The Q3 survey reveals that around 21% of the survey panel recorded an upward revision to marketing budgets during the latest survey period while 11% of companies recorded a cut to their marketing budgets. The resulting net balance of +9.9% was notably down on Q2’s +13.1% and the lowest reading since the first quarter of 2016. More significantly, however, a greater number of companies left their budgets unchanged in Q3 at 69%, versus 57% in Q2.
Marketers cited the hard to quantify impacts of the Brexit negotiations and the UK’s future departure from the EU as the primary sources of uncertainty. This was coupled with reports of reduced sales and investment and a desire to keep costs lean.
Overall budget growth driven by internet as main media advertising stagnates
The perceived advantages of cost and return of digital marketing were noted as key in driving budget growth for internet advertising – and thereby total marketing – during the third quarter of 2017. Latest data showed that a net balance of +17.0% of companies increased their internet budgets, lower than the previous quarter’s decade high of +22.7%, but nonetheless indicative of healthy expansion. Reflective of a longer-term shift, there were reports that internet marketing budgets had been increased at the cost of reduced spending on traditional print media advertising.
Within internet, marketing budgets related to search/SEO rose to a greater degree as signalled by the respective net balance improving to a seven-and-a-half year high of +16.3% (Q2: +15.6%). Mobile advertising also rose to a stronger degree in Q3 (net balance: +5.8%, from Q2’s +3.0%).
Other Bellwether categories to enjoy positive net balances during the third quarter included events (+9.4% versus +2.1% for Q2) PR (+7.2% from +2.1% in Q2) and ‘other’ (+2.3% from Q2’s -2.6%).
Perhaps reflective of ongoing uncertainty and generally slower sales growth in the third quarter, main media advertising was unchanged (net balance: 0.0%, down markedly from +9.8% in Q2 2017). Given the strong performance of internet, which forms part of the wider main media advertising category, the latest survey data subsequently implied a subdued performance for advertising related to ‘big-ticket’ areas such as cinema, TV and radio.
Stagnation of marketing budgets was also seen in the sales promotion and direct marketing categories during the third quarter (net balances of 0.0% were registered). That said, in both cases, no change in marketing budgets was a relative improvement following notable reductions seen in the preceding quarter (Q2 net balances were
-10.7% and -4.7% respectively). Posting a net balance of -2.4% (Q2: -6.2%) market research was the only Bellwether category to register a net reduction in spending during Q3.
Financial prospects remain underwhelming
When asked to consider their optimism regarding financial prospects for their industry compared to three months ago, nearly 24% of UK marketers were less confident, compared to around 15% that had become more optimistic. Although the resulting net balance of -8.2% was an improvement on the -12.6% seen during Q2, latest data marked the seventh successive quarter that a negative net balance has been registered.
Companies were a little bit more optimistic about their own financial prospects in Q3 2017. Just over 29% of the survey panel have grown more confident, compared to 18% that are less optimistic, with the respective net balance of +11.1% up slightly on the 18-quarter low of +9.8% in Q2. However, optimism remains historically subdued and well below the post financial-crisis average.
Muted growth in adpsend predicted for 2017
Reflective of the uncertainty associated with Brexit, and the adverse effect this is having on business investment, the Bellwether Report predicts only a muted increase in adspend for 2017 (0.6%). This subdued view is supported by current business survey data which is showing the economy growing at just 0.3% in the third quarter as sectors exposed to changes in large scale investment such as construction struggled in September.
With the economy expected to slow further in 2018 (GDP growth is forecast at just 1.6%, undermined by a weak increase in consumer spending), Bellwether currently anticipates a stagnation of adpsend in 2018. As investment, consumption and wider growth improve in 2019/2020, adspend is forecast to rise at similarly quicker rates, with predicted increases in adspend of 1.8% and 2.3% respectively in 2019 and 2020.
Says Paul Bainsfair, IPA Director General:
"What strikes us most from this quarter’s report is the extent to which UK companies – and their marketing budgets – are caught up in wider economic and geo-political uncertainty. The vast majority are in a seeming state of paralysis, reflected in the fact that almost 70% of UK marketers haven’t revised their budgets one way or another from this quarter to last.
“Recent evidence has revealed that the most effective way to attract more customers is through increasing market penetration. Furthermore, the most effective approach to achieving this is through using a 60:40 ratio of brand-building, mass media, supported by more targeted sales activation media. So while we acknowledge the benefits of internet advertising and welcome the growth in internet advertising budgets, we wouldn’t recommend sole investment in online at the expense of offline. A careful balance is required.”
Says Dr Paul Smith, Director at IHS Markit and author of the Bellwether Report:
“The latest Bellwether survey was characterised by uncertainty, which is reported to be weighing on investment and household spending. The net result has been relatively sluggish sales growth, with companies responding by adopting a more cautious approach, in many cases freezing budgets at levels recorded three months ago.
“Looking ahead, financial prospects remain broadly subdued as concerns about Brexit continue to weigh on sentiment. Combined with ongoing squeezes on spending from rising costs, these headwinds are likely to continue to undermine growth in the final quarter of 2017.”
For the wider industry reaction, including from the PR, search and industry sectors click here.
*net balance is calculated by subtracting the percentage reporting a downward revision from the percentage reporting an upward revision.
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 18 October 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 firstname.lastname@example.org.
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Last updated 18/10/2017