IPA releases latest Bellwether Report

Another period of total marketing budget growth was recorded in the third quarter of 2022, reveals the latest IPA Bellwether Report, continuing the positive trend that began over a year ago. However, the expansion slowed for a second successive quarter as the cost-of-living crisis, soaring energy bills, weakening demand and economic uncertainty stalled business decision-making and led some companies to retrench.

The IPA report the findings as follows:

According to the latest survey findings, 22.2% of companies increased their total marketing budgets in the third quarter. However, only a marginally smaller proportion of companies registered total marketing budget cuts during the third quarter (20.1%), resulting in a weak positive net balance of +2.1%. This was down from +10.8% in the previous period and its lowest seen across the current six-quarter expansion sequence.

Rising cost pressures was a principal challenge faced by UK firms in the third quarter. With energy bills and general prices for goods and services rising sharply, profit margins have ultimately been squeezed. At the same time, high inflation has caused consumers' purchasing power to deteriorate, weighing on demand. This has led some companies to retrench, with marketing budgets being reduced as a result.

Growth by category in Q3 2022

Of the seven categories of marketing spend monitored by the Bellwether report, only events saw growth in Q3, reflecting the continued appetite for face-to-face meetings and engagements in person following the lifting of COVID-19 restrictions. Even here however, growth slowed notably (net balance of +4.5%, from +22.2%)

Elsewhere, main media marketing budgets – which include big-ticket advertising campaigns relating to TV and radio – fell for the first time since Q1 2021 (net balance of -3.1%, from 0.0% previously). Within the main media category, the largest drags were published brands (net balance of -11.2%, from -2.6%) and out of home (net balance of -7.6%, from -15.9%), while audio also fell slightly (net balance of -2.0%, from -16.4%). Other online advertising (net balance of +9.3%, from +4.4%) and video (net balance of +8.7%, from +0.8%) meanwhile saw growth.

The largest downturn was once again seen in the segment containing other forms of marketing not accounted for by the survey (net balance of -10.5%, from -8.3%). Sales promotions budgets also fell, marking a second successive quarterly decrease. The net balance registering a drop in spending here fell to -7.5%, from -0.7%.

Cuts of a more modest nature were seen in the remaining segments. Public relations budgets fell for the first time in a year (net balance of -4.8%, from +3.7%), while a decrease of a similar strength was seen for market research (net balance of -4.1%, from -6.5%). Lastly, direct marketing budgets fell fractionally (net balance of -0.6%, from 0.0%).

Financial prospects fall further in anticipation of more challenging economic conditions

Compared to three months ago, the latest data signalled a stronger level of negativity among Bellwether firms towards the financial prospects of their specific industry. While 6.3% of surveyed companies were more optimistic, 50.5% were downbeat, leading to a net balance of -44.3% – the most pessimistic assessment of industry-wide financial prospects since Q2 2020.

Company-own financial prospects moved in the same direction during the third quarter. Latest Bellwether data showed 40.6% of firms reporting a downbeat financial assessment of their business, compared with 13.0% that were more positive. At -27.6%, the net balance was likewise its lowest since the start of the COVID-19 pandemic in Q2 2020.

2022 adspend growth forecast lifted slightly following energy support measures

Since the last Bellwether Report, little has changed regarding the immediate outlook for the UK economy. A recession is likely to have started in the third quarter, but the Bellwether authors S&P anticipate it being short and shallow, in part owing to the support measures provided by Government to assist households and firms with their energy bills. This relief is likely to have also helped sustain adspend into the end of the year. As a result, the Bellwether has upwardly revised its 2022 adspend forecast to 3.7%, from 1.6% previously.

Nevertheless, high inflation will continue to squeeze incomes, while weak demand in key export markets, financial market volatility and subdued corporate investment will likely weigh on real GDP in 2023. As such, S&P’s GDP growth forecast for next year has been reduced from 0.5% to 0.2%, and, as such, Bellwether adspend growth forecast has also been trimmed to 0.3% (from 0.8%). With high inflation also set to persist into next year, this will continue to dampen real rates of growth.

Beyond 2023, Bellwether adspend forecasts are little-changed since the previous report. It is slightly more bullish on adspend growth in 2024 (1.6%, from 1.4%) in part due to its expectation that a consumer-led UK recession will only be short-lived.

