IPA Bellwether: UK companies cut marketing budgets for first time in seven years

17/10/2019

UK marketers have recorded a reduction to marketing budgets for the third quarter of 2019 as economic and political uncertainty around Brexit drains confidence, according to new data.

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The findings come from the IPA Bellwether Report, researched and published by IHS Markit on behalf of the Institute of Practitioners in Advertising, with data drawn from a panel of around 300 UK marketing professionals.

A net balance of 0.5% of advertisers reported downward adjustments to their marketing budgets for the third quarter (July-September).

While this marked the first time in seven years that marketers have experienced cuts to their allocated spending, the IPA stressed that the net balance was only marginally lower than the previous quarter's 0.0% balance and was a sign of hesitancy at UK businesses.

The recent underwhelming performance of marketing budgets continued during the third quarter of 2019, with UK marketers recording a slight reduction to spending availability amid heightened economic and political uncertainty.

A net balance of -0.5% of firms registered downward revisions to their total marketing budgets during Q3. Although this is the first time in seven years that marketing executives have observed cuts to their allocated spending, the net balance was broadly unchanged from the prior quarter (+0.0%) and fractionally below neutrality, highlighting the underlying tone of hesitancy that dominated UK business decision making for the most part of the year.

Nearly two-thirds of the Bellwether panel (64.1%) reported no change to their overall marketing budgets in the third quarter. There were reports that economic and Brexit-related uncertainty warranted a ‘wait-and-see’ approach. Low consumer confidence was said to have generated hesitancy towards spending, leading firms to hold back on big-ticket marketing drives and tighten the purse strings. Others indicated that, in the interest of cost efficiency, they had re-allocated budgets to online and social media-based campaigns, keeping total budgets unchanged in the process. Approximately 18.2% of firms cut total advertising expenditure, while 17.7% reported budget growth.

The continued shift towards digital marketing was once again highlighted as the internet category remained the top performer in the third quarter. A net balance of +11.1% of firms observed budget growth here (+11.5% previously). The development of new online tools encouraged firms to boost internet budgets available to marketing executives. Data driven campaigns and a greater push towards social media advertising also underpinned the continued rotation into the digital space. Within search/SEO, which lies within the broader internet category, however, the net balance declined to +6.1%, from +9.9%, its lowest since Q4 2018.
Meanwhile, mobile advertising budgets were reduced for the first time since the end of last year. The net balance dipped into negative territory (-0.6%) following stagnation in the second quarter (+0.0%).

However, main media advertising budgets were placed on hold during the third quarter (+0.0%) following some relatively solid upward revisions in the first two quarters of the year (+5.2% and +5.6% respectively), signalling a reluctance among firms to commit to big-ticket marketing campaigns.

The remaining types of marketing all recorded in contraction territory, with the worst performer being market research (-16.9% from -2.9%). Budgets here were cut to the sharpest extent across the seven-year series history. Elsewhere, direct marketing spending was reduced (-7.0% from -9.0%), as has been the case since Q4 2017, and continued declines were also seen for sales promotions budgets (-2.3% from - 7.1%), PR budgets (-4.7% from -5.2%). Meanwhile, events marketing budgets were downwardly revised for the first time since Q3 2018 (-5.9% from +4.8%), while ‘other’ marketing expenditure, which captures anything not already included, also contracted (- 13.9% from -12.8%).

Own-company outlook remains bleak

Company and industry-wide prospects remained in negative territory for a fourth consecutive quarter during the latest Bellwether survey, highlighting a sombre mood among panellists.
The degree of pessimism across both outlooks were broadly in line with those seen during the second quarter. Industry-wide expectations were among the most downbeat since Q4 2011 and only narrowly less negative than in the previous Bellwether report. The net balance posted a fractional rise to -25.0% from - 25.6% in the second quarter.

There was also a slight improvement rise in the net balance of firms indicating worsened financial prospects for their own company, this time from -9.8% in the second quarter to -9.4%. Again, expectations were among the most pessimistic since the final quarter of 2011.

