Marketing budgets rise at weakest pace in nearly three years

The latest IPA Bellwether report reveals more than 60% of marketers made no change in total marketing spend in the third quarter, highlighting indecisiveness and risk-aversion.

Brands increased their marketing budgets at the slowest rate for almost three years in the third quarter as uncertainty over the UK’s future trading relationship with the European Union allied with concern over economic slowdown caused cautious companies to put spending under greater scrutiny, according to the latest Bellwether report from the IPA and IHS Markit.

Although a majority of marketers in the survey of 300 senior marketing professionals reported an upward revision in budgets in the three months to the end of September, the net balance (2.5%) was a marked slowdown on the 6.5% reported in the second quarter and the lowest return since the final quarter of 2015.

Despite a fifth of respondents fuelling new product launches and protecting share with increased spend, the vast majority either froze or cut spend. Higher input costs due to higher wage bills and business rates for many have put pressure on margins and the brakes on what is often seen as discretionary spending. However, the impasse in trade negotiations between the Government and the EU and increasing concern over a “no deal Brexit” and its impact on the economy was cited by many as stifling spend with the amount spent on advertising in particular under greater scrutiny.

Such caution could also be leading to a resizing of media budgets away from channels seen as conducive to long-term brand building and towards those that promise greater attribution and more instant returns.

The net balance of those increasing budgets for “main media advertising” – TV, magazines, radio, print and outdoor – was down slightly from 4.9% to 4.8%. Conversely, the net balance of 13.6% reporting higher online spending was stronger than the average budget expansion for online seen in 37 quarters.

Research unveiled last week by the IPA and ISBA found more than 70% of marketers and agencies prioritising short-term tactics over long-term strategy, with many finance bosses of the belief that marketing effectiveness is measured by immediate return.

The shift to digital hit direct marketing – which includes mail, catalogues and telemarketing – the hardest, with budgets dropping more sharply than at any time in the last 10 years.

The overarching sense of uncertainty over Brexit and anxiety over margins meant the assessment of those polled of the prospects of their industry and company also took a hit. A net balance of 5.7% were optimistic about their company’s prospects, down from 13.3% in the second quarter – the bleakest assessment for six years.

On the prospects for the wider industry, many more were pessimistic than optimistic, -21%, down from -9% in the second quarter.

Joe Hayes, economist at IHS Markit and author of the report says: “The lack of clarity regarding the UK’s future relationship has prompted some companies to assess their discretionary spending until a Brexit deal is established. Just over 60% of the survey panel revealed no change in their marketing budgets, indicating indecisiveness and risk aversion. There were reports that large financial decisions relating to investment were being placed on hold as some companies were more pessimistic towards the future.

“Broader risks such as a general slowdown in economic growth, increasing costs and greater competitive pressures were also raised by respondents to the Bellwether survey. Nonetheless, the threat to market shares encouraged companies to deploy marketing more aggressively in some instances, as part of efforts to retain existing clients and penetrate new markets. The onus on marketers to rotate away from more traditional advertising methods and to expand digital presence remained apparent in the latest survey data.”

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