Total Marketing Spend Down As Business Confidence Weakens

July 12, 2012 /

Total marketing budgets were revised down in Q2, reflecting pressure to cut costs as profit margins continued to be hit by weaker-than-expected sales.

The overall cut to budgets was the first for a year. However, the rate of budget trimming was only slight, with a net balance of just -1.1% of companies signalling a reduction in marketing spend. Almost 23% of respondents reported a decline in total marketing spend, compared with 22% that noted a rise.

By Bellwether category, budgets for main media advertising, direct marketing and ‘all other’ were revised lower on balance. Internet advertising, search and sales promotion budgets were, by contrast, both revised up in the second quarter, the latter showing the strongest rate of growth in nearly five years.

Annual budgets have initially been set higher in each of the past two years, only for actual spend to decline by year end as confidence in the business outlook and surrounding the euro area debt crisis have failed to dissipate. This was indeed true in 2011, with final data signalling a marginal decline in actual spend – after preliminary numbers had
signalled mild growth – and could well be the case in 2012.

The Q2 downward revision to total budgets suggests that it remains a close call as to whether actual spend will increase this year, which had been the plan at the outset of the year, when the Bellwether survey highlighted a surge in business confidence.

During the second quarter, however, sentiment among marketing executives has waned, with firms reporting that financial prospects facing their
industries had deteriorated compared to the situation three months earlier. The proportion of respondents that grew more confident decreased from 26% to 18%, while the percentage that were less positive climbed from 25% to 35%. The resulting net balance dropped sharply from +1.0% to -16.8%.

In terms of prospects for their own company, some 30% of Bellwether companies reported that financial prospects had deteriorated compared to three months ago. In comparison, 32% of marketing executives grew more optimistic. Consequently, the net balance declined from +19.1% – a two-year high – to +2.1%.

With the UK economy now technically in recession, and business sentiment generally waning, the Bank of England opted to inject further stimulus into the UK at its monetary policy meeting last week. The move, aimed to stave of a prolonged recession, was widely anticipated and followed the release of business survey data that showed economic weakness both at home and abroad in June.

Nicola Mendelsohn, IPA President, Executive Chairman and Partner, Karmarama, said: “With renewed concerns surrounding the economy both at home and abroad, in particular the problems surrounding the eurozone, it’s not surprising 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, commented: “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.

“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.”

 

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