UK Marketers Cut Budgets for Fifth Quarter Running

17 July 2006

The Bellwether Report, a quarterly survey of marketing expenditure, published by Britain's Institute of Practitioners in Advertising, reports today (Monday) that UK marketing budgets were revised downward for the fifth consecutive quarter during the three months ended June 30.

Hardest hit by the cutbacks were traditional advertising and sales promotion budgets, as companies sought to reduce costs after weaker than expected sales. Internet marketing budgets, however hit a record high.

But there is light at the end of the tunnel, according to report author Chris Williamson of NTC Research: "Marketing budgets tend to change in line with company finances, and the latest survey indicates a clear turning point in the health of the corporate sector from the slowdown in growth seen late last year."

He notes that the downward revisions for Q2 this year are the smallest since budgets started to be trimmed in Q2 2005 and are markedly below the reductions seen in the previous two quarters. "It suggests that profits are providing a stimulus to economic growth," says Williamson.

Key facts from the latest report are . . .

  • 2006 is set to see the weakest growth since 2002 following modest budget settings at the beginning of the year that were further revised down in Q1 and Q2 2006

  • For total marketing budgets: 24% of companies reported a downward revision, versus 22% that indicated an upward revision

  • Traditional advertising continue to lose share of total marketing spend as budgets were cut for the seventh quarter running, with 27% reporting cuts and 19% increases

  • Sales promotion budgets overall were revised down in Q2 for the sixth consecutive quarter, 10% of which reported an increase against 18% reporting a decrease

  • The growth of internet marketing continues unabated with 30% of companies reporting an increase to budgets against 6% a decrease. The proportion of companies allocating more than 10% of spend to internet marketing rose to a record high of over 17%. At the same time the proportion of companies allocating no spend to internet budgets fell to a record low of 11%

  • Direct marketing budgets were revised up, with 19% reporting an increase against 18% a decrease. Companies continue to cite its effectiveness, accountability and relative low cost as factors behind its increase in share of total marketing budgets

  • By sector, increases to budgets were most widely reported in financial services, travel and entertainment and FMCG. The sharpest cuts were seen for autos and consumer durables.
Commenting on the Bellwether data WPP Group ceo Sir Martin Sorrell said: "[It] mirrors what we see, not only in the UK but in the larger markets of Western Europe. Traditional advertising is under pressure, with internet and direct marketing budgets strengthening.

"We think it is also fair to say that the prospects in Western Europe are improving slightly too, particularly in countries such as Germany. The pressure does seem to be diminishing as a result."

For further information on Bellwether click here.

Data sourced from Institute of Practitioners in Advertising(UK) and NTC Research; additional content by WARC staff