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The Tide is Turning

Advertising budgets could be on their way back up, says report

Marketing budgets have been slashed for a fifth consecutive quarter as firms look to reduce costs on the back of concerns over lower-than-expected sales. Hardest hit were traditional advertising and sales promotion budgets, according to the Q2 2006 Bellwether report.

Traditional advertising has continued to lose share of total marketing spend as budgets were slashed for the seventh consecutive quarter with 27 per cent of companies reporting cuts.

Sales promotions budgets also fell with 18 per cent of firms reporting a reduction.

Indeed, the report revealed that 2006 could see the weakest growth since 2002, after the modest budgets, set at the start of the year, were further reduced in Q1 and Q2.

However, it is not all doom and gloom and there are a few signs that budget cuts are beginning to ease; downward revisions for Q2 2006 were the smallest since budgets were reduced a year ago, which points to a recovery in the wider economy and suggests that ad budgets have reached their lowest ebb and are on their way back up.

The survey suggests that profits are providing a stimulus to economic growth. However, strong competition and widespread consumer caution means companies are having to fight for market share by using an increasing variety of marketing tools, said report author, Chris Williamson at NTC Research.

Indeed, while traditional ad and promotional budgets have felt the pinch, growth in internet marketing continues apace, with 30 per cent of companies reporting budget hikes.

Direct marketing (DM) budgets are also rising, with 19 per cent of firms reporting an increase. This is said to be a result of its effectiveness, accountability and relative low cost.

With overall budgets cut again, the DM sector can take cautious comfort in an increased share of the overall marketing spend and an anti-cipated upward revision of its own budgets, said Amanda Phillips, chairman of the IPA Direct Marketing Futures Group and managing director of Proximity London.

She added: However, the advertising landscape is evolving and not just online. Emergent formats, such as branded and co-created content, are increasingly driving brand communications and will become more significant as indicators of attitudes and commitments to advertising.

2nd September 2008

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