Commenting on the latest survey

Paul Bainsfair, IPA director general: "We know from analysis of additional S&P500 data and new data from the FTSE 100 benchmarks that strong brands are a critical strategic asset that deliver value and that their budgets are an investment not a cost. Furthermore, we see from this data that strongly branded companies recover quickly after a crisis and retain their performance. We appreciate, however, that while increasing or maintaining investment in marketing during these tough economic times is generally the ideal thing for companies to do, it is not necessarily the easiest thing to do – as these latest Bellwether results imply. But there are ways around this.

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

Joe Hayes, senior economist at S&P Global Market Intelligence and author of the Bellwether Report: "Bellwether survey data suggests that UK companies were able to squeeze out another round of marketing budget growth in the third quarter, although momentum has faded quite significantly since the first half of 2022 as the broader economic picture has darkened. 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."

Sean Feast, director and co-owner of Gravity Global: "There’s little in the latest report that surprises me and it’s a brave person who predicts what the future holds for the PR industry when it comes to budgets. What I can say from the conversations we’ve been having recently is that we remain bullish. It’s what I’ve said before, during, and now after the Pandemic, even in the worst of times, to quote Dickens, a ‘winter of despair’ for some clients could very quickly and easily give way to ‘a spring of hope’. It’s a fickle old world, and the watchword for the next 12 months has to be flexibility, being prepared to work with clients through their challenges when their own businesses are under economic pressure.

"It may be tough, but having a diverse range of clients across an equally diverse range of sectors helps, and whereas disruption sometimes causes difficulties for more established businesses, it can also be the catalyst for new campaigns and ideas which in turn means more work for the PR industry."

Patrick Reid – Group CEO, Imagination: "As uncertainty gathers over the economic landscape, this is having an impact on company decision-making and marketing spending. Despite this, the report suggests a continued ‘after-glow’ of interest in live events since the lifting of Covid restrictions, as people still reconnect with their social lives.

"This quarter sees the slowest increase in total marketing budget growth since Q1. However, there is a reported growth of +4.5% within the events budgets, proving for the third consecutive quarter that there is a continued desire for face-to-face contact and meaningful interactions.

"Across our client portfolio, we’re seeing the continued demand from brands wishing to connect with their audiences in an emotional and authentic way through experiences across multiple touchpoints.

Amy Lawrence, digital director, MediaCom & chair of the IPA Digital Marketing Group: "Following the slowdown we saw in the previous quarter, it is disappointing to see that main media budgets have been cut for the first time since the beginning of 2021 – but given the cost of living crisis and the economic uncertainty we are facing, it is not surprising.

"Most marked is the fact the net balance of panellists predicting growth has swung from +20.1% to -3.1% since the 2022-23 financial year predictions were made. Despite this, we are seeing increased predicted growth in both 'other online' and 'video' – perhaps reflective of the flexibility of budgets in these areas, and lower impact of inflation seen from Christmas and the World Cup."

Bill Doris, VP Analytics, EMEA, MediaCom & IPA Media Research Advisory Group chair: "Although we have seen successive quarterly reductions in the net balance of marketing budgets for 2022, the net growth of 2.1% gives some positivity as we head towards the end of the year. From a Market research perspective, as we look to 2023, the net balance of +8.6% of companies anticipating growth in market research budgets signals the importance of the Market research sector. With a turbulent domestic economy and low consumer confidence, the importance of understanding the impact of the economy on consumer behaviour has never been more paramount."

Valerie Ludlow, CEO, ASG & Partners and IPA chair for Northern Ireland: "The acute inflationary pressures affect almost all sectors, causing greater scrutiny for every pound that business spend. That said, there have been no immediate decisions from clients to slash marketing budgets, as seen in previous times of economic uncertainty. Instead, many marketers have reverted to quarterly planning, with more cautious investment intentions for the rest of the year and early 2023.

"The good news is that other local economic surveys have found that there is still confidence that turnover will grow in the next 12 months. And for now, regional PR, events and recruitment advertising forecasts remain strong for the rest of 2022."

Richard Aldiss, managing director, McCann Manchester and IPA city head Manchester and the North West: "The slow pace of budgets, although being recorded on an upward trajectory doesn’t come as any big surprise when we look at the current geopolitical situation and inflation increases. With the cost of living crisis weighing on the nation, the financial outlook as we know is challenging.

"How can our industry respond to the current climate? Now more than ever we need to work with our client partners to balance short term goals with more longer term objectives, With pace and agility to ensure we adapt to the here and now whilst reinforcing the value of effectiveness, knowing that the strategies we adopt now will shape future success."

The full report is available to purchase from the IPA.