The latest IPA Bellwether survey published today reveals that marketing budgets were revised down for a second successive quarter in Q3 to the greatest extent since the end of 2009. This was due to a tough trading environment hampering profitability and cash flow amid concerns over the overall economic outlook.
As a consequence a tight control on costs led to a downward pressure on marketing budgets. With 23 per cent of companies reporting a reduction compared to 18 per cent reporting a rise, the resultant net balance was minus 5.5 per cent, down from minus 1.1 per cent in Q2 and plus one per cent in Q1.
This second downward revision makes it increasingly unlikely that total UK marketing spend for 2012 will increase as anticipated earlier on in the year.
And business confidence amongst marketing executives about their own companies’ prospects has weakened compared to three months earlier with a net balance dropping from plus two per cent to minus three per cent revealing the first negative outturn of 2012 so far and the lowest in nearly a year.
By sector, internet advertising budgets were revised higher and at a firmer rate (net balance up from 5.1 per cent to 7.1 per cent). Within internet advertising, online search/SEO spend was also revised up by 5.2 per cent). But all the other categories saw declines, the sharpest fall was in ‘all other’ (below-the-line) advertising which was cut back to the sharpest degree in three years, followed by main media, direct marketing and sales promotion.
IPA President Nicola Mendelsohn (left) says: “The message provided by the Bellwether survey is consistent and indicative of the economic situation as a whole which is one of underlying stagnation. We had hoped when the year started that things were picking up but as time has gone on the economy has stuttered and confidence isn’t particularly strong.
“We had hoped for growth but are instead looking at a flat market. Although this is disappointing it is by no means terrible. The outlook for UK economic growth in 2013 is looking better than this year so consequently we are expecting a relative improvement in marketing spend. We shall see what Q4 and the year ahead brings but the advertising and marketing industry is certainly not a market in decline.”
Bellwether author Chris Williamson, chief economist at Markit, says: “Disappointing sales and revenues prompted companies to cut their marketing budgets again in the third quarter, reflecting the weaker than expected economic environment than many had hoped to be operating in. The modest increase in budgets that had been set at the start of the year looks instead to turn into a reduction in spend compared with 2011, as companies seek to reduce costs. It therefore seems likely that marketing spend will have fallen for a fifth successive year.
“The Bellwether is consistent with other surveys which suggest that the official data overstated the weakness of the economy in the first half of the year, but also suggests that economic growth slowed, and perhaps even stalled, in the third quarter. With business confidence falling further in the third quarter, prospects also look rather subdued for the rest of the year.”
This is all pretty depressing but hardly surprising. The UK economy is rather like a car stalled halfway up a hill because it hasn’t enough gas in the tank to get to the top. Without a pretty dramatic change in government policy this is unlikely to change any time soon unless the prospect of facing the voters in 2015 forces a change on coalition chancellor Tory George Osborne and his apprentice Liberal Democrat Danny Alexander.
Having said that, such surveys of marketers’ intentions do not necessarily reflect spending reality: marketers may not want or intend to spend but somehow or other they do. “Events, dear boy, events” as a rather more distinguished Tory than chancellor Osborne once put it.