Advertising took Q3′s worst budget hit

Wariness about large-scale campaigns was sparked by slowing sales growth and an uncertain business outlook, says ICA/Canada Post's 'Survey of Marketing Budgets.'

Canadian marketing budgets in Q3 increased at the slowest rate since late 2004, according to the latest quarterly ‘Survey of Marketing Budgets.’ Released yesterday, the report was commissioned by the Institute of Communication Agencies and Canada Post and conducted by NTC Research based on information from a panel of 270 senior Canadian marketing execs.

‘Most hard-hit has been advertising spend in the main media, with companies reluctant to commit to large-scale campaigns in the face of slowing sales growth and an uncertain business outlook,’ explains ICA president Jani Yates.

The near-stagnation in Q3 contrasted with strong growth in previous quarters. Media advertising budgets (covering TV, print, cinema, radio and outdoor advertising) were up, but only very modestly. Just 17% of companies reported upward revisions to their annual budgets, while 15% reported downward revisions. The resulting net balance of +2% was the weakest since the first quarter of last year. The upward revision was also the smallest of all marketing categories covered by the survey, suggesting a diversion of spend away from main media advertising towards sales promotions, direct marketing and the internet.

Current marketing budgets were revised up by just 23% of companies in Q3, while 18% reported spending cuts. The increase was the smallest recorded since Q4 2004, with the rate of growth having slowed for the second successive quarter. The slower rate of growth of total marketing spend largely reflected an increase in the number of companies cutting their budgets – from 14% in Q2 to 18% in Q3. These lower budgets were blamed in many cases on the need to cut costs in the face of subdued sales revenues, weakened profits growth and concerns over the economy, linked in many instances to slower US growth.

The Internet again saw the strongest rate of growth, although both sales promotions and direct marketing saw robust rises in budgeted spend – the former in part boosted by more aggressive discounting as firms competed to win sales in the face of slowing demand, and the latter boosted by a desire to move spend from main media advertising to more flexible and accountable activities.

The Internet saw by far the strongest rate of increase to budgets spend of all categories covered by the survey, with little sign of any easing in the web’s growth in popularity compared to previous years.

The proportion of all companies surveyed allocating no spend to the Internet dropped to a record low of less than 14%, down from over 30% when the survey started in 2003. On average, it can be estimated from these data that the Internet currently accounts for over 5% of total marketing and communications expenditure, up from around 3% when the survey began. Around one in five companies allocate more than 10% of their marketing spend to the Internet.