Marketing Budgets Still Shrinking in U.K.

Cutbacks By Advertisers Are Accelerating, Says Bellwether Report

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LONDON ( -- British business is seeing the sharpest downturn in marketing budgets since 9/11, according to the latest Bellwether Report, a quarterly online survey by the Institute of Practitioners in Advertising that asks U.K. marketers about their spending plans.

That means marketing budgets will fall for the third consecutive quarter, due to disappointing sales, rising costs for energy and raw materials, and growing pessimism about the economy.

Deteriorating outlook
In the first quarter, budgets started out higher than in 2007, but the latest downward revision points to a deteriorating outlook for the remainder of 2008. That's after meager growth in 2007, when U.K. marketing spending grew 2.8%, the slowest rate in six years.

Because marketing expenditures are linked to changes in sales and profitability, the Bellwether data is viewed in the U.K. as a guide to general economic trends.

"The report certainly reflects the increasing gloom of the past few weeks," said Moray MacLennan, president of the IPA and chairman of M&C Saatchi Europe. "There is a clear implication that the economy will slow further. Agencies can do two things: firstly, focus even more closely on cost control, and secondly, strive for even more original and innovative solutions so they can buck the trend."

More cuts expected
Further cuts are expected later in the year. The downturn in spending is accelerating, approaching a pace not seen since budgets and business confidence were hit in the immediate aftermath of the Sept. 11, 2001, terrorist attacks.

About 27% of companies reported a decline in their marketing budgets, compared with an increase for 15% of respondents. Chris Williamson, the report's author and chief economist at data company Markit, said, "This raises the possibility that marketing spend could fall this year for the first time since the survey began in 2000."

Even the internet is not immune. Online is the only media sector on the rise, but with the smallest budget increase since 2002 at 6%, with search marketing growing by 9%. Yet only 19% of marketers said they are increasing their internet budgets this year, down from 27% in the first-quarter survey this year. And 12% said they are cutting their 2008 online budgets for the remainder of the year, a big change from just 5% who planned to cut back on digital spending in the earlier survey.

Traditional media budgets -- including TV, press, outdoor, radio and cinema -- saw their sharpest drops since Bellwether's first-quarter 2006 survey. About 27% of companies reduced budgets, and only 11% increased spending in these media.

Direct marketing migrates to e-mail
Direct-marketing budgets now show the longest period of sustained budget-trimming of all media. Overall, 19% of companies surveyed reported a decrease in spending on the medium, as they save costs by converting campaigns from mail to e-mail, amounting to a predicted 9% decrease in outlays this year.

The sectors seeing the most cuts are travel and entertainment, retail, durable consumer goods and package goods.

Marketing spending by government, charities, technology, computing and financial services is on the rise, according to respondents.

The Bellwether Report uses data collected mostly by e-mail from a panel of about 250 top U.K. marketers, representing all key business sectors and drawn from the nation's top 1,000 companies.
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