PRIOR hopes of a sustained revival were extinguished in the second quarter of 2019 as firms reported no change to available marketing budget expenditure amid growing political and economic uncertainty.
This is according to the Q2 2019 IPA Bellwether Report, released today, Wednesday 17 July.
Following a return to growth in the opening quarter of the year, buoyed by firms taking a more pro-active approach to offset risks to their businesses, latest Bellwether data signalled a stalling of growth, with the net balance falling from +8.7 per cent to +0.0 per cent.
The 20 per cent of panel members reporting greater marketing spend was completely offset by those cutting expenditure, while the remaining 60 per cent kept budgets unchanged since Q1.
Growing economic uncertainty, continued ambiguity over Brexit and additional risk through a change of political leadership in the UK were mentioned by firms as factors expected to challenge the business environment over the coming year.
This created hesitancy among clients and delayed decision making. Panel members also raised concerns that difficult conditions domestically were damaging consumer confidence and impacting consumption. Businesses were also wary of headwinds from external sources, particularly spillover effects into UK markets from global trade disputes and weaker growth at key export destinations such as Europe and Asia.
Some marketers revise up internet, main media and events marketing budgets
Nevertheless, marketing executives were given extra discretion over internet-based advertising in the second quarter, as signalled by a net balance of +11.5 per cent of firms reporting budget growth (+17.2 per cent in Q1). Within internet, search/SEO budgets also grew solidly (net balance of +9.9 per cent from +14.2 per cent).
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 per cent of companies reported greater main media marketing budgets (+5.2 per cent in Q1).
The only other Bellwether category to register growth in the second quarter was events. The net balance increased to +4.8 per cent, from +3.4 per cent 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 per cent from -4.2 per cent), while PR budgets were also cut (net balance of -5.2 per cent from +0.0 per cent).
A second successive downward revision to sales promotion budgets was also recorded (-7.1 per cent from -3.7 per cent). Aside from the ‘other’ advertising category (net balance of -12.8 per cent from -5.4 per cent), it was direct marketing which was the worst performer, with the net balance falling to -nine per cent (-3.5 per cent previously), the lowest level in over ten years.
Own-company outlook turns more negative
Bellwether panel members remained negative regarding financial prospects in the second quarter, casting more downbeat assessments towards both industry-wide and company-own finances than seen during the opening quarter of 2019.
With precisely 34 per cent of marketing executives reporting a pessimistic outlook towards finances in their industry, compared to approximately eight per cent that were optimistic, the resulting net balance (-25.6 per cent) signalled the second-most negative assessment since the fourth quarter of 2011 (surpassed only by the Q4 2018 reading of -28.6 per cent).
Furthermore, this was down from a net balance of -22.6 per cent seen in Q1.
Latest data also pointed to deeper negativity towards own-company financial prospects. The net balance fell to -9.8 per cent, from -2.7 per cent in the first quarter, signalling the highest degree of pessimism since Q4 2011.
Adspend forecasts for 2019 subdued, but improvement beyond 2020 foreseen
Bellwether remains cautious towards 2019, expecting only a modest 1.1 per cent annual increase in adspend over the year as a whole.
Various factors underpin its reservation, namely ongoing Brexit uncertainty, but also recent developments in the UK economy, which this year so far have largely been negative. 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, Bellwether believes 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 per cent in 2020, followed by stronger rates of increase in 2021 (two per cent), 2022 (2.2 per cent) and 2023 (3.1 per cent).
Commenting on the latest survey, Paul Bainsfair, IPA director general, said: “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.
“Until a clearer political and economic path is outlined, the vast majority of companies are locked 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.”
Added: Joe Hayes, economist at IHS Markit and author of the Bellwether Report: “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.
“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.
“That said, internet marketing remained a bright spot. 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.”
Guy Vickerstaff, creative director, The&Partnership, Edinburgh, and IPA chair for Scotland, continued: “In the midst of 2019’s political and economic omnishambles, is it any surprise we’re seeing marketing budgets flatlining? And against a backdrop of widespread marketing short-termism, this chaos has created a real sense of stagnation.
“But we must lift our heads. Our industry must continue to build on the relationships of trust we’ve established, to partner our clients for growth over the longer term. In all the belt-tightening, it’s important not to lose sight of that.”
ENDS
Notes for editors:
A downloadable PDF for Q2 2019 can be purchased for £99+VAT for IPA members (£140+VAT for non-members) at https://ipa.co.uk. Annual subscription is also available by contacting economics@ihsmarkit.com
All press enquiries, please contact:
Sylvia Wood, head of Press Office, IPA: 020-7201-8247 / sylvia@ipa.co.uk
Joe Hayes, economist, IHS Markit: 01491-461-006 / joseph.hayes@ihsmarkit.com
Joanna Vickers, corporate communications, IHS Markit: 0207-260-2234 / joanna.vickers@ihsmarkit.com
About the Bellwether
The Bellwether is based on a questionnaire survey of around 300 UK-based companies that provide regular quarterly information on trends in their marketing activities. The survey panel has been carefully selected to ensure that the survey data provide an accurate indication of actual marketing trends in the whole economy. Participating companies therefore include a broad variety of advertisers in terms of market sector and geographical location. The survey panel has been recruited from the nation’s top 1,000 companies. Respondents are primarily marketing directors or similar.
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