Marketing budgets hold up amid growing uncertainty

Marketers have increased their budgets for the 17th successive quarter, but show waning confidence regarding the industry’s wider financial prospects.

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Marketers shrugged off political and economic uncertainty by increasing their ad budget forecasts at the end of 2016, but there are signs of wavering confidence as the government’s Brexit negotiations loom.

More than a quarter (26.2%) of senior marketers indicated an increase in marketing budgets in the fourth quarter of 2016, compared to 13.4% who signalled a fall, according to the IPA’s quarterly Bellwether report.

This means the net balance of marketers saying they would increase their marketing spend was 12.9%, marking the 17th successive quarter of growth. It is only fractionally lower than Q3’s net balance of 13.4%. Meanwhile, ad spend for the full year rose 2.1%.

The survey indicates companies were most willing to increase their ad spend in events and internet marketing. Events saw a net balance of 12.3% predicting a budget hike, growing 2.4 percentage points compared to the third quarter.

The internet category, which covers online marketing platforms, recorded a net balance of 12.1% for the fourth quarter. This is an increase on Q3’s 9.5% balance and marks the highest reading for two years.

Marketers also increased their engagement with mobile advertising over the quarter as the net balance grew to 3.9%, compared to -2.6% in the preceding quarter. In contrast, sales promotions (-1.8%) and market research (-2.5%) both recorded declines.

Now isn’t the time to slash the innovation budget and draw up the bridge. If brands move forward, consumers will move forward.

Joe Staton, GfK

Pete Markey, brand communications and marketing director at Aviva, recognises the shift towards digital and believes it will result in more “short-term deals.”

“The focus on shifting more budget to effective digital and social media channels will continue at pace as more brands test and learn using the latest and best marketing tools to drive a greater ROI at channel level. Some brands will defer big investment decisions depending on which sector they are in which might also create some more short term deals in the market for other brands,” he explains.

But Paul Davies, consumer marketing director at Microsoft, believes it is less about “total budgets being up or down” and more about how the money is invested.

He adds: “I see heightened expectation on marketing returns, and more analysis of campaign performance. All of this is good, and should be welcomed by marketers, as it brings us closer to the financials of the business.”

The end of 2016 marked a strong rise in economic activity, resulting in an unexpected 2.1% increase in GDP. The Bellwether report’s author Paul Smith believes this positive momentum will carry through into the early part of 2017,

“Preliminary data suggests further budget growth in the forthcoming financial year as companies seek to support their products with attendance at industry events and further build-out their presence on digital platforms,” he says.

An uncertain but ‘fascinating’ year ahead

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On the face of it, the report seems positive. But the outlook becomes increasingly uncertain when you delve deeper into the numbers. 

Marketers remained confident regarding their own company prospects, with more than 30% confident compared to three months ago, while 19% of respondents indicated a deterioration.

However, the same cannot be said for marketers’ confidence in the wider industry. Over 28% of the marketers surveyed signalled a deterioration in their confidence regarding wider industry financial prospects over the past three months, compared to just 14% that have indicated an improvement. The resulting net balance of -14.6% was down on the previous quarter’s -12.1% and the lowest level recorded for four years.

“First and foremost, marketing executives are acutely aware of the impact that a weak pound may have on their businesses,” says Smith. “While some see opportunity to sell abroad or enjoy benefits from increased domestic and foreign tourism in the UK, others are concerned over the upward effect on company costs, and the likely acceleration in wider inflation over the coming months.”

He adds: “That will bite into household spending power and may have a dampening effect on consumption. Allied with the difficulty in understanding the path to actual Brexit plus ongoing political uncertainties around the world there also remain some real downside risks to general business investment.”

This lull in investment means the IPA expects ad expenditure to fall by -0.7% in 2017 before recovering in 2018 (+0.7%).

Despite the current uncertainty, Joe Staton, head of market dynamics at GfK, insists marketers need to ensure they don’t stop spending and keep investing in innovation to drive the market forward.

He concludes: “Now isn’t the time to slash the innovation budget and draw up the bridge. If brands move forward, consumers will move forward. Marketers need to step up to the plate and show people there is a great glittering future ahead of us.”

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