Discounts and sales promotions spearhead growth in budgets
Marketing spend on discounts and loyalty rewards at its highest level for two decades as the cost of living crisis bites into consumer spending.
Increased spend on sales promotion is leading a revival of marketing budget growth, according to the latest report Bellwether Report from the IPA, published today (19 April).
Sales promotions saw the biggest budget increases of all categories in the first quarter, recording growth of 8.8% year on year. In the last report, budgets has been shrinking, at -4.4%.
The increase represents the strongest rise in sales promotions spending for nearly two decades.
The sales promotions category includes in-store promotions and incentives, coupons, discounting and loyalty card promotions. The first quarter increase in sales promotions budgets coincides with a burst of activity around retailer loyalty schemes, organised through growing retail media networks, to offer immediate deep discounts to shoppers suffering during the cost of living crisis.
“As the cost-of-living crisis continues, it is understandable for companies to offer sales promotions to help their customers’ tightened purse strings,” says IPA director general Paul Bainsfair, though he cautions against consistent, long-term price-cutting.
Boots recently told Marketing Week that it was making its “biggest ever” investment in price as shoppers called for more immediate discounts. Meanwhile, supermarkets including Tesco and Sainsbury’s are following similar strategies by offering deep, targeted discounts to loyalty scheme members.
Marketing budgets cling to growth despite recession fears“To ensure brand loyalty isn’t eroded and to protect the long-term health of their brands, however, such activity must be coupled with investment in longer-term brand building media,” he adds.
Many experts have counselled against overdoing price and sales promotion to mitigate a drop in consumer confidence because of the cost of living crisis. Les Binet, adam&eveDDB’s group head of effectiveness and the co-author of The Long and Short of it, recently warned any short term sales lifts from promotions will be offset by the impact on profit and brand equity.
The IPA is “pleased” to see that despite a rise in sales promotion activity, “investment in main media advertising was revised up to its strongest level since this time last year,” says Bainsfair.
Total marketing budgets at UK companies are growing at the fastest rate since the second quarter of 2022, despite widespread cost pressures and pinched consumer spending, finds the report. The net balance of companies recording upwards revision of budgets has risen to 8.2%, a substantial increase on the 2.2% recorded in the final quarter of 2022.
Les Binet cautions against ‘senseless’ price promotions as recession looms“This is a positive start to the financial year for marketing budgets, all things considered. The overall increase in confidence from UK companies regarding their financial prospects is being reflected in their marketing budget decision making,” says Bainsfair.
More than a fifth of companies (21.1%) saw increased budgets, while 12.9% saw budgets reduced. Around two thirds saw no change to their overall budgets.
Main media marketing – which includes big budget campaigns through media such as television – grew by 5.8%, its strongest performance since the second quarter of 2022. A breakdown of the figures showed budgets moving online (up by 10.5%) and to video, where growth has slowed but remains at 7.9%. Out-of-home budgets have fallen further, from -8.8% to -12.4%.
The increase in budgets reported are in line with increased optimism among respondents about their company’s financial prospects following marginally more positive news about inflation and GDP prospects. A a net balance of +7.0% of said they were optimistic, compared with a net balance of -17.2% in the previous quarter, the strongest level of confidence since the fourth quarter of 2021.
This confidence was not mirrored at an industry-wide level. A net balance of -7.1% said they were more pessimistic about the prospects for their sector category than three months ago.
“The latest Bellwether survey once again highlights the resilience of UK businesses who have endured both a pandemic and a period of plunging consumer confidence and multi-decade high inflation,” says S&P Global Market Intelligence senior economist Joe Hayes, the co-author of the report.
“Total marketing budget growth broadened out during the opening quarter, showing that more companies are tapping into their marketing resources to help them successfully navigate through economic turbulence,” Hayes adds.
