Media release: Marketing budgets bounce back, but pessimism about the future rises, reveals IPA Bellwether Report

UK companies revised their marketing budgets up markedly in Q1 2019 – in stark contrast to recent trends where growth momentum had been easing and culminated with a stagnation at the end of last year. This is according to the Q1 2019 IPA Bellwether Report, published today (17 April 2019).

The net balance of marketing executives reporting upwardly revised budgets increased to +8.7 per cent in Q1, up from a +0.0 per cent reading for the final quarter of 2018 and the highest since Q3 2017. Around 21.6 per cent of panel members observed spending growth, compared to 12.8 per cent registering budget cuts.

While the Brexit uncertainty that is shrouded over the UK’s political and economic climate continued to prompt belt-tightening and a delay in decision-making, other companies took a more pro-active approach and looked to push resources into their brands, enhancing digital marketing methods and expanding presence on social media platforms.

Firms were also wary of rising competitive pressures, leading some to diversify product offerings as part of efforts to enter new markets and attract new clients. As such, there were reports of boosting marketing spend as a defensive mechanism to protect brand reputation.

Nevertheless, unfavourable global economic conditions, coupled with fears of falling business and consumer confidence, prompted caution over discretionary spending in some cases.

Marketers invest in internet, main media and events

The best performing category of the Bellwether survey was internet, which saw its net balance jump from +2.1 per cent to +17.2 per cent. Firms showed a strong appetite to enhance their digital footprints, with Search/SEO spending (+14.2 per cent from -3.9 per cent), as well as targeted advertising on mobile (+3.6 per cent from -2.4 per cent) all receiving boosts.

A renewed drive for big-ticket advertising campaigns was also apparent during the opening quarter of 2019, with main media marketing returning to growth (+5.2 per cent from -6.2 per cent). Events was the third and final Bellwether category to register expenditure growth (+3.4 per cent from +2.6 per cent).

However, market research, sales promotions and direct marketing budgets were all revised lower during Q1, with net balances of -4.2 per cent (from -4.7 per cent), -3.7 per cent (from +3.8 per cent) and -3.5 per cent (from -5.6 per cent) respectively.

2019/20 budget forecasts most subdued since 2009

Marketing executives erred on the side of caution with their forecasts for marketing spend for the 2019/20 financial year. A modest net balance of +3.4 per cent anticipate budgets to grow during this period, which was notably weaker than past forecasts made before a new financial year and the lowest since 2009.

Although approximately 26 per cent of panellists foresee growth, the remaining 74 per cent expect cuts or no change. Compared to this time last year, a net balance of +18 per cent of firms anticipated budget growth for the 2018/19 period.

Positive expectations were centred on main media marketing campaigns and advertising at events, which yielded net balances of +4.8 per cent and +2.5 per cent respectively. Some companies expect that brand-building initiatives seen during the most recent quarter will continue through the coming financial year, as they look to defend their brand and stave off tough competitive pressures. Plans to launch new products in some instances were also seen as opportunities for marketing budget growth.

Nevertheless, firms were much more downbeat for the remaining Bellwether categories. Negative outlooks were recorded for other marketing (-13.1 per cent), PR (-seven per cent), sales promotions (-5.3 per cent), market research (-four per cent) and direct marketing (-1.8 per cent).

Marketers’ confidence levels remain significantly negative

Following the first downbeat outlook towards own company financial prospects since Q3 2012 during the previous Bellwether survey, latest data showed no signs of an improvement. A net balance of -2.7 per cent of surveyed marketing executives indicated a pessimistic assessment towards their company’s finances, compared to -0.9 per cent during the final quarter of 2018, thereby indicating a stronger degree of negativity.

Industry-wide financial prospects also remained pessimistic during the first quarter. Although the net balance of firms casting a downbeat assessment was slightly lower than previously, registering -22.6 per cent (- 28.6 per cent in Q4 2018), it still signalled one of the most negative industry-wide outlooks since the global financial crisis.

Adspend forecasts for 2019 revised lower

With the Office for Budget Responsibility (OBR) releasing new forecasts in March, the IPA Bellwether Report has revised its expectations for adspend growth over the coming forecast horizon.

The OBR downwardly revised its growth projections for 2019 by 0.4 percentage points since October (previously 1.6 per cent), reflecting weaker growth forecasts for consumer spending and expectations of reduced business investment.

“As such, the Bellwether Report is forecasting a modest 1.1 per cent annual expansion to adspend this year, compared to 1.3 per cent previously. This downgrade reflects the challenging environment caused by Brexit uncertainty, slowing global growth and rising competitive pressures.

Nevertheless, under the assumption of restored business and consumer confidence once future UKEU relations become clearer, investment and consumption are expected to bounceback. The OBR has revised up its consumer spending and capex projections for the forecast period from 2020 through to 2023.

“Increased expenditure by consumers and businesses alike should bring renewed opportunities for marketing. The Bellwether Report’s adspend growth estimates for this period have also subsequently been revised higher.

Commenting on the latest survey, Paul Bainsfair, IPA director general, said: “This sharp increase following Q4 2018’s flatlining signals that UK marketing budgets have received a much-needed kiss of life in an economy gripped by Brexit uncertainty.

“The smart marketers realise that to grow their businesses, they must invest in them, particularly in mass reach, long-term media.

“While the forecast for the year ahead remains uncertain given the seemingly endless Brexit negotiations, those that want real competitive advantage should follow the proven rule that if you increase your share of voice above your share of market, you should expect to experience growth.”

Joe Hayes, economist at IHS Markit and author of the Bellwether Report, added: “A return to growth in marketing budgets during the opening quarter of 2019 may come as a surprise given the uncertainty that shrouds the UK political and economic climate has only built further since the previous Bellwether Report.

“However, some companies began to show a determination to step up brand-building and protection in these challenging times, taking a pro-active, yet defensive approach in the face of business belt-tightening and weakening consumer confidence. That said, cautious undertones were still apparent in budget plans for the 2019/20 financial year, with panellists providing only modest growth expectations in available marketing spend. In fact, the outlook was the most subdued since 2009.”

James Pais, IPA Scotland chair and creative services director, Frame, said: The uncertainty of the Brexit uncertainty is becoming more uncertain, and now we have more time to be uncertain. I am certainly losing track.

“The 2019 Q1 Bellwether report, however, has some surprising revelations – most notably an increase in growth of marketing budgets. It is also as if some companies took heed of Paul Bainsfair’s comments in the Q4 report that marketers need to be bold and business need to step up brand building.

“This Q1 report has shown that companies have taken a more proactive approach and looked to push resources into brand building; enhancing digital marketing methods and a more prevalent presence on social media platforms; which is all very encouraging.

“Even more optimistic is the notion that some firms are spending more on on marketing and advertising and launching and developing new products. Now, don’t get me wrong, there are some threats and negativity referred to in the report, but I am a glass-half-full type of guy, so let’s reflected on the positive.”

ENDS

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Contact: Sylvia Wood

Email: sylvia@ipa.co.uk