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Why it still pays to invest in marketing

Just over four in 10 construction businesses are expecting to grow their marketing budget during the next 12 months, while more than half are expecting sales to rise during the second half of 2012, new research has found.

In addition, two-thirds of respondents envisioned no change in their marketing headcount, though fewer reported an expected decline compared with the previous quarter’s survey.

The State of the Industry Construction Market Barometer, a survey of 65 construction firms by consultancy Leading Edge and the Chartered Institute of Marketing’s Construction Industry Group, also reveals that 43 per cent of companies are predicting their core markets will shrink during the next six months.

Despite the average change in sales growth in Q1 2012 compared with Q1 2011 being at its lowest level since Q4 2009, respondents are generally upbeat about the next six to 12 months, with winning new work top of firms’ strategic priorities.

Click on graph to enlarge

May 2012 Sales outlook for the next six months

Leading Edge senior manager Nick Hollaway says: “A lot of companies are investing in new product and service launches, and undertaking targeted marketing to win new work as work streams in their core sectors dry up.”

Traditionally, marketing budgets are one of the first to attract cuts as companies look to streamline costs, but Mr Hollaway says the need to seek out new revenue streams is bringing about a sea-change within the industry.

“The findings show many companies are faced with their core markets dampening – so there has to be investment in strategic marketing in order to effectively target new customers and markets.

“If companies don’t make these strategic long-term investment decisions, they will risk continuing falling sales.

“The big worry is that marketing spend could attract more cuts if there is a sustained downturn in the economy in 2012 and 2013.”

Marketing boosts sales

The barometer highlights that the vast majority of firms that have cut the least from their marketing spend over the past four years are now reporting the strongest sales growth.

Click on graph to enlarge

May 2012 Marketing spend outlook over next 12 months

Respondents believe the public sector will cause the largest dent in company sales, particularly the education and health sectors.

“With government spending cuts now feeding in, if you work in these sectors and you’re not on a framework, then your pipeline is likely to dry up fast,” says Mr Hollaway.

A backdrop of the lack of private sector recovery is perhaps why breaking into new markets remains high up the priority list, though for significantly fewer respondents than a year ago.

Mr Hollaway believes that this is no surprise. “A lot of the restructuring aimed at breaking into new markets has already taken place over the past year to 18 months, so companies are now in a position to effectively crack into new areas and are not necessarily concerned with organising themselves to do that to begin with,” he says.

More than four in 10 construction businesses thought their core markets would decline over the next six months, though the majority of these considered this to be marginal. Private housing and repairs and maintenance work were highlighted as positive prospects.

Broadening horizons

Top of the strategic agenda list across all respondents is winning new work, with managing competition and falling margins taking the other podium places.

“A lot of big tier contractors are moving into mid-tier work, which is driving down prices and increasing competition,” says Mr Hollaway.

Half the survey respondents said sales improved last quarter compared with the same period in 2011, though the average level of growth was 1.4 per cent, the lowest since Q4 2009.

Companies appear to be more optimistic regarding next quarter, with 52 per cent expecting their sales to improve; 16 per cent of these saying they should do so significantly.

Mr Hollaway says that firms are more prepared to cope with the uncertainty of the double-dip recession than they were four years ago, when the economic downturn initially took hold.

This is reflected in longer-term sales perceptions. During the next six months, 47 per cent of respondents are fairly confident of an improvement in sales, and 6 per cent said their business was already showing signs of growth.

However, almost 20 per cent thought sales would fall during the second half of the year.

“Comments around sales expectations are split into two camps,” Mr Hollaway explains.

“Those that feel their sales may drop point to the public sector now starting to really decline, along with the eurozone crisis flaring up again, and there is still a lot of concern with projects being put on hold.”

 

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