Direct marketing shines again as spring brings recovery

UK companies revised their marketing spend up once again in Q1 2024, stretching a run of growth that dates back to Q2 2021, with direct marketing once again putting in a strong performance which is forecast to stretch into 2025 as brands embrace the power of data-driven disciplines.

So says the latest IPA Bellwether Report published today, which reveals that the sustained upturn in marketing spend comes amid an improving economic backdrop for the UK economy, with an impending emergence from recession and falling inflationary pressures, albeit not quite as quickly as Government ministers had predicted.

Nearly a quarter (24.4%) of panellists recorded an upward revision to their overall marketing budgets in Q1, compared to 15% that saw a contraction. And, although this led the net balance to fall to +9.4%, from +14.7% in Q4 2023, it was nevertheless the second highest in almost two years and points to a solid quarterly expansion.

Events was the stand-out Bellwether category, recording a series-record expansion (net balance at +23.1%, from +15.9%) as companies continued to show a strong appetite for face-to-face engagement with customers. Direct marketing (+7.0%, from +12.6%) also extended its growth sequence, and sales promotions budget growth (+4.9%, from +1.4%) gathered further momentum.

Gains were also seen market research (+1.4%, from -5.0%) and PR (+0.6%, from +1.9%), but the main media segment – which includes the adland’s favourite of TV – declined (-0.7%, from +1.9%), signalling some caution towards big-ticket ad campaigns.

However, according to more granular data on main media, the contraction was driven by out of home (-10.8%, from -8.1%), published brands (-5.7%, from -1.4%) and audio (-4.5%, from -7.0%). This slightly offset growth in other online (+7.1%, from +13.2%) and video (+0.8%, from +6.6%). Other marketing activity not already accounted for also saw budgets shrink in the first quarter (-4.3%, from -6.4%).

Finalised budget setting plans for the 2024/25 financial year were strongly positive, in line with preliminary estimates, latest Bellwether survey data showed. Just over four-tenths (40.7%) of the survey panel have lifted the total amount available for marketing, compared to 18% reporting cuts. The resulting net balance of +22.8% signalled strong budget setting for 2024/25.

The main area of marketing budget growth for 2024/25 is set to be events, with a robust net balance of +18.7% of survey respondents anticipating an uplift in spend compared to the previous financial year.

This next-best category is direct marketing, which boasted a positive net balance of +11.9%, while main media advertising is also poised to return in 2024/25, with a net balance of +10.1% planning to lift available expenditure in this segment. PR (+6.3%) and sales promotions (+6.0%) were the last two monitored marketing categories in positive territory for 2024/25.

That said, companies are still wary of cost-savings where possible, with spending in some areas of marketing expected to be withdrawn as a result. Market research (net balance of -4.4%) and the other category (-3.4%) are set to contract.

When it comes to financial prospects, there has been a much-reduced level of pessimism, reflecting strengthening business conditions across the UK economy more broadly. In Q1, just shy of one-fifth (19.5%) of survey respondents were more optimistic towards their industry’s outlook than they were in the previous quarter. This was only narrowly cancelled out by 24.9% of firms expressing stronger negativity, yielding a net balance of -5.4% (up from -12.7%). Nevertheless, this was the highest seen for two years.

Regarding their own companies, Bellwether firms remained optimistic in the opening quarter. At +9.7%, the net balance of companies that were more upbeat towards financial prospects was strong (albeit slightly weaker than +12.6% previously). While nearly one-fifth (19.5%) were downbeat, 29.2% were positive with their near-term company-own assessment.

Since the Q4 2023 Bellwether Report, a slew of positive and improving business survey data indicates that the UK recession will be short-lived, with growth expected to be confirmed by first quarter GDP data. S&P Global Market Intelligence has subsequently revised their forecast for UK GDP in 2024, expecting growth (0.2%), rather than a small contraction (-0.1% previously estimated).

Even so, with interest rate cuts not expected until June at the earliest, and consumer confidence surveys remaining weak, there are obvious challenges at large for the UK economy which could weigh on businesses’ propensity to spend, with margin compression coming in the form of still-elevated costs, strong wage pressures and supply-chain issues. As such, the Bellwether forecast for adspend to decline in real terms remains little-changed at -0.5% for 2024 (vs. -0.7% previously).

However, from 2025 onwards, tailwinds from lower inflation and borrowing costs should support household real incomes, driving the UK economy and adspend into more robust expansion territory. Bellwether adspend growth forecasts improve to 1.2% for 2025 and 1.9% in both 2026 and 2027.

IPA director general Paul Bainsfair said: “Spring is in the air, bringing with it a greater sense of optimism in the UK economy and in UK companies’ marketing spend intentions for the year ahead.

“Ahead of a suspected lightening-up on some economic pressures closer to home in the coming months, and despite wider geo-political uncertainties, UK companies are once again recognising the value of advertising by revising their spend up this quarter.

However, Bainsfair, is concerned that promotional spend is growing faster than main media. He explained: “While sales promotions can stimulate short-term sales increases, the evidence also shows that their over-use can undermine a brand’s profit margins and pricing power over time by habituating consumers to buy mainly on price.

“As always, a careful balance needs to be struck to ensure longer-term growth, for which greater investment in brand advertising particularly in main media, pays dividends.”

But Bellwether Report author Joe Hayes, who is principal economist at S&P Global Market Intelligence, is more inclined to look at the bigger picture. He said: “Green shoots of recovery are appearing across the UK economy. With business survey data suggesting UK GDP will expand in the first quarter, it’s no surprise to see another strong round of marketing budget growth.

“Cost-of-living pressures and high borrowing costs has led household and businesses to retrench in recent times, making the market more competitive to earn and retain customer business.

“Throughout this period, we’ve seen marketing perform strongly, so it’s very encouraging to see that firms are staying true to the course that has clearly yielded positive results.”