Direct marketing glows as adspend is hit by big freeze

Uncertainty over the imminent Autumn Budget triggered a mass pause on total marketing budgets during the third quarter of 2024, although direct marketing once again outperformed most other channels, as the discipline defies the doom-mongers to continue its impressive growth spurt.

That is according to the latest IPA Bellwether Report, which reveals that the respective net balance of UK companies revising their marketing budgets up (21.6%) vs revising them down (21.6%) has dropped from +15.9% in Q2 to 0.0%. This demonstrates a significant shift in behaviour from the robust growth observed over the previous 13 quarters, which had averaged an impressive net balance of +8.8%.

However, despite this renewed cautious approach to marketing budgets, the category breakdown revealed several strong-performing media categories in the third quarter.

While the term direct marketing might have fallen out of favour with some, and the Bellwether definition – which only includes direct mail, email, telemarketing, door-to-door, catalogues and SMS – is out of touch to say the least, the discipline appears to be winning new converts.

And, as well as direct marketing, which saw the strongest upward revision in three quarters at +9.7% (+8.9 in Q2 and +7% in Q1), PR saw the most significant upward revision, with the net balance soaring to a record high +11.0%, from +2.6% in the previous quarter. Ranking second was events with a net balance of +9.9% (vs. +17.2% previously) as demand for in-person and face-to-face interactions with customers and prospects remained strong.

Main media advertising – which includes TV – experienced a second consecutive quarter of budget increases, with the net balance climbing from +3.5% to +4.3%, indicating the strongest growth in a year.

The breakdown by sub-category showed that this growth was driven by big-ticket video campaigns, which saw the net balance of firms registering upward revisions rise to +11.7% from +7.8%, its highest since Q4 2022.

Even so, this surge masked declines in the remaining segments. Following stabilisation in the previous quarter, out of home experienced the most significant downward revisions to marketing expenditures in the third quarter. The net balance fell back into contraction territory, with a reading of -15.7%, marking the steepest decline since Q2 2022.

Audio weighed down main media marketing, with the net balance dropping to -10.0% from -5.5%. Published brands advertising (net balance of -4.4%, from -6.3%) and other online marketing budgets (net balance of -1.4%, from +15.3%) also saw contractions, the latter recording its first negative net balance in four years.

Sales promotions budgets continued to grow, registering a fourth consecutive quarterly increase. However, the net balance fell to +3.2%, from +6.9% in the previous quarter, as UK inflationary pressures come back under control.

Finally, budget allocations were reduced for both market research, which saw its net balance drop to -1.5% from +3.2%, and other forms of paid marketing (-9.7% from -7.6%).

Bellwether data for Q3 indicated a shift in sentiment compared to the previous quarter, with attitudes toward company-specific prospects turning negative after nearly two years of optimism.

While a net balance reading of -2.2% indicated only slight pessimism regarding company-own financial outlooks, this marked the first time in seven quarters that the net balance posted below zero and highlighted a stark contrast to last quarter’s reading of +13.6% (which was almost a three-year high). Nearly a quarter (23.9%) of panellists expressed downbeat sentiment in the three months leading to September, a shade above the 21.7% who were positive.

Additionally, survey respondents were more negative about the outlook for their industry overall. The net balance of -16.2% in Q3 (previously -4.1%) was the lowest recorded since the closing quarter of 2022. A sizeable 29.6% of marketing executives reported a more pessimistic view of the broader industry’s financial prospects, almost double the 13.4% who were optimistic.

Since the last Bellwether survey, S&P Global Market Intelligence ha uspwardly revised its UK GDP growth forecast for 2024 considerably, to 1.2% from 0.6%.

This comes off the back of healthy figures in business surveys such as the PMIs, as well as stronger-than-anticipated quarterly GDP data through to the second quarter of 2024. In line with a stronger economic outlook, S&P Global has lifted its Bellwether adspend forecast to 0.6% in real terms for 2024, versus a flat estimate previously (0.0%). However, actual price levels, particularly for food and energy, remain a concern, and the high cost of borrowing — despite the interest rate cut in August — as well as higher personal taxation for many UK households are headwinds to growth.

Growth in 2025 is expected to be similar, with S&P Global Market Intelligence pencilling in a 1.3% annual GDP expansion, slightly above the 1.2% growth forecasted in the previous report. Positively, advertising spend is anticipated to pick up considerably next year, growing 1.3%. 2026 onwards should see GDP growth settle at the lower end of the 1% threshold, with adspend in real terms to rise at rates close to 2% in 2027 and beyond.

IPA director general Paul Bainsfair said: “Negative hype surrounding the impending Budget has no doubt created choppy waters for UK companies and their marketers to navigate.

“Looking to the positives, this quarter’s results reveal that companies aren’t cutting their marketing budgets; they are pressing pause until they know more about the Government’s economic plans. As clarity emerges, this may indeed prove to be a temporary dip in overall marketing spend rather than the start of a long-term downward trend.

“Building on this, it is worth noting that our adspend forecast has been revised up for 2024 and 2025 because the economic data has been so strong so far this year, and that main media growth strengthened to a one-year high while sales promotion budget growth slowed – both of which are signals of bullishness.

“It is also worth remembering, as the expression goes, a smooth sea never made a skilled sailor. It is in the tough times that we know that our highly skilled, experienced agencies and their trusting, brave clients can reap significant market share for brands by continuing to invest in advertising. By raising their advertising voice when others go quiet – particularly in longer-term brand-building media, brands can achieve greater market stand-out, and in doing so strengthen their value and embolden their price elasticity.”

Bellwether Report author Joe Hayes, who is also principal economist at S&P Global Market Intelligence, added: “After some bumper quarters for UK marketing spend, and a decade-high expansion in the last survey, the Q3 Bellwether report suggests that companies have dialled back their advertising activity levels.

“The result is disappointing and ends a strong sequence of growth, although perhaps it is more of a temporary step back as opposed to the start of a downward trend. One reason why this might be the case is the Autumn Budget, which is subject to much uncertainty about what new policies the Government will announce. Fears of unfavourable taxation changes were frequently cited by panellists. Indeed, throughout the Bellwether survey’s long history, there have been several general elections, and history tells us that political uncertainty often weighs on decision-makers.”