The war in Iraq, weak sales, falling profitability and concerns over economic growth – all are commonly cited causes of downward revisions to current marketing budgets, according to the Q1 2003 Bellwether Report published by Britain’s Institute of Practitioners in Advertising.

Although Bellwether indicates that marketing budgets were revised down on average for the third quarter running, the rate of decline slowed for the second successive quarter.

And further cause for optimism lies in forecasts of stronger sales, driven by the rebuilding of business and consumer confidence following a successful conclusion to the war in Iraq – all key factors behind increases in budgeted spend for 2003. New budget setting was the most buoyant since late 2000.

Key indicators from the report:

Below-the-Line Shift
A further shift in marketing revenues from above-the-line to below-the-line.

Slowdown in Rate of Decline
Although total current marketing budgets were revised down on average in Q1 2003 for the third consecutive quarter, the revision was only small and less steep than that seen in the previous quarter, suggesting a slowing in the rate of decline of marketing spend for the second quarter running.

Clients Set Budget Increases
Companies setting new budgets for 2003 in Q1 reported that total marketing budgets had been set higher on average than in 2002. Moreover, the rise was the largest signalled by the survey since Q4 2000 with 46% of companies reporting an increase in new budget spend - well over double the number (19%) that reported a decline.

Direct Marketing Continues to Grow
For the third quarter running, dm budgets were the only marketing category besides internet-related spend to be revised up on average. Citing greater efficiency and lower cost as factors favouring dm over conventional adspend, companies increasing their dm marketing budgets outnumbered those reporting a decrease by over two-to-one.

Sales Promotion Slips
Current sales promotion budgets were revised down for the third quarter running in Q1, but the fall was only small. Companies setting new budgets in Q1 reported an increase in budgeted 2003 spend with just over 1 in 4 reporting an increase compared to just 15% noting a decline. Sales promotion spend in 2002 was reported to have fallen, dropping at a similar rate to that seen in the previous two years.

Internet Budgets Soar
Q1 showed the steepest upward revision to internet-related spend since Q2 2000. Current budgets for internet marketing were revised up by almost 25% of companies while just 5% reported a downward revision. The scale of the upward revision was greater than for any other type of activity covered by the survey, pointing to an increase in share. Cost efficiency and accountability were the most often cited reasons for using internet marketing which had been established from past campaigns.

Comments IPA president Stephen Woodford: “Bellwether is reflecting the current ‘wait and see’ attitude of advertisers towards spending their marketing budgets. Certainly the war in Iraq as well as a continued tough economic climate at the moment is foremost on advertisers’ minds, but there are definitely some encouraging indicators.”

Woodford continued: “The general picture appears to be that the rate of decline in current media spend budgets is slowing significantly. We’re seeing media adspend budgets stabilising and increases in DM, sales promotion and internet marketing activities as well as ‘all other’ activities, including PR.”

Bellwether was researched and produced for the IPA by NTC Research.

Data sourced from: IPA and NTC Research; additional content by WARC staff