IPA Bellwether: marketing budgets decimated by Covid-19, but optimism still strong
Marketing budgets have suffered their worst reduction since the global financial crisis in 2009 as the lockdown has forced a dramatic cut to consumer and business spending.
The latest IPA Bellwether, published today (22 April), reveals the enormous negative economic impact of the Covid-19 pandemic, with broad cuts to all forms of marketing activity.
According to the latest data, compiled between 2-27 March 2020, a net balance of -6.1% of companies revised their total marketing budgets lower. This was a strong swing from the final quarter of 2019, where the net balance stood at +4% and signalled the strongest quarter-on-quarter fall in total marketing expenditure since the end of 2009.
25% of panel members recorded a budget cut, compared to 18.9% signalling growth, with adspend forecast to shrink in 2020, before a forecast recovery next year.
"Firms are in survival mode, reallocating funds to service liabilities and keep the business alive," said Joe Hayes, economist at IHS Markit and author of the report.
"This is critical to ensure that they can keep staff on the payroll, which will give their businesses the best chance to recover when the time comes. It will also support the economy on a broader scale if people remain employed and are earning, as they will be in the position to go out and spend when the lockdown is over."
Hayes added that a number of firms expect a quick economic recovery and are planning to boost marketing budgets later in the year.
Market research was the worst-performing category of the survey in the first quarter (net balance of -21.0%), followed by events (net balance of -15.9%) and public relations (-14.3%).
No type of marketing budget saw growth, with direct marketing and sales promotions observing the slowest reductions (net balances of -6.6% and -7.2% respectively).
The key brand-building category, 'main media', recorded its strongest downward revision since 2009 (net balance of -9.9%).
Looking ahead, however, a net balance of +16.2% of firms anticipate higher spending allocations over the next 12 months, signalling a strong level of optimism and suggesting that many companies plan to grow their businesses.
The crucial main media advertising segment recorded the strongest forecasts, with a net balance of +8.4% of companies expecting upward budget revisions.
Events marketing budgets are also set to see growth (net balance of +6.3%) once public health restrictions are relaxed.
Modest upward revisions to direct marketing budgets are forecast (net balance of +3.7%), while the outlook for public relations was narrowly positive (net balance of +0.6%).
Given the uncertainty surrounding the UK's position at present, the report's adspend forecasts could be subject to "substantial" revision in the future as the impact of coronavirus on the UK economy becomes clearer in line with the release of official data statistics, which at present it lacks.
"These are undoubtedly the toughest overall trading times that any business and indeed any marketer will have ever experienced, but while we suspect the fuller, sharper extent of this global pandemic to be captured in Q2 data, the hope from this report is that we will see a more upbeat end to the year," said Paul Bainsfair, IPA director general.
“To achieve this return to growth will require UK marketers to make bold decisions. When recession looms it is understandable if businesses try and shore up short-term profits by cutting variable expenditure, such as advertising.
"However, as our evidence from past downturns shows, unless companies are saving cash simply to survive, or because they can no longer supply advertised services, cutting ad budgets – relative to competitor spend – is a high risk strategy. Such a move exposes firms to losing market share, foregoing sales and delaying the recovery of profits in the long term. Those brands that hold their nerve will gain extra share of voice which will achieve competitive gains.”