Sales promotion is growing at record levels according to the IPA’s latest quarterly Bellwether Report, up 13.4% as UK firms pour money into price reductions in the ongoing cost of living crisis.
Events were up 9.8% and direct marketing 7.3%. Everything else was down including main media at -2.5%. Overall growth in marketing spend rose 6.4%, down from Q1’s 8.2%.
Gloom was the order of the day as industry-wide financial prospects moved deeper into negative territory. The 28.8% of survey respondents expressing a downbeat assessment for their industry in the coming 12 months more than offset the 16.2% who registered optimism, with a subsequent net balance of -12.6% was down from -7.1% previously.
Looking onwards to 2024, Bellwether forecasts adpsend to be broadly flat on an annual basis, with growth forecast at 0.1% as the effect of higher interest rates starts to weigh on household and business budgets.
Report author S&P Global expects UK GDP to rise by just 0.4% next year, although for 2025 onwards it anticipates a return to stronger rates of growth in the UK economy and adspend. As such, the Bellwether anticipates adspend growth to improve to 1.5%, 2.0% and 2.1% in 2025, 2026 and 2027 respectively.
Looking onwards to 2024, Bellwether forecasts adpsend to be broadly flat on an annual basis, with growth forecast at 0.1% as the effect of higher interest rates starts to weigh on household and business budgets. Report author S&P Global expects UK GDP to rise by just 0.4% next year, although for 2025 onwards it anticipates a return to much stronger rates of growth in the UK economy and adspend. As such, the Bellwether anticipates adspend growth to improve to 1.5%, 2.0% and 2.1% in 2025, 2026 and 2027 respectively.
IPA director general Paul Bainsfair says: “It is not surprising to see a dramatic increase in sales promotion this quarter. But we would not want to see this as a long-term trend because our comprehensive bank of evidence shows that price promotions damage brands because they lower consumer price references and do not build brand loyalty.
“While, understandably, brands may think this is the right thing to do for their customers during the current cost-of-living crisis, it is a counter-productive exercise that may generate short-term spikes in sales volumes but will almost never change how consumers think or feel about their brand because they are only interested in the lowest price point.
“What happens next is the eventual erosion of a company’s long-term brand health and profitability. We continue to advocate the well-tested rule of thumb that a 60:40 ratio of brand building to sales activation is the best way to grow business through marketing activity.”
Bainsfair may well be right but rapidly rising prices in the shops also affect perception of brands and consumers, as they say, are revolting. Adland, like most if the UK, will be praying for a substantial reduction in inflation and rather more growth in the economy than the Bellwether authors expect.
