The fourth quarter of 2019 saw UK marketing budgets saw a small return to growth after a stagnant period, according to new data.
The findings, from the IPA Bellwether report, found a net balance of 4% more firms revised their total marketing budgets higher in Q4 2019.
Although only a "modest" increase, the revision marks a positive pivot for the industry following the "underwhelming" performance seen earlier in the year. The third quarter saw marketing executives observe cuts to their allocated spending for the first time in seven years, down -0.5% - which the IPA blamed on the "underlying tone of hesitancy" that dominated UK business decision making for the most part of 2019.
Approximately 23 per cent of companies observed budget growth, while around 19 per cent reported cuts, leaving the remaining 58 per cent with an unchanged spending allocation.
The breakdown by category showed that internet retained its status as top performer, with a net balance of +7.9 per cent, compared to +11.1 per cent in Q3, while there was a fractional upward revision to main media advertising (+0.5 per cent from 0 per cent in Q3).
All remaining segments recorded spending cuts, led by market research for a second successive quarter (-13.2 per cent, compared to -16.9 per cent in Q3); direct marketing (-7.7 per cent compared to -7 per cent in Q3); PR (-7.1 per cent compared to -4.7 per cent in Q3); sales promotions (-3 per cent compared to -2.3 per cent in Q3); and events (-1.1 per cent, compared to -5.9 per cent in Q3).
According to the report, the preliminary outlook for marketing spending in the 2020/21 budgeting year appears promising. A net balance of +15.7 per cent of companies expect their total marketing budgets to be upwardly revised, a significant improvement from the 2019/20 forecast of +3.4 per cent.
Brexit uncertainty for another year
However, a number of panellists continued to express concern towards the outcome of Brexit, which will remain unclear for another 12 months, with the prospect of No Deal or increased trading barriers with the EU (the UK's largest trading partner) looking likely.
As has been the case since the end of 2014, panellists were pessimistic towards the financial prospects in their own industry. This was signalled by a negative net balance of -21.0 per cent, reflecting a stubbornly elevated degree of pessimism. Nonetheless, this was a marginal movement upwards since the third quarter of 2019, where the net balance stood at -25.0 per cent. Overall, over one-third (33.7 per cent) of businesses felt downbeat, while 12.7 per cent of surveyed firms reported an optimistic view.
Growth in events marketing
Events marketing is expected to be the strongest area, with a net balance of +11.9 per cent anticipating growth, while main media is also forecast to see moderate gains, posting a net balance of +6.3 per cent. Lastly, the final marketing segment predicted to see growth in the coming financial year is sales promotions, with a net balance of +2 per cent.
A neutral outlook has been provisionally recorded for both direct marketing and PR (net balance of 0 per cent), whereas market research and the “other” marketing activity category registered in negative territory, both on -5.7 per cent.
Trends between industry-wide and company-own financial prospects diverged in the final quarter, with the latter moving into positive territory during the latest Bellwether survey.
Bellwether predicts 2020 will be a stronger year than 2019, and forecasts annual ad spend growth of 1.8 per cent.
There also appears to be a strong likelihood that the business cycle will kick on beyond 2020. As such, Bellwethers anticipate ad spend growth to improve to 2 per cent in 2021 (and beyond (2.2 per cent for 2022 and 3.1 per cent for 2023).
"Brexit still looming"
“This latest IPA Bellwether Report demonstrates the extent to which UK marketing budget planning has been at the mercy of the unstable political environment,” said Paul Bainsfair, director general of the IPA. “Over the past year, we have seen a stagnation in marketing budgets, culminating in a below zero score last quarter. And yet now, with the clear result of December’s General Election, we are seeing a return to positivity in terms of UK companies’ confidence regarding their own financial prospects and in terms of their budgeting plans – up marginally this quarter and significantly for 2020/21. With Brexit still looming, I’m sure it won’t be plain sailing, but these forecasts provide an upbeat outlook for the year ahead for UK plc, their marketers and of course the agencies that work with them to grow their businesses.”
Joe Hayes, economist at IHS Markit, who authored the author of the Bellwether Report, said there were a number of positives to take from it. “The rise in total marketing budgets provides tentative signs of a momentum shift, particularly when coupled with preliminary data for the 2020/21 budget year,” he said. “It appears that firms are looking to release the pent-up investment which has been put on hold amid the high degree of political and economic uncertainty which has plagued the UK business climate for well over 12 months now.
“Nevertheless, while these positive developments will perk up enthusiasm for marketing budgets in the coming year, downside risks to the outlook remain at large, particularly if a business cycle recovery does not fully materialise and Brexit uncertainty descends again.”
Alex Steer, CPO, Wavemaker UK: "The latest Bellwether report shows evidence of a renewed sense of opportunity among marketers – coming despite, rather than because of, improved economic confidence. By that, I mean there is no sense of 'a rising tide lifting all boats'. Rather, brands are looking for ways to ride choppy waters after many quarters of floating and waiting. This means, of course, that they will need to spend smarter, not just higher, by finding growth in unfamiliar places, and focusing on making effective investments that drive real growth, rather than just temporary efficiency.
The most important thing is for brands to think for themselves and don’t just copy what everyone else is doing. Effective growth will only come from understanding what works to recruit valuable customers and improve their journeys. As such, the right balance of media, creative and technology investment to drive growth will vary for every business.
Martyn Bentley, Commercial Director UK, AudienceProject: "The 2020 budget forecast is highly positive for marketers following a stagnant year. But as we enter this period of growth, it’s vital marketers manage campaigns effectually to ensure this upward trend continues. Most vital is measurement – the only way marketers can ensure optimal results from increased advertising efforts is to accurately analyse which partners, placements and ad iterations are performing most effectively. In doing so, brands can direct spend accordingly between digital and proven ‘traditional’ platforms to get the most bang for their buck.
