Q2 marketing spend drops amid weakened confidence
The latest IPA Bellwether survey published today (Thursday 12 July) has revealed that marketing budgets were revised down for the first time in a year in Q2, reflecting pressure to cut costs as profit margins continued to be hit by weaker-than-expected sales, and amid concerns over the future path of the economy.
The downward revision was marginal, with 23% of companies reporting a reduction compared to 22% that reported a rise. The resultant net balance was just -1.1% (down from 1% in Q1).
However, the Q2 downward revision suggests that it will remain a close call as to whether total marketing spend will increase this year, as had been the plan at the outset. Final data is now in for actual spend in 2011, which reveals a decline, albeit marginal of -1.7%.
Business confidence waned in Q2 compared to the surge seen three months earlier. Marketing executives’ views on the prospects for the industry in which they operate saw the net balance drop sharply from 1% to -16.8%. In relation to their own companies’ prospects, a net balance of 2.1% was reported in comparison to 19.1% in Q1.
Revisions to total marketing budgets
General business optimism was buoyed at the start of the year amid hopes the global economy had turned a corner.
The subsequent slide in confidence highlighted by the survey reflects in part the re-emergence of heightened uncertainty emanating from the escalation of the European debt crisis.
By sector, internet advertising budgets were revised to the greatest extent of all categories with a net balance of 5.1%, although this was the lowest for a year.
Within internet advertising, online search and SEO spend was also revised up and to a higher extent (a net balance of 7.4%).
Sales promotion budgets were revised up with the strongest rate of growth in nearly five years (from 0% to 4.5%). Main media was revised down, as was direct marketing and “all other” (below-the-line).
Analysis of marketing budgets
President of IPA and executive chairman and partner at Karmarama, Nicola Mendelsohn said: “With renewed concerns surrounding the economy both at home and abroad, in particular the problems surrounding the Eurozone, it’s not surprising that the signs are less encouraging.
“However, given this situation things do seem to be holding up nevertheless; spend is down but only very marginally at -1.1%. Business optimism has also dropped from the high seen in the first quarter, but not compared to the low levels seen in late 2011.
“We shall wait and see how things evolve and if caution continues, but look forward to key events like the Olympics which we expect will provide a welcome boost.”
Chris Williamson, chief economist at Markit and author of the Bellwether report added: “The second quarter saw some fairly typical risk aversion creeping in to marketing plans as the economic outlook dimmed and sales often disappointed.
“Business confidence has taken a step back again, having perked up briefly at the start of the year, which has caused companies to review their planned spend on marketing this year.
“The focus has been on cutting back on main media advertising, direct marketing and below-the-line activities and reallocating that money towards sales promotions and the internet, both of which are often cited as a means to quickly grow sales, especially in a downturn when customers are particularly cost-conscious.”
Williamson continued: “The downturn in confidence is not surprising given recent events in the Euro area, which is the UK’s main trading partner, and gloomy domestic economic news in recent weeks.
“However, it is reassuring to see that confidence is nothing like as negative as we saw late last year and any upturn in business optimism could soon feed through to higher marketing spend, and the Olympics should of course also provide a boost in the third quarter.”