marketing expenditure against a backdrop of continuing economic uncertainty, subdued business confidence, cash flow pressures and mixed fiscal indicators in recent weeks.

“The outlook for 2011 looks a lot more positive with more businesses planning to raise their marketing spend compared with 2010. Whilst we are seeing a degree of caution in the face of reduced consumer spending and public sector cuts, a higher proportion are now seeking to use marketing to help their businesses emerge even stronger from the downturn through new marketing strategies, increased use of internet and an attempt to seize market share when competitors may still be cutting back on spend.”

Nicola Mendelsohn, the new IPA president and executive chairman & partner of Karmarama, added: “The latest report reflects the unsettled nature of the economy at present and hence the figures reveal a hesitancy that is not surprising. However we must remind ourselves that this downgrade is still markedly less severe than that seen throughout 2008 and 2009 and that it is encouraging to see companies are still planning to increase their spend versus 2010 levels.”