Marketing spend up for first time in a year but confidence dips further

The latest IPA Bellwether survey published today reveals that marketing budgets were revised up in Q3 ending a three-quarter period of decline, as companies increased expenditure to promote new products and maintain market share amid strong competitive pressure.

With 21% of companies reporting an upward revision compared to 17% that reported a reduction, the resultant net balance* rose to a one-and-a-half-year high of 3.4% (up from -2.2% in Q2).

For the first time since Q2 2007 budgets for all sectors were revised up. The internet saw the steepest increase by a wide margin and the largest quarter-on-quarter jump in the history of the report, with a net balance of 16.6% (up from 1.9% in Q2).

Main media spend, a category which includes the internet, recorded the slowest pace of budget growth and only a marginal rise, suggesting a shift to online.

Direct marketing budgets were revised upwards to the greatest degree for a year, while sales promotion and ‘all other’ (below-the-line) recorded growth for the first time in 15 and 16 quarters respectively.

Yet business optimism is falling further, with marketing executives’ confidence for the industries in which they operate hitting a two-and-a half year low: the net balance of -23.3% was down from -10.9% in Q2. Even though marketing executives were slightly more optimistic about their own companies’ prospects the degree of optimism was the second lowest since Q1 2009.

Nicola Mendelsohn, IPA president, executive chairman and partner, Karmarama, said: “That we are seeing a further decline in confidence overall continues to reflect the uncertain financial climate that businesses are operating in. Yet it’s important that the advertising industry and UK plc at large should do all it can to be as upbeat as possible to meet the challenge that we face.

“This rise in spend demonstrates that many companies are trying to buck the downward trend. It is a move in the right direction and shows that businesses understand that those that maintain the strongest marketing spend will come out on top.”

Chris Williamson, chief economist at Markit and author of the Bellwether, added: “UK companies are tackling the adverse economic climate with increased marketing activity, in an attempt to boost sales in the face of weak demand. Extra money is being targeted at online advertising, direct marketing and sales promotions, but there remains a worrying reluctance to increase spend on traditional main media activities such as broadcast and print advertising.

“The increase in marketing spend in the face of adversity helps to explain why companies became a little more optimistic about their own financial prospects but at the same time were the most pessimistic about prospects for their industries since the early months of 2009.”

(*net balance calculated by subtracting the percentage reporting a downward revision from the percentage reporting an upward revision.)