Sector beats Covid; now it must battle war and famine

UK marketing budgets were revised up to a near eight-year high in Q1 2022, according to the latest IPA Bellwether Report, but with the fall out from the war in Ukraine and the cost of living crisis, it seems direct marketing – and channels which drive immediate results – will be the long term winners.

According to Bellwether data, total marketing budgets were upwardly revised by nearly one-quarter of panellists (24.1%). By contrast, 10.0% of companies recorded budget cuts, yielding a net balance of +14.1% in Q1 2022 (vs. +6.1% in Q4 2021). This was the highest since Q2 2014 and marked a fourth successive quarter in which marketing expenditure has expanded.

In Q1, however, the top-performing segment was events, albeit from one of the lowest levels, with a net balance of +18.7% (from -3.9%). The switch to a “living with Covid-19” strategy within the UK, alongside a further easing of pandemic restrictions during the first few months of the year, gave businesses the confidence to plan larger-scale gatherings with clients and set up exhibitions.

Solid budget expansion was also seen in main media (+9.4%, from +3.1%), with other online (+18.6%), video (+9.0%) and published brands (+1.3%) driving growth in this segment. Direct marketing budgets (+6.0%, from +3.8%), sales promotions (+8.0%, from 0.0%) and PR (+0.6%, from +2.0%) also expanded, although out of home and audio continued to decline (-4.6% and -8.5% respectively).

The overall upturn in total marketing budgets was however slightly weighed down by market research (-3.5%, from +7.0%) and the “other” segment, which accounts for any other form of paid-for marketing not included in the survey (-0.9%, from -11.2%).

The outlook among surveyed marketing executives with regards to their budgets for the 2022/23 period was strongly positive, with 43.8% of respondents anticipating growth in their available marketing spend in the coming year. This compared with 10.6% that expect cuts, resulting in a net balance of +33.1%.

All monitored marketing activities are set to receive budget expansions, led by events (+22.1%). This was closely followed by main media (+20.1%), while direct marketing and sales promotions are also set for strong growth (+14.0% and +13.6% respectively). Meanwhile, budgets for “other” marketing activity, PR and market research are also all predicted to increase (+11.1%, +10.2% and +8.6% respectively).

Regarding their industry as a whole, survey respondents were more pessimistic than they were three months ago, with a net balance of -3.6% of companies downbeat in the first quarter of the year. This was broadly unchanged from the fourth quarter of 2021 (net balance of -3.8%) and therefore the second-greatest degree of pessimism for over a year. The 27.4% of companies that were negative more than offset the 23.9% that were upbeat.

Company-own prospects were more positive, however, as a net balance of +6.6% of companies were optimistic in their outlook. That said, this was down from +7.6% previously and the weakest reading since Q3 2020. Close to one-third of panellists (31.5%) were upbeat with regard to their business’ prospects, compared to 24.9% that were more pessimistic than three months ago.

However, the post-Covid recovery faces strengthening headwinds, namely high inflation and a squeeze on household budgets, supply chain disruptions and labour shortages.

The situation is now more precarious, with Russia’s invasion of Ukraine accentuating and extending an already-damaging cost of living crisis.

As a result, GDP growth forecasts for 2022 and 2023 have been revised lower to 2.8% and 1.2% respectively (from 4.0% and 1.8% respectively). The report anticipates this slower growth trajectory for the next 18 months or so to weigh on adspend. As a consequence, Bellwether adspend growth forecasts for 2022 and 2023 have been revised down to 3.5% and 1.8%, from 5.2% and 2.5% respectively.

Looking beyond the next couple of years, Bellwether forecasts for GDP and adspend are little-changed. There has been some uplift for 2024 growth projections (GDP and adspend growth revised up to 1.2% and 1.7% from 0.9% and 1.3% respectively) because of the weaker outlook until 2023, while 2025 and 2026 forecasts are held broadly unchanged since the last Bellwether report.

IPA director general Paul Bainsfair said: “With Covid-19 restrictions ending, it is clear that UK companies are keen to capitalise on this moment and ramp up their marketing spend. This is welcome news now, but we know we face soaring inflation levels, cost of living increases, supply-chain issues, all exacerbated by the war in Ukraine and some sector recruitment shortages.

“With 40 years of downturn data to learn from, the IPA knows beyond doubt that brands do best when they maintain their investment in longer-term brand-building media, complemented by a smaller ratio of sales activation media. This is the survival code for a downturn.”

Joint founder Richard Exon believes the report captures perfectly the curious mix of optimism and caution that all businesses are living with now that we have two years of Covid behind us, yet with a war in Eastern Europe and inflation spiking sharply.

He added: “As trust in our Government and its lawbreaking leaders continues to erode, businesses and brands have a vital role in keeping the UK show on the road.

“The squeeze on real incomes will create more price sensitivity in most categories, creating a sharp sense of competition between brands. Those brands that continue to invest in compelling marketing, product and service innovation and great customer experiences will win disproportionate advantage.”

The Specialist Works managing director Verity Brown added: “We are in a period of instability with underlying growth. The report suggests strong investment into channels that drive immediate proven performance, such as direct marketing, video, and sales promotion. We are seeing similar patterns from our clients, a desire to return to comms investment, but in proven channels which drive immediate results, coupled with the need for flexibility and short lead times.

“The growth in events is interesting, this is evidence of living with Covid and we’ve identified Budget Hedonism as an important driver for specific consumer groups – if people can’t afford foreign travel, they’re going to be up for it in the UK.

“We think Q4 is going to be very challenging, the energy price cap is reviewed in October, which will, at least, double energy prices in a year, adding significant pressure and stress to many consumers, affecting discretionary spending.

“Add to this a World Cup immediately prior to Christmas that will distort many media markets. Uncertainty coupled with increased demand in an already ‘hot’ market will be challenging. There’s evidence of returning confidence among our clients, with the caveat that consumers are under pressure. Our clients are planning for growth, but they need reassurance, flexibility and evidence to release budgets.”