Brands on ‘short road to recovery’ as budgets increase for first time since Covid

Marketing budgets were top of the list to be cut for most firms as the pandemic ravaged turnover and profit, throwing plans out of the window and forcing brands to adapt to the unknown.

However, the pressure finally appears to be easing, with marketing budgets increasing for the first time since the fourth quarter of 2019, according to the latest quarterly IPA Bellwether report for Q2 2021.

Financial prospects at company and industry level are “in positive territory” and ad spend forecasts has been revised higher for 2021, as businesses prepare for a “strong economic recovery”.

A net balance of 6% of surveyed companies increased their total marketing budgets during the second quarter. Over one in five (21.2%) marketing executives surveyed registered growth, compared to 15.2% who reported a decline.

The sharpest increase to budgets since the onset of the pandemic, Q2 represents a “notable” contrast to last quarter when firms reported a net balance of -11.5%.

The uplift is credited to the strong vaccination uptake and the end of government-mandated Covid-19 restrictions, as well as forecasts of economic recovery. Companies are anticipating strong sales as pent up consumer demand is unleashed. However, those surveyed expressed caution due to the uncertainty of new strains of Covid-19.

Others are concerned about consumer behaviour permanently changing due to stay-at-home orders and are therefore unsure of the best way to position their business going forward.

We encourage companies to ramp up their advertising to make the most of post-lockdown, pent-up consumer demand.

Paul Bainsfair, IPA

Three categories of marketing spend recorded upward revisions during the second quarter. Public relations grew the most, with a net balance of 1.8% of companies increasing spend in this segment, up from -8% in the first quarter of 2021.

The main media marketing category, which encompasses a variety of marketing channels, saw 1.3% of firms raise their budgets (versus -8.2% in Q1). Breaking down ‘main media’, video grew from 3.3% to 4.2%, audio is up from -9% to 1.1% and other online advertising rose from 0% to 11%.

Budgets for publishing brands are at -6.1%, from -22.2% during the first quarter, while out-of-home advertising reached -7.5% from -24.1% last quarter.

Compared to other forms of marketing, budgets for events continue to suffer at -24.7% (from -43.2% during Q1), due to the continued restrictions on large gatherings in place during the second quarter.

Bounce back on the horizon as marketing budgets poised for growthAlmost half (45.9%) of those surveyed are feeling more optimistic regarding their company’s financial prospects, compared to only 11.4% last quarter. This resulted in a net balance of 34.6%, indicating a strong overall level of confidence. Although this net balance is lower than in the first quarter of 2021 (36.6%), it is the second-highest level since the first quarter of 2015.

A net balance of 21.1% of companies say they are now more “bullish” compared to three months ago. This level of confidence is only bested by results from the first quarter of 2021 (26.2%), which was the highest rating in six and a half years.

“These positive results mark the end of five quarters of continuous cuts,” says IPA director general Paul Bainsfair.

“For revisions to UK marketing budgets to bounce back so quickly and strongly, following their nadir at the height of Covid-19 restrictions in Q2 2020, is very welcome news and corroborates our Bellwether prediction for a V-shaped recovery.

“As the vaccination rollout continues at pace and UK plc gears itself up for growth, we encourage companies to ramp up their advertising to make the most of post-lockdown, pent-up consumer demand.”

Ad spend boost

The IPA is now anticipating a strong increase in GDP this year, followed by a “robust growth rate” in 2022, considering the UK’s successful vaccination programme and phased reopening of the economy.

Consumer savings, which mounted up under lockdown, are likely to “fuel a brisk recovery” in household spending once restrictions end, while the labour market has proved resilient thanks to the government’s furlough scheme.

Therefore, the Bellwether Report forecasts 2021 and 2022 to record strong growth in ad spend. Expectations are ad spend will increase by 7.5% in 2021, and 6% in 2022, as businesses recover to pre-pandemic levels of activity.

Over the next 18 months, the report forecasts ad spend growth moderating to 2.7% in 2023 once the UK economy has recouped the pandemic-related losses, and then growth of 1.2% and 2.4% in 2024 and 2025, respectively.

However, this growth could be hindered by new strains of Covid-19 and the ending of the furlough scheme, which may result in job losses. Strong fiscal challenges are expected for companies due to the “immense” cost of economic support during the pandemic, which will likely see tax burdens placed on consumers and businesses.

Economist at IHS Markit and author of the Bellwether Report, Eliot Kerr, believes the data shows UK businesses are now on the “short road to recovery” and this has been the “strongest upward revision” to total marketing spend since the beginning of 2019.

“We hope that this is just the beginning and the end of lockdown restrictions, further improvements in vaccination rates and buoyant consumer spending will support even stronger growth in marketing spend in the second half of the year,” says Kerr.