Marketers search for ‘green shoots of recovery’ as budget cuts continue

The latest IPA Bellwether data finds the worsening pandemic and Brexit reality took a toll on marketing budgets during the fourth quarter, but optimism is growing that the sector will bounce back.

BudgetsOptimism for a recovery in marketing budgets in the 2021/2022 financial year is growing despite a continued fall in spend during the fourth quarter of 2020, according to the latest IPA Bellwether Report.

Relentless pressure from the coronavirus pandemic, combined with the end of the Brexit transition period, saw total UK marketing budgets decline markedly in the fourth quarter. A net balance of -24% of Bellwether panel members noted a contraction in marketing budgets over the period. Just 16.4% of companies reported an increase in available funds, while 40.4% saw a decline.

Although marked, the reduction was considerably less severe than those seen in the second (-50.7%) and third (-41%) quarters of 2020. In fact, the budget cuts were at their softest level since before the escalation of the pandemic in spring last year.

Covid-19 and its impact were, however, cited as the main reasons for budget cuts. The IPA Bellwether survey found anecdotal evidence of widespread cost-cutting as businesses adapted to new market conditions and restrictions.

Budgets for event marketing experienced the harshest cuts, with a net balance of -62.9% of companies experiencing decreased funds in the fourth quarter. Events had already been hit by a balance of -64.1% during the previous quarter.

A quarter of respondents reported a fall in spend on market research, compared to a balance of -32.6% during the third quarter. Spend on main media advertising fell by a net balance of -21.8%, with declines also seen in spend on direct marketing (-13.9%) and public relations (-8.5%).

IPA Bellwether Q4 2020 results (1)
The latest IPA Bellwether stats for marketing budgets in the fourth quarter.

Within main media advertising, changing consumer behaviour hit out-of-home budgets hardest. It remained the worst-performing category in terms of spend during the fourth quarter at -36.7% (from -50% the previous quarter). The data shows spend was also down on video (-13.5%) and audio (-21.6%).

The only category within ‘main media’ to record a positive net balance was ‘other online,’ which was up by 0.7% (from -6.5% in the third quarter).

IPA director general, Paul Bainsfair, was not surprised to see UK marketing budgets remain in negative territory during the fourth quarter: “We are still in the grip of the pandemic and the impact of Brexit is uncertain, with some marketers citing concerns regarding the potential for tariffs, and increased paperwork, delays and costs.”

Green shoots of recovery

There is, however, a growing expectation that marketing budgets will begin to recover.

A net balance of 12% of companies anticipate their total marketing budgets will be revised upwards over the next financial year. This confidence is driven in part by the availability of Covid-19 vaccines and their potential to allow customers greater freedom. IPA Bellwether estimates UK GDP will rise by 3.5% in 2021, followed by 4.9% in 2022.

The confidence is not broadly spread. In main media advertising, a net balance of 4.6% of firms anticipate higher ad spend in 2021/2022, while 3.3% expect an increase in spend on direct marketing and 3.2% on PR.

Forecasts for events marketing are most subdued, expected to be down 30.9%, followed by market research (-4.7%) and sales promotions (-3.7%).

Bainsfair admits that while the situation remains bleak for now, the report reveals “significant promise” of green shoots ahead.

Marketing budgets slump again as UK enters second Covid wave

“Budget plans for 2021/2022 are into positive territory. As the vaccination roll-out continues, as the lockdowns begin to ease and as firms adapt to post-Brexit rules, perhaps we can dare to ready ourselves for the roaring twenties after all,” he suggests.

“Those brands that have withstood the storm, kept their voices heard and their subsequent market share up, will be the ones consumers turn to first in the good times.”

Eliot Kerr, economist at IHS Markit and author of the Bellwether Report, agrees that although advertising budgets continued to fall sharply at the end of 2020, it was promising that the rate of decline softened following the unprecedented contraction seen during the second quarter.

“Firms are now looking forward to a recovery in domestic economic conditions, which will likely begin in the second half of 2021 as the UK’s coronavirus vaccination programme starts to take effect. As such, businesses are now forecasting an increase in total marketing budgets for 2021/2022, although growth will likely be limited to certain areas,” Kerr adds.

“Given the current Covid-19 restrictions in the UK that could last for several more months, it is unlikely that categories such as events spending will start to grow. The recovery in those areas is more likely to begin in 2022, when we hope that the current economic climate is nothing more than a distant memory.”