Marketing budget growth slows as economic headwinds strengthen

Brands’ financial prospects for the year ahead have deteriorated sharply, falling to levels not seen since the height of the pandemic in 2020 and contributing to a cut in annual ad spend forecasts.

budgetNearly a quarter of brands increased their marketing spend in the second quarter of 2022 despite building economic uncertainty, showing their intent to “market aggressively” through this tumultuous period.

Some 24.2% of surveyed companies increased their spend versus 13.4% registering budget cuts, resulting in a net balance of 10.8%. This indicates a slight slowdown of growth compared to the first quarter of the year when budget growth reached 14.1%, but means it remains in solid positive territory.

Although the latest figure represents a drop from the previous quarter, it is markedly higher than in the fourth quarter of 2021, when a net balance of just 6.1% revised their marketing spend upwards.

Events marketing was the strongest performing category by some way in Q2, and a key driver of total growth. A net balance of 22.2% of companies increased budget for events in the second quarter of 2022, up from 18.7% last quarter, as brands look to host face-to-face activity now lockdown restrictions have eased.

Public relations was the only other category to see a rise in budget since Q1, increasing from a net balance of 0.6% to 3.7%.

Elsewhere, marketing budgets have stagnated. Ad spend for main media dropped from a net balance of 9.4% last quarter to 0% in Q2, bringing a year long period of growth to an end.

Video advertising (down from 9% to 0.8%) and other online (down from 18.6% to 4.4%) are both down significantly but remain in positive territory. Meanwhile, audio and out of home saw downturns deepen, dropping from -8.5% to -16.4% and -4.6% to -15.9%, respectively. Published brands dropped into negative territory, falling from 1.3% last quarter to -2.6% in Q2.

Amid the mounting economic headwinds, there were a number of businesses that signalled their intent to market aggressively to support their brand and gain market share from less-prepared competitors.

Paul Bainsfair, IPA

Following four quarters of growth, direct marketing also stagnated in the second quarter, dropping from a net balance of 3.8% in Q1 to 0% in the second quarter.

Likewise, market research budgets also took a tumble in Q2. Over the last two quarters of 2021 market research budgets were on the rise, with a net balance of 0.7% of companies increasing budgets in Q3 and 7% in Q4. However, in the first quarter of 2022 market research saw a net decline of -3.5% and this widened to -6.5% in Q2.

Sales promotion also dropped from a net balance of 8% last quarter to -0.7% in Q2, while other marketing activities not accounted for elsewhere fell from -0.9% to -8.3% in Q2, all of which has brought down total expenditure.Market research budgets enjoy strongest boost in nine years as marketing spend slows

Deterioration of financial prospects

The latest Bellwether report shows companies are also more downbeat about industry-wide financial prospects, with a net balance of -26.7% of companies more pessimistic compared to three months ago. This compares to a net balance of -3.6% in the first quarter of 2021 and is the most negative outlook since Q3 2020.

Respondents’ view of their own company’s financial prospects has also deteriorated, slipping into negative territory for the first time since the third quarter of 2020 with a net balance of -9.5%.

This deterioration of companies’ financial prospects shows marketers are “understandably concerned” about the challenging business climate ahead, says Paul Bainsfair, IPA director general.

“It is interesting to see, however, amid the mounting economic headwinds, there were a number of businesses that signalled their intent to market aggressively to support their brand and gain market share from less-prepared competitors. This is usually a wise and canny move,” he adds.

“All the IPA’s analysis on who does best in a downturn shows the companies which recover fastest are the ones that either maintain or increase their marketing spend during difficult economic times. Equally, cutting ad budgets – relative to competitors’ spend – in a recession undermines companies’ ability to grow future market share and profits.”

Bainsfair says some firms have also indicated they are planning for the challenges ahead by positioning their businesses to support customers through difficult times.

“Brands need to be seen and continue to work for the benefit of consumers,” he explains. “They are important because they offer choice which ensures competition and lower prices, which in the months ahead will be important for consumers looking to spend their money wisely.”‘Strong brands always win’: Why marketing investment is crucial to survive inflation

Forecasts slashed

Although ad spend forecasts for this year and next remain in positive territory, they have been downgraded since last quarter as the economic outlook deteriorates.

With consumer confidence and disposable incomes expected to take a hit as the cost of living crisis intensifies and the risk of recession becomes more of a reality, the ad spend forecast for 2022 has been downgraded from 3.5% to 1.6%, according to IPA Bellwether report author S&P Global Market Intelligence.

Given interest rates are expected to rise further and with many of the economic challenges of today still likely to be present next year, the ad spend forecast for 2023 has been revised down from 1.8% to 0.8%.

Ad spend forecasts for 2024, 2025 and 2026 have also been trimmed as a result, to 1.4% (versus 1.7%), 2% (from 2.2%) and 2.3% (from 2.4%), respectively.

Joe Hayes, senior economist at S&P Global Market Intelligence and author of the Bellwether Report, says: “Amid a deteriorating economic outlook for UK businesses, sustained growth in total marketing activity is encouraging. However, the stagnation in main media marketing budgets is a disappointing result from the Q2 survey and suggests concerns around the outlook are weighing on decision making.

“Risks are clearly skewed to the downside as the intensifying cost of living crisis weighs on disposable incomes, while firms face difficult decisions regarding their spending at a time when their cost burdens continue to inflate.”