Direct marketing spend hits 17-year high as brands look for short-term wins

Spend on direct marketing rose at the sharpest rate since 2006 in the second quarter as brands push record levels of promotional activity and look for a short term boost in the face of a still uncertain economic backdrop, according to the latest IPA Bellwether report.

A net balance of 7.3% of the marketers surveyed report increased investment in direct marketing, which Bellwether defines as email and physical mail, in the second quarter of 2023.

Just 11.3% of respondents report cutting budgets in the period, with 18.5% stating they increased them, resulting in the positive net balance. This surge represents the strongest upward revision to direct marketing budgets since the third quarter of 2006. By comparison, the first quarter of 2023 saw a net balance of 4.2% of respondents upwardly revise direct marketing spend.

“It’s unsurprising that marketers are showing renewed confidence in direct marketing channels during challenging times,” says Data and Marketing Association (DMA) director of insight Ian Gibbs.

“While inflation rates may have eased off this week, trading conditions have been extremely tough for advertisers this year and they still have quarterly targets to hit. Direct channels are an essential part of meeting short-term business KPIs with measurable response rates and strong conversion to sale.”

It’s likely increased investment in direct marketing was in part calls to action to support the acceleration in investment in promotional activity. The net balance of 13.3% of respondents upwardly revising their sales promotion budgets is the highest-ever recorded in the IPA Bellwether’s history.

Seven steps to kicking your price-promotion addiction

More than one in five (21.5%) respondents report increased promotional budgets in the second quarter, while less than one in 10 (8.1%) made cuts in the area.

This surge in investment in direct marketing and promotional activity helped total marketing budgets stay in positive territory this quarter, with a net balance of 6.4% upwardly revising their investment.

Prominent industry figures have cautioned against investing in price promotion. Marketing Week columnist Mark Ritson called price promotions “the crack cocaine” of marketing and warned against the hit to profitability and brand, while Les Binet, adam&eveDDB’s group head of effectiveness and the co-author of The Long and Short of it, argued that the boost to sales brought about by promotions can also be something of an “illusion”.

Despite welcoming the increase in overall spend, the IPA also struck a cautionary note.

“While, understandably, brands may think [a sales promotions increase] 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,” says IPA director general Paul Bainsfair.

Reactive moves

Elsewhere in the report, which is carried out by the IPA and S&P Global and surveys a panel of around 300 UK marketing professionals, the events category saw a net balance budget increase of 9.8% during this period, indicating a continued appetite for events post-pandemic. However, the significant category of main media, which includes online, video and out-of-home advertising, saw a decline for the first time since the third quarter in 2023.

While seven in 10 respondents say their ‘main media’ spend remained consistent, 16.3% record budgets being decreased, with just 13.8% reporting  an increase in the quarter, resulting in a net balance of -2.5%.

The authors of the report suggest this cut in main media coupled with an increase in sales promotions may signify a “reactive” change by businesses in response to the economy.

Within main media, audio was the channel which specifically saw the biggest cuts in the quarter. A net balance of -8.0% of respondents report cutting budgets here. Out-of-home (-7.1%) and published brands (-5.0) also saw drop-offs.

Video (3.2%) and other online advertising (8.3%) were the only sub-categories to see a net balance of respondents make increases in budget.

Outside of main media, market research was also cut in the quarter, by a net balance of -2.9%. This, again, may suggest marketers are looking to react to the current economic situation, rather than thinking about the long-term fate of their brands.

Persisting pessimism

Report authors S&P have upgraded their outlook for the UK economy overall, and now expect GDP in 2023 to grow by 0.3%.

Other business groups have made similar forecasts on GDP growth for this year. The Confederation of British Industry predicts 0.4% GDP growth in 2023, while the British Chambers of Commerce forecasts 0.4% growth.

UK GDP is estimated to have fallen 0.1% in May 2023. Inflation remains high at 7.9% in the 12 months to June 2023, according to the Office for National Statistics. However, it did represent a slowing of inflation from May’s figure of 8.7%.

While there appears to be some cause for optimism, many marketers remain pessimistic about the prospects for their own companies and their industries.

The 300 marketers surveyed are also asked about whether they feel more or less optimistic about the financial prospects for their own companies and for their industries than they did three months ago.

On the financial prospects of their industry, panellists were more pessimistic (net balance of -12.6%) versus last quarter (-7.1%).

Respondents were also less optimistic about their own prospects, with a net balance of just 2.6%, with respondents almost evenly split between optimism and pessimism. In the first quarter of the year, a net balance of 7% were optimistic about their company-own prospects.

While marketers’ optimism may be faltering slightly, their resolution to keep investing in marketing in 2023/24 remains strong.

A net balance of 19.8% say they plan to increase marketing spend in 2023/24. As in this quarter, a net balance to keep increasing spend in events (14.5%), sales promotions (6.3%) and direct marketing (1.4%).

Main media also looks set to return to growth, with a net balance of 14.5% planning to invest more into it in the coming months.

Market research is the only category where respondents indicate they intend to cut money in the coming months. A negative net balance of -0.7% of marketers indicate they intend to cut market research budgets going forward.