According to the Q2 2023 IPA Bellwether report, total marketing budgets were revised higher during the second quarter of 2023, fuelled by a record increase in revisions to sales promotion activity. While this continues the positive trend that began two years ago, spending weakened slightly from last quarter as persistent inflationary pressures, ongoing interest rate hikes and an uncertain economic outlook led some companies to retrench.
The IPA report the findings as follows:
Just over a fifth of survey respondents observed growth in total marketing spend during the second quarter, more than the 14.4% who registered budget cuts and yielding a modestly positive net balance of +6.4%. The latest reading signalled a slight softening in budget growth since the beginning of the year (net balance of +8.2% in Q1).
Growth by category in Q2 2023
Data split by the different marketing categories monitored by the Bellwether survey displayed mixed trends, with three out of seven registering budget growth. The top performing segment was sales promotions, where the net balance of firms recording budget expansion rose to +13.4% (up from +8.8% in Q1). Notably, the uplift in spending in this area was the most pronounced in over two decades of survey data, indicating that firms were supporting their customers through the cost-of-living crisis. A solid budget expansion was also registered for events (net balance of +9.8% from +6.3%) reflecting the continued appetite for face-to-face meetings and engagements in person. The final area to record spending growth was direct marketing, where the expansion was the sharpest since the third quarter of 2006 (net balance of +7.3% from +4.2%).
The remaining segments all saw their budgets scaled back, led by other marketing activity not accounted for (net balance of -6.8%, from -5.8%). The cut to PR budgets was sharper than previously (net balance of -1.9% from -0.6%) but the decline in market research softened (net balance of -2.9% from -3.2%). A notable finding from the survey was for the main media segment as marketing budgets here fell for the first time since the third quarter of 2022. The drop in main media and rise in sales promotions spending suggesting a reactive change by UK businesses in response to the economic climate. Within the main media category, other online (net balance of +8.3, from +10.5%), and video (+3.2%, from +7.9) remained in growth territory, although this was offset by audio (-8.0%, from +1.7%), out of home (-7.1%, from -12.4%) and published brands (-5.0%, from -1.9%).
Pessimism towards industry-wide financial prospects deepens and company-own projections weaken
Latest Bellwether data reflected a more sombre mood amongst UK companies with regards to their financial prospects in Q2 as further rises in interest rates and stubbornly-high inflation weigh on firms' finances.
Sentiment towards industry-wide financial prospects moved deeper into negative territory. The 28.8% of survey respondents expressing a downbeat assessment for their industry in the coming 12 months more than offset the 16.2% who registered optimism. The subsequent net balance of -12.6% was down from -7.1% previously but was much higher than those recorded throughout the majority of 2022 when the net balance reached deeply negative levels.
Meanwhile, sentiment towards own-company financial prospects edged closer to neutrality during the second quarter of the year. This was highlighted by the net balance of firms who were optimistic in their outlook slipping to +2.6%, down from +7.0% in the opening quarter. Underlying data revealed that just under half of survey respondents (48.4%) reported no change in their outlook. The remaining proportion was broadly split between optimists (27.1%) and pessimists (24.5%).
Adspend recovery set to gather pace in 2025 following subdued forecasts for 2023 and 2024
Since the latest Bellwether survey, report authors S&P Global have upgraded their forecast for the UK economy and expect GDP in 2023 to grow by 0.3%. The less gloomy outlook reflects the surprising resilience of consumers throughout a period of double-digit inflation and rising borrowing costs. Still, the immediate growth outlook remains challenging, particularly with the Bank of England set to raise interest rates by even further to tackle an inflation rate which stands well above the 2% target. Overall for 2023, the Bellwether Report consequently foresees adspend declining marginally by -0.6% (compared to -0.9% previously).
Looking onwards to 2024, Bellwether forecasts adspend to be broadly flat on an annual basis, with growth forecast at 0.1% as the effect of higher interest rates starts to weigh on household and business budgets. S&P Global expects UK GDP to rise by just 0.4% next year, although for 2025 onwards it anticipates a return to much stronger rates of growth in the UK economy and adspend. As such, Bellwether anticipates adspend growth to improve to 1.5%, 2.0% and 2.1% in 2025, 2026 and 2027 respectively.
