Marketing budgets cut for first time in seven years as brand building takes a hit

Uncertainty about Brexit and its impact on the economy has forced companies to pull back on marketing spend and shift money into digital in search of cost efficiencies.

digital ad spend cuttingUK companies cut their marketing budgets during the third quarter, the first time there has been a decrease in seven years, amid heightened political and economic uncertainty.

The IPA’s quarterly Bellwether report shows a net balance of 0.5% of marketers questioned revised their marketing budget down in the third quarter. Nearly two-thirds (64.1%) reported no change in budget, reflecting a ‘wait-and-see’ approach adopted by many in the face of uncertainty about Brexit and its impact on business.

Companies were also worried about low consumer confidence, causing them to hold back on spending, particularly for big-ticket marketing drives. Overall, 18.2% of firms cut ad spend, while 17.7% reported budget growth.

Joe Hayes, economist at IHS Markit and the report author, says: “The latest Bellwether survey spells further disappointment for the UK marketing industry, which is suffering, just like the rest of the economy, as a result of spending delays, firms placing projects on hold and subdued business confidence.

“The UK economy has endured a tough year so far and firms have subsequently withdrawn discretionary spending to protect profit margins.”

Only digital marketing reported an increase in budgets, with a net balance of 11.1% of firms reporting growth boosted by new online tools, data and a push towards social media. Search (which falls under internet) also reported growth of 6.1%, although this was down from 9.9%.

Main media advertising saw budgets put on hold following strong growth of 5.2% and 5.6%, respectively, in the first two quarters of the year. The remaining types of marketing all saw contractions, including mobile, which was down by a net balance of 0.6%, PR (-4.7%), sales promotions (-2.3%), direct marketing (-7%) and market research, down by a huge 16.9%.

Events budgets fell for the first time in a year, with a net balance of 5.9% cutting spend, while ‘other’ saw declines expand to 13.9%.

“Perhaps the most discouraging sign is to see firms sitting on the fence regarding main media advertising, which is a vital form of long-term brand building, following resilient budget growth in the two previous quarters,” adds Hayes.

“Overall, as long as political and economic uncertainties remain at large, it will be surprising to see noteworthy boosts to marketing spending.”

Marketers are also pessimistic about company and industry-wide prospects, which were in negative territory for a fourth consecutive quarter. Industry-wide expectations were among the most negative in almost seven years, down 25%, as were company prospects, with a net balance of 9.8% feeling the financial position has declined.

Despite the pessimism, the IPA is leaving its forecasts for ad spend this year unchanged, although it remains “cautious” over prospects in 2019. It predicts a modest 1.1% increase in annual ad spend, but expects this to tick up in 2020 with the growth of 1.8%, followed by 2% in 2021, 2.2% in 2022 and 3.1% in 2023.