"Additionally, utilising first party data is crucial, not only for brands but also publishers, whose unique data sets offer a significant opportunity to position themselves as legitimate rivals to GAFA - critical in preventing 2020’s additional industry budget defaulting straight to the major players.
Nicole Lonsdale, Chief Planning Office, Kinetic UK: "With main media advertising on the rise, and internet continuing to perform highly, there is much to be optimistic about for the Out-of-Home (OOH) sector. OOH sits at the “sweet spot” between these two mediums through its ability to reach and mobilise audiences at scale (acknowledged as a vital attribute for brand-building), as well as delivering against shorter-term business objectives through the utilisation of data-driven and automated methods similar to online marketing.
"OOH’s strength as a public and inherently safe and trusted channel is appealing to brands in the current landscape. But OOH also continues to innovate, thanks to investment in site locations, smarter data, near real time trading, and dynamic creative. OOH’s fast-growing role as the connector between physical and digital media channels makes us highly optimistic for further growth in 2020."
Thomas Byrne, EVP Agency Services, Merkle EMEA: "The results this quarter further highlight the industry trend of becoming more digital and data centric. However, if this continues there’s a risk that it drives a short-term focus on ‘cause and effect’ marketing. We predict that this is going to reach an end, as people will start to think about what drives long-term value for brands. Investment in developing strong data structures is important, but this should not be the solution; instead we should look at how to use data both efficiently and effectively. By consolidating, integrating and activating data across multiple touch points, marketers will soon be on the path to a strong people-based marketing approach. So rather than thinking of data just as a means to an end in the short term, this approach will ensure the industry will become more balanced.
"And with the report showing a slight uplift in traditional media, it’s clear that marketers are starting to prioritise long-term thinking – this will not only enable brands to react to current trends in the surrounding environment, but also contribute to developing a solid and successful plan for driving lifelong brand fame.
Mark Inskip, CEO UK and Ireland, Kantar – Media Division: “Following a year of declining marketing budgets and a pessimistic outlook, it is promising to see that total marketing budgets have increased as political uncertainties diminish.
Adspend is forecast to grow in 2020, meaning that competition in the digital space will be higher than ever. As highlighted in last year’s iteration of our DIMENSION report, we know that advertising remains crucial for both brands and consumers. But, to keep up in an increasingly competitive marketplace, brands must tailor their content appropriately to the consumer experience, taking advantage of all channels available.
It’s essential for advertisers and brands alike to carefully monitor and measure each step of their campaigns, to ensure valuable and engaging content is targeted at the right consumers across all platforms and media.”
Alessandra Di Lorenzo, CEO of Forward, lastminute.com’s media company: “As we enter the new decade, it’s brilliant to see that marketers have a more positive outlook on ad spend and overall growth - but many obstacles remain. With sales targets remaining ambitious and marketing ROI under increasing levels of scrutiny, it’s no surprise that the internet marketing category remains the stand-out performer.
It’s the obvious place to put marketing spend for laser-focused, data-driven campaigns that are far easier to measure when it comes to their impact on sales and the bottom-line. The boardroom won’t care about marketing if it doesn’t drive commercial impact. With this in mind, CMOs mustn’t forget to also leverage digital channels for long term brand building: blending digital performance with influencer and social strategies is a winning approach, if attributed, optimised and managed properly. This blend of brand and performance will become even more critical as we move into the new decade.”
James Patterson, VP Client Services, EMEA & Global Operations at The Trade Desk: “I’m not surprised that advertisers have increased their budgets and intention to spend on ads in 2020. I’m even less surprised that investment in internet marketing continues to outperform all other areas – after all, we’ve seen huge progress in our industry over the past year: from initiatives like sellers.json to growing investment in the open web, this increase in budgets should be seen as a vote of approval from advertisers on the steps we’ve made and the direction our industry is moving in.
And it’s only going to get better. The opportunity to buy OOH and TV inventory programmatically continues to grow, empowering brands to reach valuable new audiences through these proven, powerful channels. So, when thinking about exactly what to do with these boosted budgets over the coming months, it’s vital that advertisers take a truly cross-channel approach in allocating spend and don’t neglect these exciting new channels.”
Mike Klinkhammer, Director of Advertising Sales EU at eBay: “As we emerge from the shadow of the political and economic turbulence of 2019, it’s a relief to see marketers are more confident about the year ahead. That being said, uncertainty still lies ahead, and marketers may yet have to steady the ship, depending on the outcome of this year’s political events.
When it comes to online advertising, once again it’s no surprise to see this sector doing well. However, digital marketers need to stay on their toes, as the looming ‘death of the cookie’ forces the industry to consider how it reaches relevant audiences. This could affect independent publishers in particular, which are under increasing pressure to compete with powerful walled gardens. These publishers face the challenge of positioning themselves as a credible alternative, while the rules of the game – and technology involved – are increasingly controlled by the giants of the industry.”
Shazia Ginai, CEO, Neuro-Insight UK "It’s disappointing to see that market research investment in 2020 is on the decline given the vital role it plays in driving effectiveness across all areas of marketing. Increasingly, brands are focusing on how to drive long term effectiveness. Market research, as the gateway to understanding people’s underlying motivations, is critical to achieving this. Data might be able to show us the decisions people are making, but we’ll get nowhere if we can’t understand it, which is why using a cross section of high quality market research resources to draw conclusions is vital.
The Bellwether Report is researched and published by IHS Markit on behalf of the Institute of Practitioners in Advertising. It features original data, drawn from a panel of around 300 UK marketing professionals, which has been selected to represent all key business sectors, drawn primarily from the nation’s top 1,000 companies.