Q2 2006 Bellwether: Marketing Budgets Revised Down For Fifth Consecutive Quarter

However, the report does say there are signs that budget cuts may be beginning to ease, with the downward revisions for Q2 2006 being the smallest since budgets began to be trimmed in Q2 2005.

The cuts are markedly below the reductions seen in the previous two quarters, which the report says provides an early indication that the rate of decline of advertising spend has bottomed out and that growth of the wider economy has picked up.

2006 is set to see the weakest growth since 2002 following modest budget settings at the beginning of the year that were further revised down in Q1 and Q2 2006.

In total marketing budgets, 24% of companies reported a downward revision compared with 22% indicating an upward revision, while traditional advertising budgets were cut for the seventh consecutive quarter, with 27% of companies reporting cuts against 19% reporting increases.

Internet marketing continues to grow, with 30% of companies reporting budget increases, against 6% indicating a decrease. The proportion of companies allocating more than 10% of spend to internet marketing rose to a record high of over 17%. In comparison, the proportion of companies allocating no spend to internet budgets fell to a record low of 11%.

Direct marketing budgets were revised down in the last Bellwether (see IPA Bellwether: Traditional Media Budgets Continue To Drop), however they have been revised up this quarter, with 19% reporting an increase against 18% reporting a decrease. Amanda Phillips, chairman of the IPA Direct Marketing Futures Group and managing director of Proximity London, said: “With overall budgets cut again, the DM sector can take cautious comfort in an increased share of overall marketing spend and an anticipated upward revision of its own budgets.”

By sector, increases to travel budgets were most widely reported in the financial services, travel and entertainment and FMCG. The sharpest cuts were seen for autos and consumer durables.

Chris Williamson, Bellwether Report author, NTC Research, said: “Marketing budgets tend to change in line with company finances, and the latest survey therefore indicates a clear turning point in the health of the corporate sector from the slowdown in growth seen late last year. Of particular note, the survey suggests that profits are providing a stimulus to economic growth. However, strong competition and widespread consumer caution means companies are having to fight for market share by using an increasing variety of marketing tools.”

Sir Martin Sorrell, Group Chief Executive, WPP, said: “The Q2 2006 Bellwether Report mirrors what we see, not only in the UK but in the larger markets of Western Europe. Traditional advertising is under pressure, with internet and direct marketing budgets strengthening. We think it is also fair to say that the prospects in Western Europe are improving slightly too, particularly in countries such as Germany. The pressure does seem to be diminishing as a result.”