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According to one worldwide report, within the top five global markets, the projected increase in interactive marketing spend from 2001 to 2002 was 6.6 per cent, and from 2002 to 2003 it is 11.7 per cent.

The difference between interactive marketing spend from 2001 to 2003 is projected to be 19.1 per cent, well above 7.4 per cent for direct mail and 1.6 per cent for media advertising.

The report, 'Marketing Expenditure Trends', commissioned by global marketing giant Havas, was conducted by a team at London Business School.

The research was based on a survey of more than 700 companies in five global markets - the UK, US, Japan, Germany and France - which each spent at least $1 million (£667,000) in 2001 on marketing.

Data was collected from telephone interviews with chief marketing officers, and covers actual and planned expenditure for the three years from 2001 to 2003 for five categories: media advertising, sales promotion, direct mail, PR and sponsorship and interactive marketing.

Interactive marketing in this case has been defined to include internet advertising, marketing web sites and extranets, email marketing and new-media technologies such as SMS, wireless and interactive TV.

The report, which can be found at www.london. edu/marketing, suggested the UK was on track to show moderate marketing expenditure growth in 2002, with a slight increase in 2003.

Total marketing expenditure in the UK was projected to increase by 4.2 per cent from 2001 to 2002 and by 5.3 per cent from 2002 to 2003.

The study finds a shift in resource allocation in the five global markets towards interactive marketing and direct mail away from media advertising (which includes TV, radio, press, posters and cinema in the study) and, to a lesser extent, sales promotion. In the UK, the shift is away from media advertising, PR and sponsorship.

While changes in total marketing spend are largely driven by short-term factors of market and economic conditions, the move towards interactive and direct mail is driven by long-term factors and therefore is likely to continue, according to the report.

In the UK, the projected increase in interactive marketing spend from 2001 to 2002 was 19.7 per cent and from 2002 to 2003 it is 23.3 per cent.

The difference between marketing expenditure from 2001 to 2003 is projected at a massive 47.5 per cent, compared with 21 per cent for direct mail and just four per cent for media advertising.

Professor Patrick Barwise, who directed the report in collaboration with Alan Styler of direct marketing agency EHS Brann, explains that interactive media taken as a whole is the growth area in marketing. The main reason is the increase in the range of interactive media.

"Web sites are now an important part of the internet marketing mix, and investment in them is increasing," he says.

"Email is very good value for money, because it's a relatively cheap thing to do. We're also beginning to see new-media technologies coming in. For example, text messaging is cost-effective and highly targeted."

What's more, the increase seems to be taking place across the board, rather than focused on a few sectors. "It's noticeably widespread," says Barwise.

It is a marketing maxim that in a recession, budgets tend to go towards direct marketing and other lower-budget mediums. Is that all that is happening here?

Barwise suggests not. "The reasons people give for increasing spend in interactive marketing (accountability and better targeting, for example) are not short-term. It's mainly a long-term change, not a reaction to the recession."

Andrew Marsden, category director at Britvic Soft Drinks, notes that there has been a trend towards interactive marketing, and suggests it is due to the media's validity and ease of use. "It's getting easier to use these mechanics," he says.

Wayne Arnold, UK managing director of digital agency Profero, whose clients include Buena Vista International, concurs. "We've seen a big pick-up; since September, we are seeing far more regular spend," he says.

Mike Horne, managing director of EHS Brann, cites a number of reasons for the growth in interactive. He says that clients have realised they have to drive people to their web site and that it must then be interactive - not a passive brochure - so they are integrating the web activity with what happens offline.

The web site is becoming part of their everyday existence, and so must behave as any other part of their organisation.

Advantages include the fact that interactive is measurable, relatively cheap and has great reach, he adds. "Plus, customers respond well and are comfortable giving information online."

Perhaps predictably, Danny Meadows-Klue, chairman and chief executive of the Interactive Advertising Bureau UK, is upbeat about why interactive marketing is building.

"Online is where the audience growth is: across the media industry this is the only sector that has enjoyed sustained, rapid audience growth and this will continue.

"Accountability becomes even more important when the ad market is undergoing tough times and online gives a level of precision to ad scheduling."

But putting the report's findings in perspective is important. "If you look at the relative scale of spend in traditional media and interactive, then you can see that interactive is working off a small base," says Horne.

"Therefore, a relatively small shift of the spend from, say, above-the-line, has a massive impact on interactive. Nevertheless, it is still significant."