Commenting on the latest survey:
Paul Bainsfair, IPA director general: “It is welcome news that total UK marketing budgets remain in positive territory, despite the latest figures from the ONS which reveal a 'listless' UK economy.
"It is therefore not surprising to see a dramatic increase in sales promotion this quarter. But we would not want to see this as a long-term trend because our comprehensive bank of evidence shows that price promotions damage brands because they lower consumer price references and do not build brand loyalty. While, understandably, brands may think this is the right thing to do for their customers during the current cost-of-living crisis, it is a counter-productive exercise that may generate short-term spikes in sales volumes but will almost never change how consumers think or feel about their brand because they are only interested in the lowest price point. What happens next is the eventual erosion of a company’s long-term brand health and profitability.
“We continue to advocate the well-tested rule of thumb that a 60:40 ratio of brand building to sales activation is the best way to grow business through marketing activity.”
Laura Denman, economist at S&P Global Market Intelligence and author of the IPA Bellwether Report: "Bellwether survey data highlights the resilience of UK businesses, who appear to have weathered a challenging economic landscape over the past six months a lot better than many had anticipated. Surveyed companies continued to expand their marketing budgets in the second quarter despite still-severe inflationary pressures and continued interest rate hikes. We’re seeing evidence that UK companies are proactive in their decision-making and are adapting to the competitive business environment and challenging economic landscape in a robust manner. This bodes well for more stronger-than-expected results in the second half of 2023."
Richard Aldiss, managing director, McCann Manchester and IPA chair for England & Wales: “Against a backdrop of escalating inflation and interest rate increases – in which McCann data shows that 1 in 2 Brits say “I worry about not being able to provide enough food for myself and/or my family”, and the #1 concern for Brits when it comes to equality is “equality between the rich and the poor” – it is heartening to see in this quarter’s Bellwether the stalwart attitude of many brands responding with agility to their consumer intelligence. It is equally heartening to see marketing strategies addressing the very needs of the UK market at the moment.
“The rise in budgets across sales promotion is testament to this, showing brands supporting their customers during the cost-of-living crisis. However, we know that those brands applying a long-term lens will reap the benefits.”
Alex Uprichard, managing director, IMA-HOME and IPA City Head for Leeds, Yorkshire and Humberside: "The current trend in marketing spend suggests a real focus on hero-ing the consumer. Whether that’s through value-adding face-to-face interactions in the form of events, or pricing that reflects their circumstances. It’s clear that high inflation and interest rates aren’t going away anytime soon, so brands are potentially looking to build loyalty amid the uncertainty. Marketers who approach the current landscape smartly, showing they understand the real consumer challenges, will be the ones who win long term."
Amy Lawrence, digital partner – UK & Global, EssenceMediacom & chair of the IPA Digital Marketing Group: "As we continue to face into economic headwinds, it is unsurprising that there has been a slight reduction in forecast main media budgets, with a net balance of -2.5%. As inflation continues to bite in all areas, there is clearly some cautiousness amongst advertisers. This cautiousness is reflected in the more granular breakdown of budgets, with “other online” at the top (+8.3) – a trend we’ve seen throughout the turmoil of the last few years, as advertisers focus more on performance tactics. It's therefore pleasing to see that video is also increased (although to a lesser extent) – a testament to the need to invest in brand too. As we move into H2, it is clear that the need for flexibility is paramount.”
Patrick Reid, group CEO, Imagination: "As illustrated in the sustained marketing budget growth in Q2, whilst we remain in a turbulent economic climate, UK businesses still recognise the need to invest in their brands. However, the focus has shifted slightly. While there has been a drop in main media spend, events and experiences recorded their highest boost in a year, with a net 9.3% growth on current budgets. With an annual projected forecast of 14.5% growth for 23/24 budgets, it’s a reminder of marketers’ recognition of the power of experiences to reach current and new potential customers delivering effective and measurable ROI. This rings true with what we’re seeing from our clients."