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IPA FD warns against short-termism

Tom Lewis, Finance Director of the IPA, comments on the latest ICAEW Business Confidence Monitor and explains what it means for IPA agencies.

05/08/2015

The ICAEW Business Confidence report takes views from 1,000 Chartered Accountants who as client CFOs and CEOs represent some of the key purseholders for our industry; if they are feeling confident, we can expect that to translate into a more positive outlook for agencies. The report also provides a broader view of UK economic activity which allows us to corroborate what Bellwether is telling us.

With the ICAEW’s Index up to +22.4 (vs +16.2 last quarter), there is clearly an increasingly positive view of the near-term.

However, medium-term sentiment is more mixed, with strong indicators for both positive and negative: beneficial “lowflation”, stability of both top-line and profits and an increase in confidence provide the good news but there are concerns about increasing wage costs, looming skill shortages and reduced investment.

Businesses crave clarity and an unwelcome result of this uncertainty is an increase in short-term thinking and behaviour which Bellwether has already highlighted – in quarter 2 we saw increases in short-term sales-activation activities (sales promotion and events) at the expense of brand-building activities.

Without a rebalancing over time, this excessive short-termism could become a worrying trend for the financial well-being of brands and their agents.

We know from the IPA’s work on advertising effectiveness that advertisers should look to split their marketing budgets 60/40 between longer-term brand building and short-term sales activation and that strategies that consider only the short-term tend to fail, at best giving a series of short-term sales blips, but no long-term growth.

We also know that:

-          It is brand-building, rather than sales activation, that drives profitable growth by reducing price sensitivity over a longer period

-          Supporting price (through long-term brand building) is more profitable than boosting short-term volumes (which has a fast decay)

For agencies, this means continuing to advise clients to maintain brand-building activities at an appropriate level and helping to build the case for best-practice levels of brand investment.

Last updated 05/08/2015


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