Adspend forecasts for 2019 subdued, but improvement forecast beyond 2020

There has been little real change since the second quarter, with the UK economy remaining subdued and likely to post only marginal growth in the third quarter. The Bellwether Report has subsequently decided to leave its forecasts unchanged to reflect this and remains cautious towards 2019. Overall, it anticipates a modest 1.1% annual increase in adspend over the year as a whole. Various factors underpin its reservation, namely sustained Brexit uncertainty and a weak economic backdrop.

Nevertheless, it believes businesses will be eager to accelerate marketing efforts once uncertainty has cleared, and subsequently sees 2020 onwards being more positive on the adspend front. It expects growth of 1.8% in 2020, followed by stronger rates of increase in 2021 (2.0%), 2022 (2.2%) and 2023 (3.1%).

Commenting on the latest survey, Paul Bainsfair, IPA Director General, said: "It’s a false economy to cut one’s ad budget when things look uncertain. The evidence shows that far from being prudent, it can have a negative long-term effect on growth. Companies that hold their nerve consistently, and that invest in the 60:40 ratio of longer-term brand building to shorter-term sales activation, outperform the market."

Joe Hayes, Economist at IHS Markit and author of the Bellwether Report: "The latest Bellwether survey spells further disappointment for the UK marketing industry, which is suffering, just like the rest of the economy, as a result of spending delays, firms placing projects on hold and subdued business confidence. The UK economy has endured a tough year so far and firms have subsequently withdrawn discretionary spending to protect profit margins.

"Perhaps the most discouraging sign is to see firms sitting on the fence regarding main media advertising, which is a vital form of long-term brand building, following resilient budget growth in the two previous quarters. Overall, as long as political and economic uncertainties remain at large, it will be surprising to see noteworthy boosts to marketing spending."

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Industry comment

Matt White, VP EMEA, Quantcast, said: "This quarter's IPA Bellwether report reflects continued Brexit uncertainty as marketers feel the squeeze on their budgets. In these challenging times, marketers need to focus on making their budgets work harder and smarter. Unsurprisingly, many brands are reallocating budgets to digital - a sensible move, given the precise targeting that it offers them."

"But marketers need to dive deeper into campaign efficiency - from optimising ad frequency and rethinking the precision of their targeting, to investing in more intelligent online tools for dynamic creative optimisation as well as getting premium inventory at the best rates."

"When budgets are being shortened, there is a tendency for marketers to move to direct response activity but it's important not to lose sight of long-term goals and upper funnel activity if brands are to weather the Brexit storm."

Alessandra Di Lorenzo, CEO of Forward, lastminute.com’s media company, said: “The uncertain political climate isn’t the only thing putting marketers – and their budgets – under pressure. From reduced consumer confidence and spending to ambitious sales targets, they’re facing a myriad of other challenges, too. In times like these, brands need performance and measurable results to ensure they’re getting the most from their spend, which is clearly why there has been a focus on digital investment.

“Used intelligently, data and digital marketing technology can allow you to execute precise and measurable campaigns quickly and efficiently. Looking ahead, it will be the players that use data in the smartest ways that win big. But, for maximum results, brands need to keep their eyes on the prize and combine campaign performance with brand building – a practice which is often de-prioritised by digital marketers. By combining the two, and focussing on ‘brand performance’, brands can dramatically increase the impact of their campaigns, and get closer to customers.”

Mike Klinkhammer, Director of Advertising Sales EU at eBay, said: “The underwhelming figures released today by the IPA, show that marketers are certainly being impacted by the uncertain economic climate, with budgets naturally taking the hit.

“But it’s not just the economic landscape causing concern, rapid developments in technology mean many digital marketers are also worried about the looming threat of cookie-less advertising, and how this will impact the way we deliver relevant ads in the future. Wherever possible, brands and publishers should be looking to harness the first party data at their finger-tips, and explore how they can cut and slice it in smarter ways – in order to deliver relevant, intelligent advertising, without the need for cookies.”

