marketing budgets

There was a further slowdown in marketing budget growth in Q4, according to the report, with the balance of marketers saying they would be increasing their spend dropping to just 0.5%; this marking the lowest level for 11 quarters and down from 4.4% in Q3. This means that a broadly similar proportion of companies revised their budgets up as much as down in the quarter.

That slowdown comes as growth in the wider economy slows. The Office for National Statistics downgraded its growth forecasts for the third quarter in a row in December. It estimates that the growth rate for 2015 is now likely to be around 2.2%, below the 2.9% increase experienced in 2014.

Source: IPA Bellwether report
Source: IPA Bellwether report

For marketers there are a number of causes for concern. There remain questions over how geopolitical instability around the world, especially in markets like China, and a slowdown in emerging markets will impact the global economy and therefore company revenue and turnover.

Closer to home, a potential rise in interest rates and uncertainty over the UK’s membership of the EU are also hitting confidence.

The end of the ‘bull run’

Nevertheless, the Bellwether report is still predicting that ad spend will grow in 2016, forecasting a “steady expansion” of 3.9% for the year. Data on initial budget setting shows that a net balance of 24.6% of marketers are planning to increase their total budgets in the coming year.

Much of that will go into the digital marketing space, where a net balance of 6.9% of marketers are expecting to raise their budgets ahead of main media on 1.1% and PR and events on 0.6% each.

Paul Smith, senior economist at Markit and author of the Bellwether report, says marketers must look at this latest Bellwether report in the context of the wider trends. Given the huge increases in marketing budgets over the past few years it is not surprising that growth is slowing, he says, and marketers should focus on the positives.

“This might be the slowest rise for almost three years but we have had one heck of a bull run.”

Paul Smith, senior economist, Markit

“We had seen record rates of growth for almost two years but we are now looking at more normal rates of expansion. It can be easy to focus on the downsides but this is a more sustainable rate of growth.”

Smith says marketers should expect 2016 to be a year of “solid economic growth”. He highlights that by many measures the UK economy has performed better than many others globally, including those in the Eurozone.

“The UK and US have led the way in terms of economic growth. We have a solid macroeconomic climate which has led us to the point where the Bank of England might start to raise interest rates,” he explained.

“There are outside risks that could come to pass but these are hard to forecast. We expect a baseline of solid growth with a few risks skewed to the downside.”

Consumer confidence a boost for marketers

One of those positives is rising consumer confidence. According to GfK, 2015 marked the first full calendar year of positive consumer confidence since it began compiling its barometer in the 1970s.

And the figures show that while many consumers are worried about the general economic situation, they are much more confident about their own personal financial situation.

2015 marked the first full year of positive consumer confidence
2015 marked the first full year of positive consumer confidence

“The key story from the last 12 months has been the disconnect between how consumers feel about their own personal financial situation and the global economy. When people look at their own world and what is going on with their budgeting they feel they are managing OK. It is the bigger economic situation people are running scared of,” explains Joe Staton, head of market dynamics at GfK.

Staton says it is the measure of personal finance that is a better indicator of whether people are likely to buy. With that in positive territory marketers should be feeling positive.

“People’s personal situation will dictate their buying. If they feel able to take on debt or have more disposable income they will go out and buy,” he says.

Price wars spur consumer positivity

That positivity has been spurred by a couple of things. Firstly wages are on the rise and secondly there is downward pressure on prices making goods cheaper to purchase.

The latest figures from the British Retail Consortium show that shop prices fell 2% last year. That was particularly evident at Christmas as many retailers offered huge discounts to encourage customers through the doors.

The grocery industry has also seen big price drops as the big four supermarkets attempt to see off the continued threat of Aldi and Lidl.

However Smith questioned how long this pricing strategy can last as retailers come under increasing pressure.

“Retailers are being very persuasive at the moment. The retail industry has been driven by heavy discounting, which is encouraging people to spend what disposable income they have. Whether that is sustainable I’m not sure. But for the consumer it is a good place to be – prices remain flat and wage growth is boosting the money in people’s pockets,” he explained.

Staton does, however, expect consumer confidence to remain high.

“While I don’t have a crystal ball, the long-term trend against the current economic cycle is positive. And positive numbers should be good news for everyone in marketing as the more confident consumers remain, the more likely they are to continue to buy across all sectors from personal electronics to home appliances, cars to vacations.”