Latest data showed that 23.9% of marketing executives raised their budgets during the latest survey period, generally as part of efforts to support brands, aid the launch of new products or in response to greater competition. However, cost pressures led in some cases to budget realignments as part of wider company efforts to protect profitability. There were reports of client caution and ongoing economic uncertainty weighing on sales, and these factors led to 15.2% of panellists reporting a cut to their total marketing budgets.
The resulting net balance of +8.6% was down from +9.9% in the previous quarter and the lowest since the start of 2016. Although growth has weakened for a second successive quarter, marketing budgets have been continuously expanded since the end of 2012.
Internet marketing records robust, but much slower, growth in Q4
Anecdotal evidence indicated that the recent trend towards greater digital marketing continued in the fourth quarter, with a number of respondents commenting on making greater usage of search/SEO and social media tools. Some panellists reported refreshing and re-launching their websites.
The net result was a further increase in overall internet marketing spend, extending a run of growth in this Bellwether category to eight-and-a-half years. However, the respective net balance of +10.9% was notably down on the previous survey’s +17.0% and the lowest recorded since Q3 2016.
Other Bellwether categories to register expanded budgets during the latest survey period were events and main media advertising.
Events budgets were raised for the seventeenth successive quarter, with companies noting the positive sales impact of direct client engagement. However, the net balance of +5.5% was down from +9.4% to signal a slower rate of expansion in the latest survey period.
Meanwhile, main media advertising returned to growth after the previous quarter’s stagnation. However, at +1.7% (from 0.0%), the net balance was indicative of only modest growth. Moreover, with internet a sub-component of the main media category, latest data implies a disappointing quarter for spending on the ‘big-ticket’ marketing areas of TV, press, cinema and radio.
Marketing budgets for all other Bellwether categories were reduced during the final quarter of 2017. PR recorded the lowest net balance (-6.6%, down from +7.2%), followed by other (-5.8%, from +2.3%) and market research (-5.4%, compared to Q3’s -2.4%). Meanwhile, direct marketing (-4.5%) and sales promotions (-3.0%) both returned to contraction territory following stagnations in the previous survey period.
Financial prospects continue to underwhelm
The Q4 2017 Bellwether survey indicated that company financial prospects remained in positive territory, with a net balance of +10.6% of panellists more optimistic than three months ago. That said, the latest reading was slightly down on the previous quarter’s +11.1% and remained below the average for the survey to date.
Companies remained pessimistic about wider industrial prospects, with a net balance of -12.1% of companies becoming less confident when compared to three months ago. That compared to a net balance of -8.2% in the preceding survey.
2018 adspend growth predicted to be 0.3%
With business investment – and for that matter the wider economy as a whole – showing some unexpected resilience last year, the Bellwether Report has revised up its adspend growth forecast for 2017 to 1.4% (previous 0.6%).
However, with the Bellwether showing a loss of growth momentum in budget setting during the second half of 2017, we expect this to spillover into 2018.
With consumer spending set to remain under pressure from an ongoing real wage squeeze in 2018, adspend is set to rise by just 0.3%. Subdued growth occurs in spite of the positive tailwind to adspend that will emanate from the staging of the football world cup during the summer.
Adspend growth picks up in 2019, but remains weak at just 0.7% before improving to 1.0% in 2020. In line with forecasts of improved economic growth, adspend is set to rise by 1.4% and 1.6% during 2021 and 2022 respectively.
Commenting on the latest survey:
Says Paul Bainsfair, Director General, IPA:
“Looking at quarter-on-quarter results it is clear that uncertainty from the wider geo-political situation continues to affect a cautious approach from marketers regarding their budgets.
“That having been said, we must take comfort in the fact that budgets have been revised up overall in Q4 and that as ever the ability for advertising to drive business growth cannot be underestimated.”
Says Dr Paul Smith, Director at IHS Markit and author of the Bellwether Report:
“A relatively lacklustre fourth quarter ensured that 2017 proved to be a year of two halves. After a strong first half, marketing budget growth was notably slower in the final six months of 2017 culminating in Q4 with the weakest upward revision to budgets since the start of 2016.