“Marketers don’t need to look very far to find cookie-less targeting methods either. Contextual targeting – combined with search and display advertising – is still an incredibly valuable way to reach audiences. At eBay, as part of our cookie-less targeting offer, we’re turbo-charging contextual targeting by tying it in with new shopper intent capabilities: blending real-time contextual segments with key shopper intent signals – and powered by search algorithms. Contextual may have been simple in the past, but it’s getting increasingly intelligent – and offers a brilliant opportunity for marketers to get closer to their customers.”

Asher Gordon, Head of Biddable Media at Tug, said: “It’s understandable that, in a time of low confidence, marketers are cautious about their spend. But as advertisers continue to look to optimise every penny, we’ll no doubt see digital continue to rise – whether it’s in search, display, or digital out-of-home – as technology continues to make marketing infinitely simpler and more efficient.

“Despite some numbers in the report ‘going down’ at first glance – notably in search – it’s worth noting that many of these numbers remain positive, meaning strong growth continues across the digital space.

Gavin Stirrat, VP of Partner Services at OpenX, said: “With digital spend continuing to rise, even as wider marketing budgets fall, today’s news proves that the significance of digital markets is only continuing to grow. But as consumer attention continues to be diluted across platforms, screens, and channels, it’s more important now than ever for advertisers to make smart targeting decisions based on how their audiences are behaving online.

“And our own research – in partnership with The Harris Poll – is very clear about what those audiences are doing. Where Linear TV once reigned, for example, two thirds are now subscribing to streaming services – with 32% not having cable or satellite, or looking to ditch it in the next year.

“That doesn’t mean, however, that there’s only one stop for digital marketing. In order to stay ahead in an increasingly competitive market, advertisers need to move away from a broad brush approach and make sure audiences are front of mind in every spending decision to keep targeting relevant and effective.”

Anna Forbes, UK General Manager, The Trade Desk, said: “With advertisers’ purse strings tightening, every penny counts, so it makes sense that an increasing number of marketers are pivoting towards the digital space to get maximum value. In fact, the innovations of the past 12 months alone have made it far easier – and more rewarding – for advertisers to do just that. The growth in the digital sector, reported by both the IAB and IPA, stands as testament to the industry waking up to the power of programmatic.

Particularly notable is the sizeable growth of video, which contributed well over £1 billion in the first six months of the year according to the IAB. Advertisers have long known that video is a powerful format to reach consumers, but its power is likely to grow exponentially as more and more Connected TV streaming services enter the UK market. And with UK consumers creeping ever closer to subscription fee saturation, advertising will be a key asset in unlocking new revenue for many streaming companies, further boosting an already flourishing sector of UK ad spend.”

Chris Daplyn, CEO, Mirum UK, said: Amidst political and consumer uncertainty, we’ve seen marketing budgets reduce for the first time in seven years - something we will all need to be conscious of. As budgets tighten, brands and marketers are going to need to flex, adapt and innovate to find new ways to reach audiences in smarter ways.”

“As a digital agency, we sometimes feel these budget cuts most keenly, but that’s not been the case this year. The need to react and reconfigure marketing plans has meant that budgets are shifting to digital channels. At the same time, the opportunity to create campaigns that leverage every channel from inception favours digital thinking. Change can be difficult. But brands and agencies have to create work that succeeds in modern culture. This isn’t throwing everything away, but rather, bringing new perspectives to existing challenges to get a different result.”

Alexander Iglesböck, CEO, Adverity, said: “Overall the report may appear negative, however we shouldn’t overlook the small nugget of positivity, which suggests there is budget growth (+11.1%) in online marketing spend. It is great to see an advantageous shift towards digital marketing, with organisations redirecting their marketing budgets towards new data tools and investing in data driven marketing.

