IPA Bellwether Report shows sharp drop in confidence among UK advertisers

The latest Bellwether survey from the UK’s IPA (the agency trade body) published today shows that marketing budgets were revised down for the first time in a year in Q2 (April to June) reflecting pressure to cut costs as profit margins continue to be hit by weaker-than-expected sales. All this amid hardly surprising concerns about the dire prospects for the UK economy.

23 per cent of companies reporting a reduction in marketing budgets compared to 22 per cent that reported a rise. So the net balance was just minus 1.1 per cent, (compared to one per cent in Q1).

This revision suggests it will be touch and go whether total marketing spend will increase at all this year, as had been forecast by most parties at the start of the year. Final data for 2011 reveals a decline of 1.7 per cent, worse than all the forecasts.

Marketers are always unwilling to admit in these surveys that business confidence is going down the tubes even when it is. But it’s clear that any such confidence is declining rapidly, the survey recording a net balance (optimists versus pessimists) dropping from one per cent in Q1 to 16.8 per cent for industry as a whole and plus 2.1 per cent in relation to respondents’ own businesses. The comparable figure for the latter in Q1 was a scarcely credible plus 19.1 per cent. Given that marketers always think their own companies will buck the trend (otherwise they might be out of a job) this is disaster-ville.

Reasons given are the evaporation of hopes at the start of the year that the world economy had turned a corner. But the the eurozone financial crisis has dragged on, other economies are scaling back (the US and China in particular, the two largest) and cautious companies are choosing to sit on the $1.7 trillion dollars we keep reading they’ve stashed away rather than invest it in countries whose currencies may shortly be devalued.

So the estimate for media as a whole in Q2 is for a drop in expenditure of about one per cent with only online advertising (up about five per cent ) and search (up seven per cent) bucking the trend. But the odds are that the reality will be far worse than this.

Bellwether author Chris Williamson, chief economist at research company Markit, says “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.”

Well we hope you’re right Chris.

Some of us might aver that, with austerity fans George Osborne (left) and Danny Alexander in charge at the Treasury, the UK economy (which is not part of the eurozone) and consequently the ad market is unlikely to improve any time soon.

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About Stephen Foster

Stephen is a former editor of Marketing Week and London Evening Standard advertising columnist. He wrote City Republic for Brand Republic and is a partner in communications consultancy The Editorial Partnership.

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