Put your foot down: Brands gear up for road to recovery

Marketers are finally feeling bullish about a post-Covid boom, and, despite the latest IPA Bellwether Report revealing a further decline in UK ad budgets in Q1, the Government’s roadmap has triggered the strongest growth expectations for adspend since 2018.

In a sign that business conditions are beginning to stabilise after a year of Covid hell, a net balance of -11.5% of panellists reported a contraction in total marketing budgets during the first quarter of 2021.

Although the rate of decline remained historically marked, it eased substantially from the final quarter of 2020 (net balance of -24.0%). Overall, just over a quarter (25.7%) of surveyed businesses saw a decrease in available adspend in the latest survey period, while 14.2% recorded an increase.

Each of the monitored marketing categories saw a further decline in budgets at the start 2021, the sharpest of which was seen in events. Although the net balance of firms reporting a contraction eased to -43.2% from -62.9% at the end of last year, the pace of reduction was among the quickest ever recorded.

Cuts to budgets were also seen in market research (net balance of -17.8%, up from -25.0% in 2020 Q4), sales promotions (-16.2%, from -26.5%), direct marketing (-11.8%, from -13.9%), main media (-8.2%, from -21.8%) and PR (-8.0%, from -8.5%).

However, adspend forecasts for 2021/2022 suggest that budgets could recover in the next financial year. A net balance of +17.4% of firms expect their total marketing budgets to increase over the next 12 months.

This signals the strongest growth expectations for adspend since 2018, with the latest figure having been upwardly revised from a preliminary estimate of +12.0% in the previous report.

Of the marketing categories monitored, expectations for the coming year remain strongest in main media (+10.1%), followed by PR (+7.4%) and direct marketing (+6.8%), while expectations were neutral regarding sales promotions (0.0%). Meanwhile, events are forecast to take another battering (-28.4%), along with market research (-4.9%).

Even so, both industry-wide and own-company financial prospects improved significantly in Q1, following a year of subdued expectations during 2020.

Bellwether panellists were optimistic regarding industry-wide financial prospects for the first time since the end of 2015 in the latest survey period. In fact, the net balance of firms that were more confident than three months ago was +26.2%, up sharply from -5.8% in the fourth quarter of 2020, and the highest since the start of 2015.

Overall, 41.2% of firms were more optimistic on industry-wide financial prospects compared to three months ago, while only 15.0% were less so.

When questioned on own-company financial prospects, panellists were also more upbeat than three months ago. The result followed the first positive reading for a year in the final quarter of 2020. In the first quarter of this year, the degree of confidence strengthened markedly, with a net balance of +36.6% of firms more confident of an improvement in their own financial prospects.

This marked the strongest level of optimism for six years, with almost four times as many companies reporting improved sentiment compared to those recording a deterioration (+49.5% versus 12.9%).

With Covid-19 restrictions having been in place throughout much of the year, Bellwether author IHS Markit forecasts a -9.9% contraction in UK GDP for 2020. The sharp downturn in activity was predominantly driven by severe economic disruption in the second quarter of the year, when the lockdown restrictions caused many firms to temporarily close.

Although the reopening of businesses during the summer months provided a boost to GDP in the third quarter, this was not enough to offset the earlier decline. Consumer spending and business investment are estimated to have fallen by -11.0% and -8.7% for the year as a whole. These figures point to a decline of approximately -15.7% in adspend during 2020.

However, amid the ongoing rollout of Covid vaccines and the planned relaxation of UK restrictions later this year, the outlook is set to improve. IHS Markit expects a +3.7% expansion of GDP in 2021, followed by an even quicker rise of +5.8% in 2022.

Assuming that the economic recovery progresses as expected, it foresees a 3.5% increase in adspend during 2021, followed by a further acceleration to +6.9% in 2022, before stabilising nearer the long-run trend.

But, of course, there are still risks to these forecasts, including the emergence of new vaccine-resistant strains of the virus and the delay of vaccine rollouts in other countries that act as key trading partners to the UK, such as those in continental Europe.

Bellwether Report author Eliot Kerr, who is an economist at IHS Markit, said: “Although marketing budgets continued to decline at a marked pace amid ongoing Covd restrictions, it was positive to see a further trend towards stabilisation. Meanwhile, upbeat forecasts from UK marketers for the coming financial year, after the marked reduction in budgets through 2020, bolsters expectations for a post-pandemic recovery and bodes well for the UK economy.

“Without a doubt, the improvement in budget plans from the previous survey period will have been supported by the release of the UK Government’s roadmap to relaxing restrictions. It has allowed businesses to look beyond the current climate and begin to build towards a time when demand will recover. If all goes to plan, a strong economic recovery should see adspend rise sharply in the second half of the year.”

TOPICS:adspend Bellwether budgets coronavirus data-driven marketing IPA