Media budgets slashed for the first time since the height of Covid

The IPA Bellwether shows marketers are feeling increasingly pessimistic about the future fortunes of their companies and industries, with budget cuts beginning to roll in.

Budgets downUK marketing budgets grew at their slowest rate since the beginning of 2021 last quarter, as businesses battle with the cost of living crisis, spiralling costs and economy uncertainty, the latest IPA Bellwether report reveals.

Of the 300 UK-based companies surveyed, a net balance of 2.1% registered total marketing budget growth in the third quarter of 2022, as 22.2% increased spend and 20.1% made budget cuts. The data indicates a notable slowdown from the previous quarter, when a net balance of 10.8% of businesses increased their budgets.

A drop in main media spend appears to have been a major factor in this slower budget growth. A net balance of 3.1% of firms cut main media spend, including spend on TV, radio, out of home and online – the first time spend in this area has fallen since budgets returned to growth in Q1 2021, after four quarters of Covid-driven cuts.

In the second quarter of 2022, main media spend stagnated with a net balance of 0%. This quarter’s net decline of -3.1% reflects a marked deviation from predictions made by businesses ahead of the 2022/23 financial year, where a net balance of 20.1% predicted they would be increasing main media spend.

Online advertising and video (including TV) were the only two categories within main media to see growth, with net balances of 9.3% and 8.7% upping investment, respectively. These figures are both significantly up from Q2, when a net balance of 0.8% increased video spend and 4.4% increased spend on online advertising.

Meanwhile, published brands and audio dragged main media marketing spend down last quarter. A net balance of –11.2% cut spend in published brands, compared to -2.6% in the second quarter, while out of home budgets continued to fall with a net balance of -7.6%, from -15.9% in Q2. Spend in audio also continued to fall slightly, with a net balance of -2.0%, from -16.4% last quarter.

We’d advocate a longer-term approach that steers away from heavy sales activations which can erode brand loyalty and lose companies profit.

Paul Bainsfair, IPA

Outside of main media, events was the only marketing spend category to see growth in the third quarter, but even this saw a significant slowing. A net balance of 4.5% increased spend in this area, compared to 22.2% in the previous quarter.

Spend in sales promotions, PR, market research and direct marketing all fell over the third quarter. Of these categories, sales promotion budgets were cut the most, at a net balance of -7.5%, followed by PR at -4.8% and market research at -4.1%. Direct marketing fell to a net balance of -0.6%.

Maintaining or increasing marketing spend is the “ideal” response to a crisis, says IPA director general Paul Bainsfair, citing IPA research published last week, which found the UK’s 50 “strongest” brands delivered shareholder returns that were 30% higher than the FTSE 100 in 2021.

However, he accepts that the Bellwether report shows that keeping or increasing marketing budgets in the current climate is “not necessarily the easiest thing to do”.

“Instead of slashing budgets that can lose brands their customers’ awareness and subsequent market share, our experts would advise that after optimising their pricing and promotions strategy, which would usually include supporting with brand advertising, companies tweak their brands’ marketing budgets subject to their geography, portfolio, channels and media – all of which will have variations that can also be optimised accordingly,” Bainsfair says.

“Equally, we’d advocate a longer-term approach that steers away from heavy sales activations which can erode brand loyalty and lose companies profit.”

Rising negativity

Perhaps unsurprisingly given the budget cuts, the companies surveyed by the Bellwether are more pessimistic about the future of their industry and that of their own business than they have been since the start of the Covid-19 pandemic.

Only 6.3% of firms were more optimistic about the future prospects of their specific industry than they were three months ago. Over half (50.5%) felt more pessimistic than they did in the previous quarter, resulting in a net balance of -44.3%. This is the most pessimistic assessment of industry-specific financial health since the second quarter of 2020, at the beginning of the pandemic.

Optimism among firms about their own financial future is similarly downbeat, with 40% expressing pessimism about the prospects of their company going forward. Just 13% were more optimistic than they were three months ago, leading to a net balance of -27.6%, again the lowest confidence since Q2 2020.

‘Strong brands always win’: Why marketing investment is crucial to survive inflation

While UK businesses were able to “squeeze out” another quarter of marketing budget growth last quarter, momentum has faded “quite significantly”, says Joe Hayes, senior economist at S&P Global Market Intelligence and author of the Bellwether Report.

“Budget cuts are being seen across the majority of the monitored segments of marketing spend as companies move into retrenchment mode due to soaring costs and slowing demand. The cost-of-living crisis will continue to weigh on household earnings throughout the winter, meaning discretionary spending cutbacks are inevitable for the UK’s low-to-middle income groups that are at the heart of the economy,” says Hayes.

Despite pessimism among businesses,  S&P Global Market Intelligence has upwardly revised its ad spend forecast for 2022 to 3.7%, from 1.6% previously. It believes government measures will help maintain ad spend to the end of the year.

However, it predicts that next year inflation will weigh heavy on the fortunes of the economy and businesses. The GDP growth forecast for next year has been reduced from 0.5% to 0.2%, while ad spend growth forecast has also been trimmed to 0.3% from 0.8%.

Predictions for beyond 2023 remain largely unchanged, however the report authors have slightly upgraded ad spend forecast for 2024 (to 1.6% from 1.4%). The report authors say a recession is likely to have started in the third quarter but predict it will be “short and shallow”.