“Whilst fears of a sharp deterioration in the UK economy following the surprising EU referendum result in 2016 have so far proven to be unfounded, the current trend in growth signalled by the Bellwether survey is nonetheless consistent with an economy undermined by ongoing Brexit uncertainty and an increasingly common “wait-and-see” attitude amongst businesses and consumers alike.
“Companies have subsequently adopted a similar attitude towards their marketing budgets. Whilst willing to expand in perceived cost-value areas such as digital they continue to do so by weighing down on budgets related to traditionally bigger-ticket main media campaigns.”
Says Debbie Klein, CEO, Engine UK:
“Clearly there is still a lot of uncertainty affecting global businesses and it’s understandable that some marketers are navigating this landscape with caution. However, the fact that overall ad spend has increased in Q4 is encouraging and shows that marketing executives still recognise the value of advertising. With factors like Brexit and GDPR throwing up challenges for brands, it’s all the more important for marketers to be strengthening relationships with their consumers and building trust in these uncertain times.”
Says James Goddard, Chief Executive JJ Marketing:
“Whilst overall budgets grew more slowly than anticipated, Q4 was still a positive end to 2017. The performance of internet and SEO does not come as a surprise to us at JJ, having implemented a number of full funnel digital strategies throughout Q4. Despite the decline of PR budgets in the final quarter, we believe that both public relations and content marketing will play an integral role, as part of a full funnel approach, in client marketing campaigns in 2018.”
Says Tom George, UK CEO, Group M and chair of the IPA Media Futures Group:
“Caution and uncertainty seem to be the watchwords when looking at the latest Bellwether report. For the main media category, there’s little difference in optimism versus last quarter’s report, so actual advertising expenditure growth of 5% for 2017 is perhaps healthier than one might expect. It’s true that that the outlook is tougher for the long-established media channels than it is for pure-play internet but with a significant increase in net balance to 11.7% for 2018/2019, we expect to see a similar growth in spend across 2018.”
Says Paul Mead, Founder & Managing Director, VCCP Media and chair of the IPA Search Group:
"Despite a weak quarter overall in terms of budgets, we continue to see money flowing into the internet and search channel. Although down from its peaks last quarter growth in these areas remains strong"
Says Patrick Reid, CEO EMEA Imagination:
“Imagination welcomes the news of a fourth consecutive year of increased experience budgets, despite the slowing pace of overall spend increases. We believe this reflects industry recognition that events & experiences super-charge brand engagement, delivering significant depth and conversion. In 2017 many of our clients increased investment to create more connected brand experiences, using immersive technology and personalised event content, amplified via social media. We expect this positive trend to increase in 2018, as brands increasingly choose to engage through transformative and magical brand experiences.”
Says Michelle Wright, Company Director, Gough Bailey Wright and IPA City Head for Birmingham and West Midlands:
“The latest results are unsurprising given the current economic climate. Not surprisingly digital is the best performing sub category, when budgets are squeezed marketing directors look for the channels that will bring the best results and the measurability of such channels makes it an obvious choice. The digital landscape changes continually and marketers are keen to trial new ideas, either with existing budgets or with budgets taken from other disciplines.
“It is promising to see some growth forecasted for 2018, which may be reflective of the importance placed on maintaining share of voice for brands. Campaigns need to be tailored and focussed in order to achieve maximum return for the budget spent. In a climate of cautious spending, there is always an opportunity for brands to push forward and acquire market share”.
The Bellwether Report is researched and published by IHS Markit on behalf of the IPA. First published on the 17th July 2000, it features original data drawn from a panel of around 300 UK marketing professionals and provides a key indicator of the health of the economy. The 8-page 17 January edition is available to purchase from the IPA website for £99+VAT (IPA members) and £140+VAT (non-members) as an immediately downloadable PDF. To sign up for an annual subscription, or to request historical data, contact email@example.com.
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Last updated 18/01/2018