Promotions Drive Up Spend for 'Resilient' UK Marketers

Total UK marketing budgets appear to be rising again, according to the IPA's quarterly Bellwether Report, but the authors say the rise is driven by record investment in short-term focused sales promotion activity. Views of MR budgets were little changed with slightly more respondents (2.9%) reporting decline than growth.

The report is based on a questionnaire survey of around 300 UK-based companies providing quarterly information on trends in their marketing activities. The survey panel has been recruited from the nation's top 1000 companies, with respondents primarily marketing directors or similar, and the IPA says participating companies include a broad variety of advertisers in terms of market sector and geographical location.

The report uses index numbers created by deducting the proportion of respondents giving negative answers to a question from the proportion making positive statements. Thus for the overall index score, some 20.8% said total marketing spend had grown during the second quarter of 2023, while 14.4% said it had declined, leaving a net positive score of +6.4% - this is a decline from a net balance of +8.2% in Q1.

Within individual marketing categories, three out of seven registered positive net balances, suggesting growth in spend. The top performing segment was sales promotions, with a net balance of +13.4% - up from +8.8% in Q1 and the highest results in more than two decades of surveys data. The IPA says this means firms are ' supporting their customers through the cost-of-living crisis', which it says is 'understandable' but not healthy as a long-term tactic. There were net positives also for events (+9.8% from +6.3%), still perhaps bouncing back after lockdown freezes; and direct marketing, where the expansion was the sharpest since the third quarter of 2006 (+7.3% from +4.2% in Q1).

Other segments saw net negatives, suggesting falling budgets: -1.9% (from 0.6%) for PR budgets; -2.9% for market research (from -3.2%); and other marketing activity -6.8% from -5.8%. The main media segment saw a net negative balance after two quarters of positives: within this sub-segments are reported, video registering +3.2% (from +7.9%); audio -8.0%, from +1.7%; out of home -7.1%, from -12.4%; published brands -5.0%, from -1.9%; and other online +8.3, from +10.5%.

Respondents are also asked for their views on the general outlook for their sector and for their company specifically. Both questions were greeted pessimistically overall, with 'further rises in interest rates and stubbornly-high inflation' weighing on firms' finances according to the authors. 28.8% of survey respondents were downbeat about industry-wide prospects in the coming 12 months and only 16.2% were optimistic - the subsequent net balance of -12.6% is worse than Q1 (-7.1%) but much improved from 2022. Sentiment over own-company financial prospects 'edged closer to neutrality', with a net balance of +2.6%, versus +7.0% in Q1.

Paul Bainsfair, IPA Director General said of the figures: 'It is welcome news that total UK marketing budgets remain in positive territory, despite the latest figures from the ONS which reveal a 'listless' UK economy. It is therefore not surprising to see a dramatic increase in sales promotion this quarter. But we would not want to see this as a long-term trend because our comprehensive bank of evidence shows that price promotions damage brands because they lower consumer price references and do not build brand loyalty. While, understandably, brands may think this is the right thing to do for their customers during the current cost-of-living crisis, it is a counter-productive exercise that may generate short-term spikes in sales volumes but will almost never change how consumers think or feel about their brand because they are only interested in the lowest price point. What happens next is the eventual erosion of a company's long-term brand health and profitability. We continue to advocate the well-tested rule of thumb that a 60:40 ratio of brand building to sales activation is the best way to grow business through marketing activity'.

Laura Denman, Economist at S&P Global Market Intelligence and author of the IPA Bellwether Report struck an optimistic note: 'Bellwether survey data highlights the resilience of UK businesses, who appear to have weathered a challenging economic landscape over the past six months a lot better than many had anticipated. Surveyed companies continued to expand their marketing budgets in the second quarter despite still-severe inflationary pressures and continued interest rate hikes. We're seeing evidence that UK companies are proactive in their decision making and are adapting to the competitive business environment and challenging economic landscape in a robust manner. This bodes well for more stronger-than-expected results in the second half of 2023'.

Web site: www.ipa.co.uk .

All articles 2006-23 written and edited by Mel Crowther and/or Nick Thomas, 2024- by Nick Thomas, unless otherwise stated.