UK's Major Marketers Revise Budgets Upward

17 October 2006

LONDON: For the first time since Q1 last year, Britain's major marketers have increased their advertising and promotional budgets, albeit by modest margins, but nonetheless reflecting an increase in business confidence and marking the end of five consecutive quarters of overall budget cuts.

So records the quarterly Bellwether Report, prepared on behalf of the theInstitute of Practitioners in Advertising by NTC Economics. It's finding are consistent with a further rise in GDP growth in Q3, driven by rising corporate profits.

But the popping of champagne corks would be premature at this stage, Bellwether warns. Despite the latest upward revision, 2006 is expected to reflect the weakest overall growth of marketing spend in four years.

The Q3 rise was mainly confined to internet advertising and direct marketing, both of which reflected the strongest gains, whilst traditional media marketing budgets remained depressed.

Highlights of the latest Bellwether are . . .

  • A net balance of 2.6% of companies reported an increase of their total marketing budgets, the first rise since Q1 2005. 22% of companies increased marketing budgets against 19% reporting a decline.

  • Initial budgets for traditional marketing were revised down for the eighth consecutive quarter. However the rate of decline slowed for the third consecutive quarter, from the peak seen in Q4 2005 to a marginal pace of 1.1% reporting downward-revised budgets.

  • The initial 2006 budget-setting for traditional media marketing was the least buoyant for three years and, due to budget cuts throughout the year, the sector may even see a fall in spend with the auto, media, FMCG and retail segments reporting the most pronounced downgrades.

  • Internet marketing budgets continue outperform all other sectors with 24.1% of companies raising budgets across all main business sectors, led by IT and computing, similar to the strong gains seen in previous quarters.

  • 11.5% of companies now allocate more than 15% of their total budget to internet marketing, a figure which has more than doubled since 2000. However 49.2% of companies still allocate 1% or less of their spend to the internet, a figure which has fallen from 75% in 2000.

  • Direct marketing budgets have shown the largest gain for a year-and-a-half with a net balance of 10.1% of companies reporting an increase, growing its share of total marketing spend at the expense of traditional media marketing.

  • Upward budget revisions for DM were attributed to new product launches and events, plus past success with DM campaigns. Gains were most notably seen in the financial services, public and charities, travel and entertainment and FMCG sectors.

  • Sales promotion budgets were left unchanged with 12% reporting upwards revisions, to budgets offset by 12% signalling downward revisions.
Comments the report's author Chris Williamson of NTCE: "The latest Bellwether data suggest that a recovery in marketing spend, and in particular adspend on main media, may be stronger in the second half of 2006 than many are currently expecting.

"This is not altogether surprising; corporate profitability is currently at a 40-year high, meaning funds available to marketing departments have risen more than many companies were expecting at the start of the year."

IPA president David Pattison concurs: "The report paints an interesting picture of a modest rise in Q3 as business confidence in marketing has increased."

He observes, however: "The growth is driven predominantly by direct marketing and internet advertising at the expense of the more established media sectors, continuing the trends that we have seen over the last eighteen months."

Data sourced from Institute of Practitioners in Advertising; additional content by WARC staff