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Bellwether Report: marketing budgets bounce back

UK companies revised their marketing budgets up markedly in Q1 2019 in stark contrast to recent trends where growth momentum had been easing and culminated with a stagnation at the end of last year. This is according to the Q1 2019 IPA Bellwether Report, published 17 April 2019.

The net balance of marketing executives reporting upwardly revised budgets increased to +8.7% in Q1, up from a +0.0% reading for the final quarter of 2018 and the highest since Q3 2017. Around 21.6% of panel members observed spending growth, compared to 12.8% registering budget cuts.

While the Brexit uncertainty that is shrouded over the UK’s political and economic climate continued to prompt belt-tightening and a delay in decision-making, other companies took a more pro-active approach and looked to push resources into their brands, enhancing digital marketing methods and expanding presence on social media platforms.

Firms were also wary of rising competitive pressures, leading some to diversify product offerings as part of efforts to enter new markets and attract new clients. As such, there were reports of boosting marketing spend as a defensive mechanism to protect brand reputation.

Nevertheless, unfavourable global economic conditions, coupled with fears of falling business and consumer confidence prompted caution over discretionary spending in some cases.

The best performing category of the Bellwether survey was internet, which saw its net balance jump from +2.1% to +17.2%. Firms showed a strong appetite to enhance their digital footprints, with Search/SEO spending (+14.2% from -3.9%), as well as targeted advertising on mobile (+3.6% from -2.4%) all receiving boosts. A renewed drive for big-ticket advertising campaigns was also apparent during the opening quarter of 2019, with main media marketing returning to growth (+5.2% from -6.2%). Events was the third and final Bellwether category to register expenditure growth (+3.4% from +2.6%).

However, market research, sales promotions and direct marketing budgets were all revised lower during Q1, with net balances of -4.2% (from -4.7%), -3.7% (from +3.8%) and -3.5% (from -5.6%) respectively.

2019/20 budget forecasts most subdued since 2009

Marketing executives erred on the side of caution with their forecasts for marketing spend for the 2019/20 financial year. A modest net balance of +3.4% anticipate budgets to grow during this period, which was notably weaker than past forecasts made before a new financial year and the lowest since 2009.
Although approximately 26% of panellists foresee growth, the remaining 74% expect cuts or no change. Compared to this time last year, a net balance of +18% of firms anticipated budget growth for the 2018/19 period.

Positive expectations were centred on main media marketing campaigns and advertising at events, which yielded net balances of +4.8% and +2.5% respectively. Some companies expect that brand-building initiatives seen during the most recent quarter will continue through the coming financial year, as they look to defend their brand and stave off tough competitive pressures. Plans to launch new products in some instances were also seen as opportunities for marketing budget growth.

Nevertheless, firms were much more downbeat for the remaining Bellwether categories. Negative outlooks were recorded for other marketing (-13.1%), PR (-7.0%), sales promotions (-5.3%), market research (-4.0%) and direct marketing (-1.8%).

Marketers’ confidence levels remain significantly negative

Following the first downbeat outlook towards own company financial prospects since Q3 2012 during the previous Bellwether survey, latest data showed no signs of an improvement. A net balance of -2.7% of surveyed marketing executives indicated a pessimistic assessment towards their company’s finances, compared to -0.9% during the final quarter of 2018, thereby indicating a stronger degree of negativity.

Industry-wide financial prospects also remained pessimistic during the first quarter. Although the net balance of firms casting a downbeat assessment was slightly lower than previously, registering -22.6% (- 28.6% in Q4 2018), it still signalled one of the most negative industry-wide outlooks since the global financial crisis.

Adspend forecasts for 2019 revised lower

With the Office for Budget Responsibility (OBR) releasing new forecasts in March, the IPA Bellwether Report has revised its expectations for adspend growth over the coming forecast horizon.

The OBR downwardly revised its growth projections for 2019 by 0.4 percentage points since October (previously 1.6%), reflecting weaker growth forecasts for consumer spending and expectations of reduced business investment. As such, the Bellwether Report is forecasting a modest 1.1% annual expansion to adspend this year, compared to 1.3% previously. This downgrade reflects the challenging environment caused by Brexit uncertainty, slowing global growth and rising competitive pressures.

Nevertheless, under the assumption of restored business and consumer confidence once future UKEU relations become clearer, investment and consumption are expected to bounceback. The OBR has revised up its consumer spending and capex projections for the forecast period from 2020 through to 2023. Increased expenditure by consumers and businesses alike should bring renewed opportunities for marketing. The Bellwether Report’s adspend growth estimates for this period have also subsequently been revised higher.