Mediaboss Marketing

Marketing budgets and business confidence

Marketers have revised their budgets for digital ad spend up by the greatest extent in almost a decadeas they shift priority to more activation-based marketing amid growing economic uncertainty and a murky outlook.

In the IPAs latest quarterly Bellwether survey, covering the second quarter, 32% of respondents said they increased their internet marketing budgets, versus 9% that recorded a fall. That means an overall net balance of 22.7%, up from 16.9% in Q1 and the highest level since the third quarter of 2007.

That growth in internet ad budgets has also helped drive marketing budgets up. Some 28% of the survey panel recorded an upward revision to budgets in the second quarter, compared to 15% that said it had fallen, resulting in a net balance of 13.8% seeing increased budgets.

That was again higher than the 11.8% recorded in the previous quarter and means the majority of marketers have been increasing their budgets for almost five continuous years.

On the surface, the corporate sector seems to be in good health, says Paul Smith, senior economist at IHS Markit. Our headline data shows that underlying budget growth is being sustained at a robust clip, extending a current record sequence of expansion to just short of five years.

Companies report that product demand remains positive, underpinning the expansion of marketing budgets, particularly for use in the digital space.

Search and SEO saw some of the biggest increases, with a net balance of 15.6% of marketers planning to increase spend, the highest level in 2.5 years. Main media advertising also saw a net balance of 9.8%, but this was down from 10.7% in the previous quarter.

Among the sectors to see declines are direct marketing, market research and sales promotions, which saw the biggest net balance reduction at -10.7%, the weakest level since the same quarter seven years ago.

Paul Bainsfair, director general at the IPA, says the figures suggest marketers are seeking out more activation-driven marketing but he warns against brands shifting too much of their spend away from campaigns focused on brand building.

While it is good to see spend up in internet, it is worth remembering that IPA studies have consistently shown that the most effective marketing results from a 60:40 brand building (emotional) to sales activation (rational) ratio, he explains.

While marketing budgets have continued their run of growth, Smith cautions that there are threats on the horizon that will weigh on ad spend growth in the foreseeable future.

Marketers are becoming increasingly concerned about the financial prospects for both their businesses and their industry. While 30% of the survey panel are more optimistic about their own companys financial prospects, more than 20% are less confident meaning a net balance of 9.8%, the lowest level since the end of 2012.

On balance we think the threats to the outlook are real and will weigh on ad spend growth in the foreseeable future.

And perceptions of the wider industry prospects fared even worse. While 14% are more confident, 26% are less so leading to a net balance of -12.6% and marking the second lowest reading in 4.5 years.

Smith says: Brexit and government paralysis were widely noted as key threats to future industry performance and by definition are likely to weigh on marketing budgets over the coming year. Marketers are concerned that the terms of Brexit remain unclear, especially in areas such as regulation and trade, while political uncertainty is seen as adding to fears in the private sector to invest.

While Smith admits it is notoriously difficult to quantify the effects of political uncertainty, what is clearer, he says, is the impact of rising inflation on company costs and household incomes. The IPA has kept its annual ad spend forecast through 2020 the same, but there are suggestions it could lower expectations if the next update from the Office for Budget Responsibility predicts a slowdown.

On balance we think the threats to the outlook are real and will weigh on ad spend growth in the foreseeable future, says Smith.

Higher frequency indicators suggest that private sector consumption is already on the slide, and marketing executives are indicating to us that recent budget expansion has been partly defensive in nature to protect market share and sales in a softening economic environment.

Read more from the original source:
Digital ad budgets see biggest rise in almost 10 years - Marketing Week