“To drive successful and engaging marketing campaigns, marketers need to embrace advanced analytical tools, as well as artificial intelligence, to derive the best results from their data. The increased use of augmented analytics and intelligence platforms is helping marketers enhance their campaign success by using data to obtain real-time marketing insights, allowing for in-flight optimisation. Moving into the final quarter of the year I would expect to see increased investment in the online and digital marketing sectors, as marketers continue to comprehend data’s true value and power. ”

Jeff Pfefferkorn, Head of UK Sales, MainAd, said: “The cautious approach to marketing budgets in the UK in the last quarter comes as no surprise in the current climate of uncertainty; but brands will need to be bolder and diversify their strategies once the political turmoil is finally resolved if they want to stand out from the crowd.

“For example, the continuing shift towards digital, particularly when it comes to advertising spend, highlights the need for marketers to consider data-driven campaigns using dynamic creative across a variety of channels, including in-app and digital video, to reach the right audience. The move towards social media advertising also presents a different opportunity for brands to engage with users, and suggests that many marketers are following the DTC ecommerce model and interacting in a more direct and personal way with consumers."

Philip Acton, UK Country Manager, Adform, said: “These results reflect a natural element of uncertainty stemming from the current political and economic tensions at play in the UK. We actually see a strong opportunity for the market to focus on greater collaboration, and to use that as a springboard for industry-wide innovation. The past year has definitely seen a heavy increase in focus on transparency among budget holders which has had a knock-on effect impacting when and where those budgets are allocated.”

“The digital advertising industry must provide both brands and publishers with integrated advertising solutions that ensure accountability throughout the purchase chain. This includes adoption of new neutral standards that support the handling of sensitive data whilst striking a healthy balance between delivering value and a better experience for the end consumer. Let’s not forget that programmatic and digital offer great ROI so it’s always a great place to invest during any downturn.”

“If we build our approach like this , marketers will have added confidence to invest their budgets, safe in the knowledge that it is fully accountable to those above them while the market waits to see how the current mixed signals and uncertainty play out.”

Christian Gladwell, Global CEO, M&C Saatchi Performance, said: “Whilst total marketing budgets reduced slightly in Q3, almost two-thirds (64.1%) of marketers reported no change in overall advertising investment and budgets continued to shift from traditional to digital. Couple these findings with the IAB UK’s half year Adspend update, which reports that total UK digital ad spend was up 13% year on year in the first six months of 2019, driven by display (video) and search and you have a more positive outlook for digital advertising."

“While the current economic and political climate may impact ad spend, brands understanding that mobile is now more than simply a device will be key to continued digital advertising growth. With increasing touchpoints, joining the dots between all digital platforms to engage the connected consumer will become ever more relevant for brands. Addressing the connected attribution issue will be key to sustaining consumer growth and the associated digital ad spend.'

Bill Swanson, VP EMEA, Telaria, said: “In an overall uncertain market, it’s encouraging, but not surprising, to see that only digital marketing budgets have reported an increase. As consumers continue to shift away from traditional/linear television to viewing on multiple platforms, the industry recognises that this is a priority focus for ad spend.

"This is also reflected in the IAB UK’s half year Adspend update, with UK digital ad spend up 13% year on year. With the correct approach to monetisation and with budgets in the right place, marketers can seize the benefits this sector will continue to bring.”

Ben Samuel, VP EMEA, Nielsen Marketing Effectiveness, said: “The continued stagnation of marketing budgets won’t come as a surprise to many marketers. But as everyone will know, if you can't drive more sales through increased marketing investment, marketers will need to find another way to grow their businesses. At Nielsen we know 25% of marketing spend is still being wasted on ineffective digital tactics alone. In any business environment, marketers simply cannot afford to lose a quarter of their spend in poorly performing channels and tactics, and this is especially true in these uncertain times. It makes an even stronger case for why marketers should invest in the right tools to measure the effectiveness of campaigns, helping them better understand how to optimise performance, improve outcomes and drive their bottom line… without the need to ask for increased budgets which may not be forthcoming.”

