Ad recovery continues but there will be bumps ahead

Fears that the Omicron variant of Covid-19 would scupper the UK marketing recovery have – by and large – proved unfounded with companies revising their total marketing budgets up in the fourth quarter of 2021, marking a third successive quarter of expansion.

So says the latest IPA Bellwether Report, which reveals a net balance of +6.1% of companies increased their total marketing budgets at the end of last year as recovery efforts from the pandemic continued.

That said, the triple whammy of Omicron, heavy supply-chain disruption and strong inflationary pressures, did see total marketing budget growth slow from the third quarter of 2021 (net balance of +12.8%).

Nevertheless, the latest data was still a robust result by comparison to recent years and signalled the second-strongest improvement since the opening quarter of 2019, the report shows.

Market research (net balance of +7.0%) was the top performing category in the latest survey period, reflecting efforts by businesses to better understand the impact that the Covid-19 pandemic has had on their existing clients and target audiences. Overall, market research enjoyed its strongest performance since this category of marketing was first tracked by Bellwether over nine years ago.

Direct marketing registered the next strongest expansion in budgets, with a net balance of +3.8%, followed by main media advertising (+3.1%). Within main media, we saw growth in video (+7.3%) and other online advertising (+4.5%), but budget cuts in published brands (-5.9%), audio (-6.3%) and out of home (-8.3%).

Public relations was the final main category to register in growth territory during the fourth quarter (+2.0%), as sales promotions budgets (0.0%) stagnated. Meanwhile, events (-3.9%) and other (-11.2%) marketing budgets registered cuts.

Preliminary data regarding spending plans for 2022/23 suggests that marketing budgets are on track for considerable growth as businesses step up their recovery efforts from the pandemic. A net balance of +34.5% of surveyed companies are planning to expand their total marketing spend in the coming 2022/23 financial year. Indeed, close to half (45.7%) of Bellwether panellists were optimistic of budget growth, with direct marketing (+15.5%) set to benefit.

In response, Analytic Partners senior director Justine O’Neill said: “The latest report gives the industry real reason for continued optimism, with an increase in marketing budgets in the coming year, as everyone has adapted to the changed business conditions. Omicron has been a slight setback for quicker recovery so it makes sense that only a few budgets such as direct marketing, video and online advertising have seen budget increase in Q4 and across the year.

“But there are still challenges; as well as the impact of supply chain disruption on business costs, marketers need to consider media inflation too, especially now in early 2022. TV will see the largest increase in costs, with inflation of 6.0% according to WARC’s forecast, followed by online video at 4.1%.

“Leveraging the evergreen marketing truths of using synergies, layering channels for effectiveness and an omnichannel strategy will help brands mitigate inflation while still driving reach. Those companies with a larger brand or product portfolio can also use the halo effect, when 45% of their flagship advertising’s impact will halo onto the rest of the portfolio.”

Econsultancy managing director Richard Robinson, meanwhile, reckons that the need to define excellence in digital, marketing and creativity has never been more pressing – and the need to train, hire and retain the best talent is fast becoming the pivotal battleground in terms of commercially viable ROI as we look into 2022.

He added: “Brands and agencies alike must get ahead of staff and skills shortages by learning their way out of the crisis and matching their intent with the optimum partnerships for profitable growth.”

Meanwhile, Joint founder Richard Exon, said that given the message from the Q3 2021 Bellwether was “Marketing budgets up, although nerves remain”, this news feels horribly familiar, adding that the 2022 headline for agencies could be “There’s lots to play for, but take nothing for granted”.

However, he reckons in one respect things are substantially different this year. “Because most big companies, our clients, have learnt a huge amount over the last two years about how to ride Covid disruption in ways that allow them to grow. Nobody is saying the pandemic is over, but its pressures and challenges are increasingly familiar. Clients and agencies alike have developed a higher degree of flexibility and responsiveness as each new variant has come and, by and large, gone.

“So too have our audiences, the consumers who have shown amazing resilience and whose spending may have switched categories and channels in some cases but has stayed constant overall. What we don’t yet know is the impact of the cost of living crisis as higher taxes and inflation take hold. But it’s a fair bet it will make 2022 a ferociously competitive year for brands of all sizes, putting an absolute premium on smart marketing and advertising.”