Ad budgets derailed again but is that a light ahead?

Covid-19 may be continuing to wreak havoc with companies’ marketing plans, but there is finally a chink of light at the end of the tunnel, with direct marketing faring better than most and a new sense that increased investment in digital, data and customer experience is just around the corner – just keep everything crossed.

So says the latest IPA Bellwether Report for Q3, which shows UK companies registered another reduction in marketing budgets amid ongoing coronavirus restrictions. This followed a record reduction in available funds during Q2, when many businesses were either temporarily closed or operating at reduced capacity.

The report indicated that a net balance of -41.0% of panellists saw their marketing budgets cut, which, although a better picture than the -50.7% in Q2, still represents the second-quickest decline since the survey’s inception in 2000. In Q3, over half of respondents (52.6%) recorded a decrease in budgets from three months ago, compared to only 11.6% that saw an increase.

Of course, with reduced revenues as a result of the pandemic, most marketers cited the need to cut costs in order to maintain profitability. Ongoing social distancing measures meant that many firms were still operating below full capacity in the third quarter, particularly some services companies that rely on face-to-face client engagement.

For direct marketing budgets – which it has to be remembered only cover direct mail, telemarketing, door-to-door, catalogues and SMS – a net balance of -25.3% of companies saw spend decrease (albeit up from -41.6% in Q2), with exactly 37% of firms registering a decline while only 11.7% seeing an increase.

And while these cuts are marked departure from the robust increase in DM budgets forecast at the start of the financial year, anyone who run an events-based business would no doubt bite your hand off for such a result.

Overall, just 3.8% of panellists saw an increase in available spend for events, while over two-thirds (67.9%) recorded a decline, giving a net balance of -64.1% of firms registering downward revisions compared to last quarter (-76.6%).

Main media also fared slightly better, with an improving picture for online campaigns (-6.5% compared to -35.1% in Q2), followed by video (-16.1% from 39.3% in Q2), audio (-32.0% from 50.0% in Q2), published brands (-38.5% from 49.2% in Q2) and out of home (-50.0% from 61.2% in Q2) respectively.

There has also been an improvement in firms reporting on their own-company financial prospects. Nearly a third (30.7%) of panellists were more optimistic compared to three months ago, while 34.6% had a more negative view on financial prospects for their companies. That said, the resulting net balance of -3.9% was the least downbeat so far this year after severely pessimistic readings in both the first (-26.0%) and second (-55.1%) quarters.

Looking forward, IHS Markit anticipates a robust recovery in economic conditions during 2021, as firms continue to adapt to a ‘new normal’. This would translate to a +4.6% expansion in GDP and a Bellwether forecast of a +11.3% rise in adspend during 2021, followed by a steady trend towards long-term growth rates.

These outcomes, however, hinge largely on the evolution of the pandemic and the development of Brexit negotiations before the end of the transition period at the end of this year.

IHS Markit economist Eliot Kerr, who is author of the Bellwether Report, said:”With UK businesses continuing to adjust to a ‘new normal’ amid the coronavirus pandemic, marketing budgets remained under severe pressure in the third quarter of 2020. The broad-based decline across all types of marketing budgets highlights the negative impact that the public health crisis is continuing to have on business conditions.

“Unsurprisingly, events remained the hardest-hit category, with social distancing measures limiting the viability of such spending, although reductions in every other monitored area were also substantial.

“Looking forward, if the UK can avoid another large-scale coronavirus outbreak and achieve a smooth exit from the European Union, we should see an improvement in economic conditions as firms learn how to better operate in this new business environment.”

And Merkle EMEA chief marketing officer Azlan Raj said that, while the “green shoots of recovery” may not feel immediate, there are opportunities to get ahead of the curve and back to growth.

He added: “As we try and get back to normal, consumers are still very much unsettled by what’s going on in the world, and not just Covid-19, but the US election and Brexit too. Brands that can truly support their customers to navigate safely through the stormy waters of 2020, have much to gain.

“We’d expect to see a shift in ‘pay and spray’ approaches to advertising, and a greater investment in digital, data and customer experience. The number of touchpoints is still growing, as what customers consider ‘ads’ diminishes, so both into winter and beyond into 2021, we anticipate that kneejerk digital transformation caused by the coronavirus will need to mature into strategically-driven, experience-led investment.”