Total UK marketing spend appears to have ridden out the cost of living storm in Q2 at least, although the waters look far from calm for the coming months as clouds gather over financial prospects and adspend forecasts.
That is the conclusion of the latest IPA Bellwether Report, however, it also reveals some brands are fighting fire with fire and launching major activity to gain market share from less-prepared competitors.
The IPA Bellwether Report reveals the marketing spend intentions across the UK’s top industries and in its 22 years of reporting has been one of the first indicators to show both recession and recovery.
According to the Q2 2022 data, around a quarter (24.2%) of companies raised their total marketing expenditure during the second quarter, while 13.4% registered budget cuts. At +10.8%, the resulting net balance remained in solid positive territory, but indicated a slight slowdown in growth when compared to the opening quarter of 2022 (+14.1%).
The rebirth of the events industry post-Covid has been a key driver of total marketing activity growth, with the latest data signalling another record upward budget revision.
At +22.2%, the respective net balance was up from +18.7% previously and the strongest-performing Bellwether category by a considerable margin.
The Government’s “living with Covid” strategy has given companies the confidence to plan face-to-face events, with many firms reportedly set to use this platform to relaunch their brands. The only other Bellwether category to record growth in Q2 was PR, which saw its expansion strengthen from the start of the year (net balance of +3.7%, from +0.6%).
Main media – which includes big-ticket advertising campaigns relating to TV – saw marketing budgets stagnate, bringing to an end a year-long sequence of growth. At 0.0%, the net balance was down sharply from +9.4%.
Within main media, there were notable differences. While “other online” (+4.4%, from +18.6%) and video advertising (+0.8%, from +9.0%) growth continued, they both saw steep slowdowns. Audio (-16.4%, from -8.5%) and out of home (-15.9%, from -4.6%) saw downturns deepen, while published brands moved from positive to negative territory (-2.6%, from +1.3%).
By comparison, direct marketing held its own, even though budgets stagnated (0.0%), and its four-quarter sequence of growth came to an end.
The remaining monitored marketing activities saw budgets fall in the second quarter. Sales promotions (-0.7% vs. +8.0% previously), market research (-6.5% vs. -3.5% previously) and other marketing activities not already accounted for (-8.3% vs. -0.9% previously) all dragged on total expenditure.
The latest survey also signalled a broad-based deterioration in financial prospects in the second quarter.
Compared to three months ago, survey respondents became more pessimistic towards their industry-wide financial prospects, with a net balance of -26.7% of companies more downbeat overall.
This was the most negative outlook since Q3 2020 and compared with a net balance of -3.6% in the first quarter of the year. While 13.6% of companies were more optimistic, 40.3% expressed gloomier sentiment.
Meanwhile, for the first time since Q3 2020, own-company financial prospects slipped into negative territory. A net balance of -9.5% of companies signalled pessimism regarding their own-company performance, the most downbeat for two years. Underlying data showed that 30.7% of survey respondents were pessimistic towards their own business prospects, compared to 21.2% that were more optimistic.
Since the Q1rReport, the IPA Bellwether author, S&P Global Market Intelligence, has downgraded its assessment for UK economic growth prospects in 2023 through to 2025, which in turn has seen it downgrade its adspend growth forecasts over this period too. It has also cut its adspend growth forecast for 2022 to reflect the strengthening economic headwinds that have built up through the year.
Elevated inflation throughout 2022 points to a bigger hit on consumer confidence and disposable incomes. High costs for businesses will also weigh on the economy, while rising interest rates act to deter investment. The risk of a recession has intensified, and as such, it has cut its adspend forecast for this year to 1.6% (from 3.5% previously).
Much of the economic challenges seen at present are likely to spill over into 2023. With interest rates also set to rise further and households and businesses likely to remain in cost-containment mode until inflation comes down, S&P’s GDP forecast for 2023 has been cut from 1.2% to 0.5%, bringing down its adspend growth forecast from 1.8% to 0.8%.
With the growth path beyond 2023 now looking more uncertain amid the potential for these strong downside risks to persist, 2024, 2025 and 2026 adspend growth forecasts have also been trimmed to 1.4% (from 1.7%), 2.0% (from 2.2%) and 2.3% (from 2.4%) respectively.
IPA director general Paul Bainsfair said: “The Q2 Report shows that marketers are understandably concerned about the challenging business climate ahead, as reflected in the deterioration of their financial prospects.
“It is interesting to see, however, amid the mounting economic headwinds, there were a number of businesses that signalled their intent to market aggressively to support their brand and gain market share from less-prepared competitors. This is usually a wise and canny move.
“All the IPA’s analysis on who does best in a downturn, shows that the companies that recover fastest are the ones that either maintain or increase their marketing spend during difficult economic times. Equally, cutting ad budgets – relative to competitors’ spend – in a recession undermines companies’ ability to grow future market share and profits.
“Meanwhile, others were also planning for the challenges ahead by positioning their businesses to support customers through difficult times. Brands need to be seen and continue to work for the benefit of consumers. They are important because they offer choice which ensures competition and lower prices, which in the months ahead will be important for consumers looking to spend their money wisely.”
Bellwether Report author Joe Hayes, who is senior economist at S&P Global Market Intelligence, concluded: “Amid a deteriorating economic outlook for UK businesses, sustained growth in total marketing activity is encouraging.
“However, the stagnation in main media marketing budgets is a disappointing result from the Q2 survey and suggests concerns around the outlook are weighing on decision making.
“Risks are clearly skewed to the downside as the intensifying cost of living crisis weighs on disposable incomes, while firms face difficult decisions regarding their spending at a time when their cost burdens continue to inflate.”
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