And Marsden does not see one discipline, in this case interactive marketing, replacing another, such as media advertising. "Media advertising is going up by four per cent. That is a commitment to it," he says. "It's horses for courses. Both media are valid and we are seeing growth in both."

Interactive marketing is also a mixed bag. According to Barwise, using online advertising as an ad medium for customer acquisition and branding is decreasing, a point echoed by Ross Beadle, commercial director of WHSmith.co.uk.

"The problem remains in delivery mechanisms," he says. "Ad formats remain feeble."

In Barwise's view, it is relationship marketing online that is growing.

"Internet advertising - banners, pop-ups and so on - may well be in decline, but interactive marketing is increasing," he says. "There is increasing expertise in database marketing; the focus is on customer retention, not acquisition. Improvements in customer databases are helping to drive both interactive marketing and direct mail."

So are interactive marketing and direct marketing becoming one and the same? Meadows-Klue says not. "There is a hint of caution here. Just because online and direct mail are both growing, you should not confuse the two. Online can be a direct-response medium, but it is also a branding medium."

His target is that the internet should account for two per cent of ad spend by the winter of 2004. "Doubling the size of the market is no dotcom dream - it's a sound business goal," he says. "With rapid growth rates in audiences, e-commerce, technology and entertainment online you would expect a time-lag before some marketers catch up."

Still, there's a clear link between the interactive and direct. EHS Brann's Horne thinks that clever use of data will be at the heart of the success of interactive marketing. "Interactive marketing provides the opportunity to take one-to-one marketing to a much bigger audience and still control costs," he says.

"What's more, interactive marketing provides a huge opportunity to collect data and use it to drive further relevant communications. Interactive marketing is proving particularly powerful in communicating and managing existing customers, and there is a lot of email activity around CRM-type activity."

Likewise, 60 per cent of Profero's campaigns have a direct marketing element to them. Arnold notes that clients are finding it harder to attract customers from offline DM activity than they did two or three years ago, and are increasingly looking at new channels.

"There has been a particular pick-up in relationship marketing using email, especially using it to target an existing customer base," he says.

Meadows-Klue considers the new frontier in brand advertising to be strategic integration. The IAB worked with FMCG giant Unilever on the launch of the Dove Nutrium soap bar to find out the optimal mix and the effect of adding online to a campaign running in print and TV.

"We found that online improved the overall effectiveness of the campaign within the same budget," he said.

At the client-side coalface, areas that are attracting considerable focus are SMS and email. Britvic's Marsden explains: "We're currently spending quite a lot of time on SMS - we've used it a great deal on Tango and Pepsi."

And he does not think it will be long before clients will be using visual communication - such as MMS - in direct contact. Looking forward, Marsden says: "Interactive has got everything to play for."

UK YEAR-ON-YEAR % CHANGE IN EXPENDITURE
Category                   2001 %     2002 vs     2003 vs    2003 vs
                        of total        2001        2002       2001
Media advertising            51.3        -0.8         4.8        4.0
Sales promotion              13.0        10.7        -0.1       10.6
Direct mail                  17.2        13.3         6.8       21.0
PR/sponsorship               10.4        -6.0         7.8        1.3
Interactive marketing         4.4        19.7        23.3       47.5
Total (incl. other)           100         4.2         5.3        9.7
Source: London Business School/Havas, 'Marketing Expenditure Trends'
YEAR-ON-YEAR % CHANGE IN INTERACTIVE MARKETING EXPENDITURE BY COUNTRY
Country      2002 vs     2003 vs     2003 vs
               2001        2002        2001
US              11.3        12.7        25.3
Japan           -0.6         7.4         6.8
Germany         -2.2         1.5        -0.8
UK              19.7        23.3        47.5
France          -2.3        14.2        11.6
Total            6.6        11.7        19.1
Source: London Business School/Havas, 'Marketing Expenditure Trends'
YEAR-ON-YEAR % CHANGE IN EXPENDITURE ACROSS UK, US, JAPAN, GERMANY,
FRANCE
Category                   2001 %    2002 vs   2003 vs    2003 vs
                        of total       2001      2002       2001
Media advertising            45.4       -2.0       3.6        1.6
Sales promotion              19.8        0.8       0.6        1.4
Direct mail                  12.8        3.8       3.5        7.4
PR/sponsorship               12.7        1.8       2.2        4.0
Interactive marketing         6.1        6.6      11.7       19.1
Total (incl. other)           100        0.6       3.3        3.9
Source: London Business School/Havas, 'Marketing Expenditure Trends'