Budgets slump as sales tumble

Even a rise in spend for online and digital marketing could not prevent a slump in overall marketing spend, according to the latest IPA Bellwether report published today, reflecting pressure to cut costs as profit margins continue to be hit by weak sales.
However, the downward revision was only 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).
And 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%.
And in relation to their own companies’ prospects a net balance of 2.1% in comparison to 19.1% in Q1. 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 this survey reflects in part the re emergence of heightened uncertainty emanating from the escalation of the euro debt crisis.
By sector, Internet advertising budgets were revised up 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/SEO spend was also revised up and to a higher extent (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).
Chris Williamson, chief economist at Markit and author of the report, said: “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 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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