Marketing budgets are now registering solid growth across the board, driven by record investment in sales promotion activity, according to The IPA’s Q2 2023 Bellwether Report.
The record levels of investment into sales promotions indicates a clear desire from brands to help their customers through the ongoing economic downturn and inflationary pressures, now standing at their highest in the IPA Bellwether Report’s 23-year history.
While the IPA notes that such spending patterns aren’t always the key to long-term success and stability and that as a result the growth seen this quarter should be met with a note of caution, it does acknowledge that the cost-of-living crisis has left businesses with an exceedingly difficult line to tread.
Rising interest rates and deeply ingrained inflation have somewhat dampened optimism however, with overall growth decreasing slightly from last quarter as brands react to long-term economic instability.
“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,” IPA director-general, Paul Bainsfair said.
“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.”
In total, sightly more than a fifth of the IPA survey respondents observed growth in total marketing spend over the second quarter, This was less than the 14.4% who instead registered budget cuts, resulting in a ‘modestly positive’ net balance of 6.4%, down from 8.2% in the first quarter.
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Bainsfair continued: “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.”
While this latest report strikes a cautiously optimistic tone, it is caveated by the deep-set economic uncertainties which the IPA predicts will dampen ad spend across 2024.
Kantar UK managing director for insights, Dom Boyd added: “It’s good to see businesses doing their bit to help consumers as promotional budgets hit a new high, but marketers should think carefully about the impact of sustained discounting. Price cuts are a double-edged sword. They hurt profitability.
“They can also damage brand equity which is one of businesses’ most important tools for navigating inflation – helping them grow more strongly in the long term and rebound quicker after crises. Discounts might give quick wins now as brands battle to hang onto market share, but they could spell trouble down the line.”
