Direct mail appears to be holding up much better than other marketing disciplines during the Covid-19 crisis, even though the latest IPA Bellwether Report reveals the pandemic has triggered the fastest decline in overall budgets since the 2009 global financial meltdown.
The net balance is worked out from a survey of around 300 UK companies, in which the panel reveals whether their allotted marketing budget for each discipline has either gone up, down or stayed the same.
The latest data was compiled between March 2 and March 22 2020 – just before the UK lockdown came in force – and shows that market research was the worst-performing category in Q1 (net balance of -21.0%), followed by events (-15.9%) and PR (-14.3%).
Meanwhile main media, which is TV advertising and some digital disciplines, recorded its strongest downward revision since 2009 (net balance of -9.9%) and sales promotions also fell (-7.2%).
Direct marketing spend – which under Bellwether is dominated by direct mail and door-to-door, but also includes SMS, catalogues, and telemarketing – has suffered the least (net balance of -6.6%). Compared to the Q4 figures (-7.7%), this is actually an improvement.
Due to a change in methodology, Internet advertising is no longer a single category. However, ad budgets relating to video were revised slightly higher during the first quarter of the year (+2.1%) and online advertising methods not already accounted for were the strongest-performing monitored category within main media (+7.1%).
Of the three remaining monitored sub-categories of main media – audio, published brands and out of home – all saw downward revisions to their respective budgets.
Out of home was the worst performer, with a net balance of -10.9% of companies recording spending cuts. Marketing expenditure relating to published brands was also reduced to a solid extent (net balance of -8.4%), while a net balance of -6.9% of marketing executives observed cuts to their allocated audio advertising budgets.
However, across all disciplines, a net balance of just -6.1% of companies revised their total marketing budgets lower.
The overall picture showed a notable swing from the final quarter of 2019, where the net balance stood at +4.0% and signalled the strongest quarter-on-quarter fall in total marketing expenditure since the end of 2009. Precisely 25% of panel members recorded a budget cut, compared to 18.9% signalling growth.
However, budget forecasts for 2020/21 point to strong optimism as firms expect the UK economy to recover during the coming financial year, with expectations for a sharp rise in total marketing budgets.
A net balance of +16.2% of firms anticipate higher spending allocations over the next 12 months, signalling a strong level of optimism and suggests that many companies plan to grow their businesses and brands.
A number of companies also expressed a determination to tackle the current challenging economic climate, which they expect to be short-lived.
Within this, main media advertising recorded the strongest forecasts, with a net balance of +8.4% of companies expecting upward budget revisions. Events marketing budgets are also set to see growth (net balance of +6.3%) once public health restrictions are relaxed.
Modest upward revisions to direct marketing budgets are forecast (net balance of +3.7%), while the outlook for public relations was narrowly positive (net balance of +0.6%).
Perhaps unsurprisingly, there has been a sharp deterioration in both company-specific and industry-wide financial prospects during the first quarter.
Sentiment around own-company prospects moved into negative territory, reversing the marginal improvement seen at the end of last year which followed the partial decline of political uncertainty after the General Election.
A net balance of -26.0% of firms felt less optimistic towards their company-specific financial prospects, down sharply from +1.0% in the previous quarter to the lowest since the global financial crisis in 2009. Almost half (46%) of panel members were pessimistic, compared to approximately 20% who still foresee growth.
Industry-wide financial prospects were also down sharply as a net balance of -42.0% of surveyed firms were downbeat compared to three months ago. This was a steep decline from Q4, where the net balance stood at -21.0% and marked the weakest reading since 2011. The 11.5% of firms which viewed the prospects for their industries in a positive light were completely outweighed by the 53.5% who expect conditions to deteriorate.
IPA director general Paul Bainsfair described the report as a “sobering snapshot” of the initial impact of Covid-19 on UK businesses’ marketing decisions.
He added: “These are undoubtedly the toughest overall trading times that any business, and indeed any marketer, will have ever experienced, but while we suspect the fuller, sharper extent of this global pandemic to be captured in Q2 data, the hope from this report is that we will see a more upbeat end to the year.
“To achieve this return to growth will require UK marketers to make bold decisions. When recession looms it is understandable if businesses try and shore up short-term profits by cutting variable expenditure, such as advertising.
“However, as our evidence from past downturns shows, unless companies are saving cash simply to survive, or because they can no longer supply advertised services, cutting ad budgets – relative to competitor spend – is a high risk strategy.
“Such a move exposes firms to losing market share, foregoing sales and delaying the recovery of profits in the long term. Those brands that hold their nerve will gain extra share of voice which will achieve competitive gains.”
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