Marketing budgets cut again

Marketing budgets have been cut for the second consecutive quarter as companies uncertain over the state of the economy keep a tight rein on spending, according to the latest Bellwether report.

The poll of senior marketers from 300 companies, a respected barometer of confidence in the industry, found almost a quarter of those polled (23%) revised budgets down in the three months to 30 September, compared with the 18% setting them higher (see chart 1, below). The net balance, -5.5 was a sharp increase in those pulling money on the second quarter when the net balance was -1.1.

Budgets for all but digital – social media, display and banner advertising – and search were cut (see chart 2, below).

Chart 1: budget revisions and confidence
Chart 2: breakdown of budget revisions by sector

The level of confidence in the prospects for their own companies and industries demonstrated by the marketers polled was in line with the revision in budgets. Almost a third (31%) had grown more pessimistic about the future fortunes of their employers, while 28% were more optimistic – the net balance of -3% the first negative return reported by Bellwether in 2012 (see chart 3, below).

Chart 3: business confidence

For their industries, 35% had grown more pessimistic and 18.5% more optimistic.

The second consecutive drop in budgets has raised concern that a majority of companies will report a decline in marketing spend for the full year. The executives polled by Bellwether had started the year relatively upbeat, predicting the first full year increase in five years.

A slew of bad news about the economy – disappointing retail sales and sluggish growth in the UK as well as the ongoing sovereign debt crisis in the Eurozone – has depressed sales and left many companies reluctant to free up cash reserves for marketing campaigns without a guaranteed and quick return on investment.

Chris Williamson, chief economist at Markit and author of the Bellwether report, says the results reflect the ” weaker than expected economic environment than many had hoped not to be operating in.”

He adds: “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.”

Despite the gloomy picture painted in the latest report, some in the industry are more optimistic about the prospects for the marketing industry in 2013.

Nicola Mendelsohn, IPA President and partner at ad agency Karmarama, says recent economic news – the BRC found retail sales grew in September, while Ernst and Young recently forecast the UK economy will rebound in the second half of 2012 – offers hopes for the industry.

She adds: “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.”

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