Brands bolster attack and defence as promotions fall

Marketers appear have headed the warnings that an over-reliance on sales promotions can erode brand value by launching both offensive and defensive strategies to plough more spend into brand-building as they strive to stand out from their competitors.

That is one of the major themes to emerge from the latest IPA Bellwether Report – for Q3 2023 – which shows total UK marketing budgets being revised up, extending the current sequence of upward revisions to ten successive quarters, with overall growth driven by the return of the main media category.

The report also reveals that there was, however, a moderation of the upturn as persistent inflationary pressures. Further increases in borrowing costs and a subsequent deterioration in the UK economic outlook have driven some companies to be more cautious with their budgets.

While 21.1% of Bellwether firms increased their total marketing spending in the three months to October, a sizeable 15.8% registered a downgraded budget. This resulted in a net balance of +5.3%, pointing to the weakest quarter of total marketing budget growth since the final quarter of 2022 (down from +6.4% in Q2).

According to panel members that registered growth, marketing activities were deployed both as a defensive and offensive manoeuvre, with some hoping to reinforce their brand’s position in the market ahead of a predicted downturn in the UK economy.

Efforts to seize additional market share was seen at companies who were witnessing key competitors prioritise short-term cost-savings over long-term business growth.

Supporting this, the main media advertising category was the strongest-performing segment of the Bellwether survey in Q3 as a robust net balance of +7.4% of companies upwardly revised spending in this crucial segment at the strongest rate in a year-and-a-half (-2.5% previously).

This contrasted markedly with the Q2 report, where sales promotions budgets drove the upturn as cost-of-living pressures drove companies to provide support to cash-strapped customers.

Within main media, other online advertising methods that aren’t captured by the other sub-categories rose (net balance of +9.1%, vs. +8.3% previously) as companies engaged with new innovative tools such as artificial intelligence. Video (+0.9%, from +3.2%) and published brands (+0.8%, from -5.0%) were the other areas of expansion within main media, whereas audio (-10.8%, from -8.0%) and out of home (-12.1%, from -7.1%) saw contractions accelerate.

Events continued to be an area of marketing budget growth in the third quarter, continuing its strong sequence of expansion seen in every Bellwether Report since the opening quarter of 2022. A net balance of +5.9% of companies saw an increase in spending in this area (from +9.8%), with anecdotal evidence indicating a resilient appetite for engagement with clients and prospects face-to-face.

Direct marketing budgets – which for the Bellwether Report only include direct mail, email, telemarketing, door-to-door, catalogues and SMS – are also on the rise (net balance of +4.3%, from +7.3%), suggesting that while all the talk is about artificial intelligence tools, brands are still embracing tried and tested disciplines.

Public relations has also gone up (+4.0, from -1.9%), with spend rising at the strongest pace in five years.

Meanwhile, spending cuts were recorded in the final three segments of the Bellwether survey. Other modes of marketing activity not accounted for continued to see budgets cut in the third quarter (net balance of -7.9%, from -6.8%), as did market research (-1.5%, from -2.9%). Notably, after a record expansion in the previous quarter, the latest data indicated a renewed reduction in sales promotions spending (-1.5%, from +13.4%).

There was little material change in company-own and industry-wide financial prospects during the third quarter of 2023, latest Bellwether data showed, with sentiment among respondents remaining generally subdued.

When assessing the financial prospects for their own business, Bellwether firms were optimistic, albeit only modestly, with a net balance of +5.2% of companies reporting stronger sentiment than three months ago. Positively, just over a quarter (25.4%) of respondents were more upbeat on their financial outlook.

This was offset considerably, however, as 20.2% signalled weaker confidence. The vast majority of companies (54.3%) reported no change in their assessment of financial prospects. Nevertheless, the latest data marked an improvement compared with the second quarter, when a net balance of just +2.6% registered more upbeat expectations.

In contrast, the industry-wide outlook remained negative during the third quarter, with the proportion of panellists that were downbeat towards the outlook for their sector (24.9%) over double the proportion who were positive (12.1%).

The resulting net balance of -12.7% was little-changed from the previous quarter (net balance of -12.6%) and signalled the greatest degree of negativity towards overall industry financial prospects in the year-to-date.

According to report author S&P Global Market Intelligence’s latest forecast, the UK economy will expand in 2023 by 0.3%, an unchanged estimate from the previous Bellwether Report. It has, however, downwardly revised its growth forecast for 2024 to -0.1%, from 0.4% previously.

The 2023/24 growth outlook is lacklustre as the full impact of the Bank of England’s interest rates rises has yet to materialise and inflationary pressures remain elevated. As such, S&P Global expects the UK economy to endure a shallow recession over this period. Subsequently, for Bellwether, it anticipates contractions in adspend of -0.6% and -0.4% in 2023 and 2024 respectively.

In fact, S&P Global predicts that it will not be until 2025 that adspend will grow again in real terms, according to this October forecast, with expectations for a modest recovery of 1.3% in annual growth terms as the UK economy picks up.

It is currently predicting GDP growth of 0.9% in 2025, with a further improvement in 2026 as economic growth strengthens to 1.4% on a year-on-year basis for 2026 and beyond. As a result of this, for the Bellwether Report, S&P Global anticipates annual adspend growth accelerating back to a solid trend of 2.0%.

IPA director general Paul Bainsfair said: “Against a backdrop of economic stagnation and ongoing elevated levels of inflation in the UK, coupled with increasing global geo-political volatility, the trading environment for companies is unquestionably tough.

“But instead of seeing a re-run of last quarter’s slightly concerning results, where companies revised up their short-term sales promotional activity to record amounts while reducing their main media spend, this time we are buoyed to see a more considered, reverse state of affairs.

“This quarter, those companies that can are heeding the evidence that, in general, investing more in main media will help to steady them through the uncertain times and help to ensure the longer-term health and profitability of their brands.

“Crucially, they – alongside the many investment analysts we have also recently surveyed – are recognising that marketing spend is indeed an investment not a cost.”

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