IPA Bellwether: UK businesses boost sales promotions to record levels but pessimism lingers
UK firms have ramped up sales promotions to an all-time high, leading to a growth in overall marketing budgets, according to the second-quarter IPA Bellwether Report released today.
The report, which tracks marketing trends, revealed that sales promotions budgets have reached their highest level in the 23-year history of the survey, as more businesses increased their marketing budget than decreased it in the second quarter of 2023.
IPA’s report suggested that the uptick was due to businesses wishing to support consumers during the ongoing cost-of-living crisis, driven by persistent inflationary pressures and interest rate hikes.
Commenting on the report, Paul Bainsfair, IPA director general, warned against over-reliance on price promotions because they “lower consumer price references and do not build brand loyalty”.
“While, understandably, brands may think this is the right thing to do for their customers during the current cost-of-living crisis,” Bainsfair explained, “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,” he added.
A cautious sentiment remains
Despite the positive growth in marketing budgets, Bellwether’s report showed that a more gloomy outlook grips UK companies looking into the future.
Nearly 30 per cent of respondents reported feeling pessimistic about their industry’s financial prospects in the coming year, compared to just over 16 per cent who said they were hopeful.
Although the Bellwether Report predicted that the volatile economic outlook could threaten ad spend in the rest of 2023 and 2024, S&P Global, the authors of the report, upgraded their forecast for the UK economy.
The news and data division of credit ratings giant S&P Global expect GDP to grow 0.3 per cent in 2023 and 0.4 per cent in 2024, paving the way for ad spend to improve in 2025 and beyond.
Laura Denman, economist at S&P Global Market Intelligence, said the data “highlights the resilience of UK businesses, who appear to have weathered a challenging economic landscape over the past six months a lot better than many had anticipated.”
“Surveyed companies continued to expand their marketing budgets in the second quarter despite still-severe inflationary pressures and continued interest rate hikes. We’re seeing evidence that UK companies are proactive in their decision making and are adapting to the competitive business environment and challenging economic landscape in a robust manner,” she explained.
“This bodes well for more stronger-than-expected results in the second half of 2023.”