Christopher Hogg, Managing Director, EMEA, Lotame, said: “Firms readjusting budgets to allow sustained growth in digital marketing might be an indication that marketers are embracing data-driven strategies to prove ROI. Those activities that aren't showing genuine gains are being cut. It's time for marketers to double down on high quality data, and the partners who can help them connect their disparate data resources and activate their data solutions to acquire and engage their audiences more effectively.”

Andy Ashley, International Marketing Director, Digital Element, said: “The results of this quarter’s report are to be expected, especially given the political climate and a resounding hesitancy across the industry due to an uncertain future, post Brexit.

“But what we can focus in on are the positives, and the push to really optimise available budgets for campaigns, particularly across online and social media to achieve maximum performance. The development of online tools and data-driven campaigns are highlighted in the report, and are crucial to drive success and prepare for the potential challenges ahead. The key to this is a continued attention on efficiency and high-quality data – which is granular and up-to-date – to provide quality insights to justify spend and, ultimately, enhance the consumer experience which will bring wider benefits to businesses.”

Nickolas Rekeda, CMO, MGID, said: “Flatlining marketing spends due to the obvious political and economic uncertainty in the UK are certainly disappointing but not unexpected. This demonstrates that advertisers should focus their efforts on efficient ad formats, such as native, which help to produce better user engagement, results in less adblocking, and provides a valuable return on investment.

“Ahead of the predicted increase in growth for 2020, marketers should refocus their current advertising strategies to target audiences better through personalisation and monetisation. This will help to rebuild trust and confidence in consumer spending to achieve the best result possible for brands.”

Andrew Buckman, COO at Sublime, said: “Despite overall budget cuts, it is encouraging to see marketers continuing to invest in the digital marketing space, highlighting the benefit of interacting with consumers in such a receptive environment. The industry needs to continue putting the consumer first, by utilising today’s advanced technologies to provide engaging and non-intrusive campaigns.

“We can’t avoid acknowledging the impact of Brexit on marketing budgets and until the UK has officially departed from the European Union, it is likely economic and political uncertainty will prevail. However, once the dust has settled and the economy stabilises, we can expect marketing budgets to resume increasing steadily.”

Simon Thorne, UK country director, Flashtalking, said: “To assure the future growth of digital ad spend, industry players should collaborate further to fix the supply chain and offer full transparency, efficiency and choice. Doing this will not only rebuild trust between advertising partners, but continue to incentivise investment in effective media platforms as well.”

Oli Marlow-Thomas, Founder & CEO, Ad-Lib Digital,
said: "With marketing budgets continuing to struggle through 2019 it’s time for the industry to make some changes to the way it manages ad spend. One obvious budget black hole is the sunken cost of digital creative. The expensive development of creative assets across multiple digital channels and formats means costs rack up with each and every iteration. At Ad-Lib, we know that by automating the process of personalised creative, budget-conscious marketers can save vast sums on production costs, and reap a huge time saving too. With more time and money to play with, they can turn their attention to the digital ad space - an area that is showing reassuring growth into 2020 despite uncertain times."

Jem Lloyd-Williams, CEO, Mindshare UK, said: "Unsurprisingly, the report shows a slow-down in overall media investments, due in large part to a more cautious approach across all sectors as we wait to see how Brexit plays out. Our own research shows most people feel powerless about what might happen. They are switching their focus to the climate change crisis – giving them something they feel they can positively influence. The outlook is better going into 2020 and it’s our job to ensure our clients are ready to take advantage of the inevitable new opportunities next year brings. Putting our client’s audiences at the heart of our recommendations remains our focus. Whatever the immediate effects of Brexit, understanding people’s motivations and emotions better than anyone else during next year provides a competitive advantage, and, it helps resist the temptation of looking only in the short term for returns on media investment."

Thomas Byrne, EVP Agency Services, Merkle EMEA, said: "The report has revealed that, again, this quarter the industry is favouring the measurability and efficiency of internet advertising when it comes to the allocation of adspend budget. It seems clear the industry is experiencing – and gaining an understanding of – the positive impact - that data-driven advertising in the social media space can have on both a brand awareness and market share perspective, but also on profitability and the bottom line.

