Brand owners are holding their nerve in the face of impending doom, and appear to have finally woken up to the importance of maintaining marketing spend during a downturn, with the latest IPA Bellwether Report signalling another quarter of total marketing budget growth across the final three months of 2022.
While the UK economy is widely expected to have entered a technical recession at the end of the year, the Q4 2022 Bellwether shows around one-fifth of survey respondents upwardly revised their total marketing spending in the fourth quarter (20.2%), while 18.0% registered budget cuts.
Overall, the net balance recorded in positive territory for the seventh successive quarter (+2.2%) and marked the longest uninterrupted sequence of growth for four years. Overall, growth was little-changed from Q3 (net balance of +2.1%).
Events (net balance of +5.7%, vs. +4.5% previously) was the top-performing category in Q4. Meanwhile, main media marketing saw a return to growth (net balance of +4.4%, vs. -3.1%). In terms of the breakdown for main media, the data showed video (net balance of +13.7%, vs. +8.7%) and other online (net balance of +6.3%, vs. +9.3%) driving growth. Audio budgets were unchanged (net balance of 0.0%, vs. -2.0%), while published brands and out of home saw declines (net balances of -3.9% and -8.8%, vs. -11.2% and -7.6% respectively).
Other Bellwether categories saw a continuation of negative trends in the fourth quarter. Direct marketing saw a marginal reduction again (net balance of -0.6%, unchanged from previously), while PR budgets were cut modestly (net balance of -1.9%, vs. -4.8%).
Sales promotion budgets struggled as companies were concerned about margins (net balance of -4.0%, vs. -7.5%). Lastly, market research (net balance of -8.8% vs. -4.1%) and other marketing activities not already accounted for (-10.1%, vs. -10.5%) saw budgets contract.
The outlook for marketing budgets in the 2023/24 financial year was strongly positive, preliminary data from the Bellwether panellists shows.
A large proportion of surveyed companies (39.5%) expect total marketing budgets to be higher in 2023/24, while only 15.3% anticipate spending cuts. This led to a strongly positive net balance of +24.2%, indicating a robust outlook among UK marketers.
Indeed, optimism towards budgets was seen across all seven broad Bellwether categories, preliminary data shows. Expectations of budget growth were the strongest for events (net balance of +18.0%) as companies continue with their efforts to re-engage with existing clients and prospects face-to-face.
Companies also took a strongly positive view on the outlook for main media marketing (net balance of +13.4%).
Elsewhere, firms were also positive towards sales promotions (net balance of +7.9%), despite margin pressures. Direct marketing, PR, other marketing activities and market research (net balances of +5.8%, +3.7%, +2.4% and +2.0% respectively) are also poised for moderate budget growth.
Even so, business sentiment among Bellwether panellists remained inside pessimistic territory during the fourth quarter of 2022, reflecting downbeat expectations for the year ahead as a persistence of high inflation, increased interest rates and low consumer confidence raise the prospect of a UK recession.
According to the latest figures, 41.8% of respondents adjudged the financial prospects within their specific industry as a whole to have worsened when compared to the three months prior. This dwarfed the 8.7% of companies that were optimistic on the outlook for their sector. The subsequent net balance of -33.2% was less negative than previously (-44.3%), but nonetheless the second-most pessimistic assessment of industry-wide prospects since Q2 2020.
Similarly, Bellwether panellists were negative on their company-own outlook in the fourth quarter. The proportion of respondents that were more downbeat than three months ago (32.8%) was over double the proportion feeling more optimistic (15.6%). That said, the net balance did increase slightly from the third quarter, up to -17.2% from -27.6%, indicating a reduced level of negativity.
High inflation, rising interest rates and weak consumer confidence create an intensely challenging environment for businesses and households alike. Subsequently, the report predicts the economy is likely to endure a recession in the first half of this year.
Bellwether author S&P Global Market Intelligence expects GDP to shrink in 2023 by 0.8% as household incomes are squeezed by inflation. Private consumption is also likely to be adversely impacted by falling house prices and rising borrowing costs. Consequently, S&P expects retrenchment to occur as companies weather the storm, leading adspend to decline by a modest 0.3% in 2023.
That said, S&P is currently predicting a short and shallow recession in the UK. Moderate growth should return in 2024, underpinned by falling inflation, recovering demand in key export markets and a reduction in borrowing costs as the Bank of England cuts interest rates. S&P is predicting GDP growth of 0.6% in 2024, and a recovery in adspend (1.2% annual rate of growth).
Beyond next year, S&P’s GDP growth forecasts are slightly higher than in the previous report (1.3% and 1.5% for 2025 and 2026, compared to 1.2% and 1.4% previously). As such, Bellwether predicts adspend growing by 1.8% and 2.0% respectively in 2025 and 2026.
Commenting on the survey, IPA director general Paul Bainsfair said: “Given the immediate outlook for the UK economy has deteriorated since the previous Bellwether Report, this quarter’s results are most welcome. While understandably cautious, they are nonetheless in positive territory.
“We can see that the companies that can are holding their nerve and continuing to invest in marketing through the downturn, with supporting anecdotal evidence from the report also revealing that a lot of companies who are concerned about losing market share to competitors have either maintained or increased their spend accordingly. This indicates that marketing is being used both defensively and offensively.
“It is particularly good to see positive revisions to main media budgets this quarter which is helping to drive the overall upward figure, fuelled particularly by investment in video advertising. As our evidence shows, this will stand brands in good stead during a downturn as brand-building advertising has a proven ability to maintain a brand’s pricing power and protect its profit margins.”
S&P Global Market Intelligence senior economist Joe Hayes, who is also author of the Bellwether Report added: “The latest Bellwether survey provides some interesting insights into how UK companies are planning to navigate an impending UK recession.
“Another quarterly expansion in total marketing budgets at a time when business costs have hit multi-decade highs and consumer confidence has plunged suggests many businesses understand the importance of investing in resources that will help them get through the downturn as best as possible.”
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