In what will be of little surprise to the industry, UK marketing budget growth has stuttered, to hit the slowest pace seen since Q1 last year.
The latest Bellwether report from the Institute of Practitioners in Advertising (IPA) reveals that 22.2% of companies increased their total marketing budgets in Q3 2022, but a similar proportion – 20.1% – reported cuts in the third quarter.
The resulting net balance of 2.1% (the percentage of all companies reporting an uptick to current budgets minus those reporting a downturn) is a significant downsizing from the 10.8% growth recorded for Q2, and a sea change from the start of the year, when marketing budget growth hit an eight-year high.
“Boosting visibility through digital channels”
The growth, said the IPA, pointed to the efforts of companies to continue to invest in their brands despite an increasingly challenging economic climate “as they look to retain market share with new innovative methods” of promoting their products or services. Bellwether respondents frequently mentioned boosting visibility through digital channels, the IPA reported.
But companies are facing pressure from rising costs, and squeezed profit margins owing to sharp hikes in energy bills and goods prices, while the country’s booming inflation, which this week hit its peak in 40 years, has significantly dented consumer purchasing power.
“Brand budgets are an investment - not a cost”
Paul Bainsfair, IPA Director General said: “We know from analysis of additional S&P 500 data and new data from the FTSE 100 benchmarks that strong brands are a critical strategic asset that deliver value and that their budgets are an investment not a cost. Furthermore, we see from this data that strongly branded companies recover quickly after a crisis and retain their performance. We appreciate, however, that while increasing or maintaining investment in marketing during these tough economic times is generally the ideal thing for companies to do, it is not necessarily the easiest thing to do – as these latest Bellwether results imply. But there are ways around this.
“Instead of slashing budgets that can lose brands their customers’ awareness and subsequent market share, our experts would advise that after optimising their pricing and promotions strategy, which would usually include supporting with brand advertising, companies tweak their brands’ marketing budgets subject to their geography, portfolio, channels and media – all of which will have variations that can also be optimised accordingly. Equally, we’d advocate a longer-term approach that steers away from heavy sales activations which can erode brand loyalty and lose companies profit.”
Justin Pahl, CEO, VMLY&R London, agreed: “The marketing department is always the first to be culled, but any brand CFO with sense will listen to the marketers in the department next door; we directly solve the challenges that consumers face through our deep understanding of what consumers want and need, and deliver value and foster loyalty that will produce long-term growth beyond the chaos.”
Online growth stays buoyant
Events was the only main ‘category’ monitored by the Bellwether report to grow – though this was also at a notably slower rate of 4.5% compared to Q2’s 22.2%. Meanwhile main media marketing budgets – including TV and radio ads – fell for the first time since the start of 2021, by a net balance of -3.1%.
However, within main media, other online advertising and video saw bolstered growth, with net balances of 9.3% and 8.7% respectively. These growth rates were significantly up on the 4.4% for other online advertising and the 0.8% for video reported in Q2. Audio budgets fell slightly, by 2% while the largest downward pulls in main media came from published brands (-11.2%) and out-of-home (-7.6%).
Across the other categories measured by the report, direct marketing fell marginally (-0.6%), while public relations budgets tumbled for the first time in a year (-4.8%).
Raphaelle Tripet, Managing Director, Europe at TripleLift, warned that despite a renewed confidence in digital channels, marketers could not take their foot off the gas when it comes to ensuring optimal return.
She said: “With other areas seeing reductions in budget, the persistent growth in video advertising is encouraging as it points to the ability of the channel to ensure market share even in challenging times. To capitalise on this renewed confidence in video and digital channels, marketers will need to adopt versatile, scalable, and data-driven buying strategies that allow them to optimise their budget across all channels.”
Gloomier financial prospects – but any recession will be “short and shallow”
After entering negative territory for the first time in Q2, financial sentiment across Bellwether participants shifted further down. Just 6.3% of respondents were more optimistic towards financial prospects in their industry, with half (50.5%) reporting a more downbeat sentiment.
The resulting net balance (-44.3%) indicated the highest level of pessimism seen since the COVID-19 pandemic took hold in Q2 2020.
Also hitting a low point since the start of the pandemic was the pessimism of prospects felt by the panel in relation to their own company – with a net balance of –27.6% driven by four in 10 respondents giving a downbeat financial assessment.
Despite the cloud over prospects, forecasts for the outlook for the UK economy saw little movement since Q2. The report’s assertive conclusion is that while the UK will likely enter into recession, it will be “short and shallow, in part owing to the support measures provided by the government to assist households and firms with their energy bills”.
As a result, the report’s forecast for adspend growth this year has been upgraded to 3.7%, from 1.6% in Q2.
The outlook for 2023 has been downgraded slightly to 0.3% as high inflation is likely to continue its squeeze on incomes and demand remains weak for corporate investment and in main export markets.
2024 has a “slightly more bullish” outlook compared to the previous analysis – with adspend forecast to grow by 1.6% that year, a slight upgrade on the 1.4% previously predicted.
Cost of living crisis hits staffing
Staffing levels are expected to rise over the next three months, but there has been a pullback in hiring plans since the last analysis. With a net balance of 10%, growth in staffing is at its lowest level since the start of 2021, and a significant downward note on the 26.8% seen in Q2.
Just over half those surveyed (54%) expect no change in their staff numbers, but availability remains stretched in the face of low unemployment levels and workers starting their search for higher paying roles as the effects of the cost of living crisis take hold.
Opportunities and threats - the views from industries
Bellwether panellists were asked to comment on the main opportunities and threats to their industries over the next 12 months.
Many were optimistic as a result of the eco-friendly and sustainable nature of their products, the report noted, while there was a consistent theme around energy-saving innovations, driven by developments across international and domestic gas markets over the last quarter.
The continuing invasion of Ukraine by Russia has caused soaring gas prices, but the UK government has responded with a suite of measures to try and soften the impact on the population.
Consumer purchasing power is likely to remain dented, with panellists also concerned for staff retention as workers search for higher-paying roles.Take a look at what the panellists are pinpointing below.
"More live events and companies looking to expand abroad." – Public/Charities
"We believe businesses will need to increase their profile, with a sharp increase in the need to network and build contacts, hence the increased spending on events." – Media/Marketing
"Government support on utility bills." – FMCG
"Increase brand visibility to increase B2C sales." – Industrial/Utilities
"Digitisation of financial services." – IT/Computers
"Emphasis on eco-friendly packaging products." – Consumer Durables
"Inbound tourism given the current exchange rate." – Travel/Entertainment
"Increased digital advertising." – Financial Services
"As household budgets are challenged, people may economise by eating out less and instead consuming more meals at home." – FMCG
"Strong growth market for energy-saving products." – Industrial/Utilities
"Deep recession and housing market slowdown." – Consumer Durables
"Ongoing conflict in Ukraine affecting supply and pricing." – Industrial/ Utilities
"Staff retention due to the cost of living crisis." – IT/Computers
"Cost of living and energy prices are a threat to the entire industry. Energy costs directly affect digital businesses such as ours." – Media/Marketing
"Supply chain problems, which include high priced shipping and low availability of raw materials." – Consumer Durables
"Impact of rampant energy costs on lower/middle income groups." – FMCG
"Continued political uncertainty around the war in Ukraine." – Travel/ Entertainment
"Inflation, a recession and market volatility."- Financial Services
"Cost of shipping and energy, currency weakness and a drop in consumer spending power." – Retail
"The cost of living crisis, compounded by an increase in borrowing rates are likely to slow the demand for housing." – Industrial/Utilities