"An improved online experience built on the utility and service from relevant and respectfully target messaging is driving short-term performance and developing brand affection. However, this cannot be a temporary ‘reallocation’ of budget for short-term ‘cost efficiency’ it needs to continue into Q4, 2020 and beyond in order to further develop and maintain long-term brand awareness. Efforts must also be focused on taking this people-based marketing approach further by connecting data-driven, digital campaigns to long term measurable objectives for clients. Only then will they be able to truly maximise performance and media efficiency to deliver the right message, at the right time in the consumer’s path-to-purchase journey."

Ali MacCallum, CEO, Kinetic UK, said: "As the latest IPA Bellwether report has shown, marketing spend deployment is becoming increasingly characterised by short term thinking, with marketers directing their budgets towards the internet and social media. It is therefore incumbent upon the OOH industry to demonstrate how we can better deliver faster access to the market via data driven methods near real time trading systems, without losing brand strength, and to meet shorter term business objectives. Kinetic’s Commuter Commerce study recently demonstrated that c£24bn of mobile sales are generated on the commute, with over 70% of purchase influenced by OOH. The roll out of 5G in 2020 will only accelerate the ability of OOH and mobile to articulate the need to change the behaviours we inevitably see in periods of turbulence such as these."

Paul Hutchison, CEO, Wavemaker UK (WPP media agency), said: It may be disappointing to see that industry-wide financial prospects remain negative this quarter, but it’s an expected, and totally understandable bi-product of an unformed post-Brexit future. Advertisers are living in a challenging environment of ‘now and not yet’ – toughing out the existing and continuously changing political and economic uncertainties. However, as confidence in the UK economy is regained there’s a somewhat brighter future for adspend prospects on the horizon - which is also a reflection of its value and importance to all UK businesses.

Rash budget cuts can often cause long-term damage, we need to remember that sales are over-night, but brands are built over time. So, it’s important for companies to maintain momentum and spend money where it counts – both outcomes should be optimised to ensure they lead to the best chance of sustainable growth.

"It’s all about creating the biggest impact – and that means using customer insights and the data available to make smart choices when it comes to adspend. Not simply pouring all investment into one channel - i.e. digital - but thinking about the broader spectrum of media assets available and the audience they reach, from TV, to social, to Out-of-Home. In addition, the continuing decline in forecast investment in market research is also understandable: it’s just too difficult to articulate clearly enough what the question is. However, it should also be a wake-up call for market research practitioners to rethink approaches to enable stronger and more directional support to businesses in times of uncertainty.

Eve Lee, founder and CEO, The Digital Fairy, said:"It’s disappointing to see that the reasons behind the growth in on-line and social-media campaigns are simply ‘in the interest of cost efficiency’ and a ‘reallocation of budget’ and not an acknowledgement of the power or impact they have on brand awareness. This is especially true for those looking to attract the attention of the youth audience – specifically Generation Z. It seems that not all UK businesses have got to grips with the true value of on-line and social-media based campaigns. The idea with the new generation is that you speak with them not at them, and any approach must be authentic. This is where these channels truly come into play where impact and value are concerned.

"Brands need to be smarter and more resourceful when it comes to adspend. There doesn’t need to be a ‘cut' just simply a shift in where/how they’re spending money in order to get results and have a bigger impact on brand awareness, market share and ultimately the bottom line. As adspend regains momentum and grows in 2020, then we would hope that the ‘reallocated budgets’ to on-line and social-media based campaigns would become ‘permanent budgets’. And these channels receive the full recognition they deserve.But let’s also not forget that there is also a need for an awareness that consumer hesitancy and this indecisiveness – in particular with this new generation of consumer - is not a short-term change that’s only caused by Brexit. The increasing awareness of issues such as global warming is having a huge effect on consumerism and brand competition, and this is going to have a longer-term impact on adspend and marketing budgets."

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