Has UK Marketing Peaked?

OCTOBER 17, 2007

Fourth quarter will decide.

UK marketing spending, which has been propped up by online ad spending, is likely to see some pullback, according to NTC Economics' "Q3 2007 Bellwether Report."

NTC said that financial market turmoil was the main reason that UK marketing spending may start to flatten out. "Growth in Britain's marketing industry has been strong overall, and some sectors have seen record gains," said Karin von Abrams, senior analyst at eMarketer. "Online spending in particular is robust and expanding.

"But the impact of recent turmoil in the financial markets should not be underestimated, especially in the UK," Ms. von Abrams said.

The Web accounted for more than 6% of all UK marketing spend in the third quarter of 2007, according to NTC. The company also found that more than 40% of companies allocated at least 5% of their total marketing spending to the Internet.

As recently as June 2007, the Internet Advertising Bureau UK, PricewaterhouseCoopers and Wilkofsky Gruen Associates predicted that UK online ad spending would reach $9.9 billion by 2011.

"Marketing budgets tend to be cut quickly in response to changing business conditions, so the strength of the Q3 survey suggests that marketing spend held up well in the face of the current financial turmoil and that the real economy remains so far largely unaffected," said Chris Williamson of NTC Economics, in a statement.

"However, it will no doubt take some time for the full effects of the banking crisis to be felt, so it is likely that these strong Q3 numbers represent a peak in the current cycle," Mr. Williamson said.

eMarketer shares the view that advertisers are a little cautious as a result of financial market uncertainty.

"In fact, we picked up signs of growing uncertainty in the early summer, and our existing forecasts for 2008 and 2009 reflect this change of mood," Ms. von Abrams said.

eMarketer's 2011 UK online ad spending projection is $1.7 billion lower than the IAB UK figures.

"It is encouraging that growth in the industry in Q3 remained strong and appears to be unaffected by the upheaval in financial markets," said Moray MacLennan, chairman of UK-based ad trade group IPA and chairman of Europe at M&C Saatchi, in a statement.

"The data for Q4 will be key in revealing the extent to which recent economic news has affected marketing budgets," he said.

Find out what US marketers can learn from their British counterparts. Please read eMarketer's UK Online Advertising report.