IPA Bellwether: Quarter two marketing budgets flatline

The latest IPA Bellwether report has signalled a stalling of growth in UK marketing budgets, following what had been a more positive start to the year.

In Q1 firms had taken what was described as a pro-active approach to offset risks to their businesses amid growing political and economic uncertainty. However, today’s Q2 report reveals no change to available marketing budget expenditure, with the net balance falling from +8.7% to zero.

The 20% of panel members reporting greater marketing spend was completely offset by those cutting expenditure, while the remaining 60% kept budgets unchanged since Q1.

The IPA said the level of uncertainty around Brexit and UK leadership was delaying client decision making. Firms surveyed also raised concerns that “difficult conditions” domestically were “damaging consumer confidence and impacting consumption”.

Businesses were also “wary of spillover effects” into UK markets from global trade disputes and weaker growth at key export destinations such as Europe and Asia.

“The expansion in marketing budgets during the first quarter proved short-lived, but developments in the wider economy during Q2 have shown that more intense challenges lie on the horizon for UK businesses,” said Joe Hayes, economist at IHS Markit and author of the Bellwether Report.

“Firms have subsequently adjusted to this, belt-tightening in some cases and withdrawing into a wait-and-see approach once again. Given the economic and political uncertainties that remain at large, a neutral stance towards budget setting appears fully justified.”

Despite the overall slowdown, marketing executives were given “extra discretion” over internet-based advertising in the second quarter, as signalled by a net balance of +11.5% of firms reporting budget growth (+17.2% in Q1).

Main media advertising budgets were also given a boost in the second quarter, as some firms used big ticket marketing campaigns to build brand recognition and expand customer bases. There were also suggestions that marketing was being deployed as a defensive strategy due to increased competitive pressures.

Overall, a net balance of +5.6% of companies reported greater main media marketing budgets (+5.2% in Q1).

“Internet marketing remained a bright spot,” said Hayes. “We see continued growth in the digital space, with panellists pointing to ongoing drives through technological improvements and social media channels. Firms also kept boosting main media marketing spend, with brand recognition and building initiatives ongoing.”

The only other Bellwether category to register growth in the second quarter was events. The net balance increased to +4.8%, from +3.4% previously, its highest since the first quarter of 2018 and corroborating with forecasts made earlier in the year that events budgets would grow over the 2019/20 financial year.

Meanwhile, available market research spend was reduced for a sixteenth successive quarter (net balance of -2.9% from -4.2%), while PR budgets were also cut (net balance of -5.2% from +0.0%).

A second successive downward revision to sales promotion budgets was also recorded (-7.1% from -3.7%).

Direct marketing, however, was the worst performer, with the net balance falling to -9.0% (-3.5% previously), the lowest level in over ten years.

Looking forward the report was cautious about the remainder of 2019, expecting only a modest 1.1% annual increase in adspend over the year as a whole.

The report states there is a real possibility that the UK economy will contract in the second quarter, and the Bellwether panel comments, as well as latest Bellwether data, highlight that businesses are looking to “contain costs and shield against challenging demand conditions”.

Nevertheless, the report authors believe businesses will be “eager to accelerate” marketing efforts once uncertainty has cleared, and subsequently see 2020 onwards being more positive on the adspend front. It expects growth of 1.8% in 2020, followed by stronger rates of increase in 2021 (2.0%), 2022 (2.2%) and 2023 (3.1%).

“Between Boris, Jeremy and Brexit, coupled with a dip in consumer confidence, it is perhaps no wonder that this quarter’s Bellwether shows zero growth to overall UK marketing budgets,” said Paul Bainsfair, IPA director general.

“Until a clearer political and economic path is outlined, the vast majority of companies are in stasis. It is reassuring to see, however, that some companies are revising up their investment in main media advertising; this is where they will build the longer term growth of their brands, which is crucial to weathering these tougher times.”