IPA Bellwether: marketing budgets weather economic storm… for now

UK marketing budgets have continued to grow despite a recession looming and continued uncertainty as we enter 2023.

The latest figures from the Institute of Practitioners in Advertising’s (IPA) Bellwether report show marketing budgets saw “the longest uninterrupted sequence of growth for four years”. A fifth (20.2%) of marketers reported their budgets had swelled in the final three months of 2022, while 18% reported budget cuts.

The resulting net balance (the percentage of all companies reporting an upward revision to current budgets minus those reporting a downturn) means that marketing budgets closed out 2022 with a 2.2% growth in Q4.

The results mark a negligible upward trend on Q3, when growth was reported at 2.1%, meaning that despite a much more muted second half of the year, growth in budgets was sustained throughout 2022. IPA commented that the growth indicates that companies are continuing to support their brands through a period of downturn, with indications of stronger growth in 2023/2024.

Joe Hayes, Senior Economist at S&P Global Market Intelligence, said: "Another quarterly expansion in total marketing budgets at a time when business costs have hit multi-decade highs and consumer confidence has plunged suggests many businesses understand the importance of investing in resources that will help them get through the downturn as best as possible."

Main media bounceback as video claims top investment slot

Events remained the top performing Bellwether category for growth, at 5.7%, but main media marketing bounced back in the last three months of 2022, after its first downturn since the start of 2021 in Q3. Growth in the main media category was recorded at 4.4% in Q4, with video boosting that upturn. Spend on video marketing was up 13.7%, while ‘other online’ bolstered main media’s uptick with a growth of 6.3%, but this was three percentage points down on the growth registered in the previous quarter.

All other categories saw a fall in budgets, though this was muted in direct marketing (-0.6%) and PR (-1.9%) compared to sales promotions (-4%) and market research (-8.8%)

Publishing and out-of-home remained the largest downward pulls in main media, with declines in spend of 3.9% and 8.8% respectively, though both these falls were not as drastic as those reported in the previous quarter.

Nick Reid, SVP & Managing Director EMEA, DoubleVerify, said: “Brands who are focused on riding through this uncertainty will do so conscious of not only wanting to ensure return of investment and limiting media wastage, but also making sure their ads are delivered in the right contextual environments, with communications that reflect the day to day experience of their audiences.”

Budget prospects hopeful for the year ahead

Four in 10 (39.5%) of IPA’s panellists predicted increased marketing budgets within their companies in 2023/24, compared to just 13.5% anticipating cuts in spend. The net balance – 24.4% – represented a “robust outlook” from marketers, said the IPA, with the growing budgets said to be in response to competitor threats, bids to protect market share and “to counteract the drag from a broader weakening in economic conditions”.

Budget growth expectations were strongest in events (a net balance of 18%), but main media saw a buoyantly optimistic balance of 13.4% growth. Despite margin pressures, prospects for sales promotions were also strongly positive (7.9% growth on balance).

Adspend forecasts show marginal downturn this year

IPA asserted that the UK economy is likely to experience recession during the first half of 2023, but their “short and shallow” predictions back in October hold firm.

Despite this, the association’s forecast for adspend growth this year has U-turned. Adspend is now predicted to decline by a marginal 0.3% in 2023, downgraded from the forecast of the same marginal move – but in the other direction – in the previous report. 2024 will see a return to moderate growth for adspend, of 1.2%, slightly downgraded from the “slightly more bullish” 1.6% previously forecast.

Marketers remained pessimistic about business sentiment for the year ahead, with 41.8% judging the financial prospects within their sector to have worsened when compared to three months previously. The resulting net balance – -33.2% – reflected more optimism than the Q3 analysis, alongside the -17.2% balance of prospects for marketers’ own organisations. However, the proportion of downbeat respondents here was greater than three months ago, at 32.8%, more than double those that were optimistic about their organisation’s outlook.

Prospects for staffing more optimistic than Q3

Marketers expected employment to rise in the next three months, with slightly more optimism than when they were asked three months before. The net balance of 14.1% notes a reduced number of marketers expecting staffing levels to drop than in Q3.

Despite cost of living pressures, 27.7% of those questioned said they expected staff numbers to grow in the next three months - but this was markedly lower than the optimism recorded two years ago in Q4 2021, when 37.7% said they expected their workforce to grow.

The report noted that staff retention remains a challenge, with the quest for higher salaries meaning workers were more open to new roles, compounded by historically low unemployment levels in the UK reducing the pool of talent available to replace leavers. Staff budget cuts were also cited by a handful of companies, but the majority of marketers foresaw no change in employment levels at their firms.

The industry’s opportunities and threat – marketers’ views

When asked about the top opportunities and threats for the year ahead, green shoots included reduced supply chain issues, and optimism around commitment to sustainability within marketing. Panellists noted a shift in reliance on digital channels.

Reid continued: “This focus on suitability from an ad environment perspective, is equally as important as the way these campaigns are measured and optimised and with the increase of digital video spend, attention will be at the forefront of this in 2023.”

The cost of living crisis remained central in the list of threats for UK marketers, as many cited lower consumer demand forcing cuts on discretionary spend, and high inflation. There were also fears for limited ability to pass surging costs onto customers as cheaper alternatives make their way into the market, with those higher operating costs also impacting on marketing or staff hiring budgets and squeezing margins.

“That said, some companies plan to take a more proactive approach in the current uncertain economic environment, hoping that this will present an opportunity to obtain market share from more hesitant competitors,” the IPA said.