Q1 2019 Bellwether Report: Marketing budgets bounce back

UK companies revised their marketing budgets up markedly in Q1 2019 in stark contrast to recent trends where growth momentum had been easing and culminated with a stagnation at the end of last year. This is according to the Q1 2019 IPA Bellwether Report, published today (17 April 2019).

Q1 2019 Bellwether Report: Marketing budgets bounce back

The net balance of marketing executives reporting upwardly revised budgets increased to +8.7% in Q1, up from a +0.0% reading for the final quarter of 2018 and the highest since Q3 2017. Around 21.6% of panel members observed spending growth, compared to 12.8% registering budget cuts.

While the Brexit uncertainty that is shrouded over the UK’s political and economic climate continued to prompt belt-tightening and a delay in decision-making, other companies took a more pro-active approach and looked to push resources into their brands, enhancing digital marketing methods and expanding presence on social media platforms.

Firms were also wary of rising competitive pressures, leading some to diversify product offerings as part of efforts to enter new markets and attract new clients. As such, there were reports of boosting marketing spend as a defensive mechanism to protect brand reputation.

Nevertheless, unfavourable global economic conditions, coupled with fears of falling business and consumer confidence prompted caution over discretionary spending in some cases.

Marketers invest in internet, main media and events

The best performing category of the Bellwether survey was internet, which saw its net balance jump from +2.1% to +17.2%. Firms showed a strong appetite to enhance their digital footprints, with Search/SEO spending (+14.2% from -3.9%), as well as targeted advertising on mobile (+3.6% from -2.4%) all receiving boosts. A renewed drive for big-ticket advertising campaigns was also apparent during the opening quarter of 2019, with main media marketing returning to growth (+5.2% from -6.2%). Events was the third and final Bellwether category to register expenditure growth (+3.4% from +2.6%).

However, market research, sales promotions and direct marketing budgets were all revised lower during Q1, with net balances of -4.2% (from -4.7%), -3.7% (from +3.8%) and -3.5% (from -5.6%) respectively.

2019/20 budget forecasts most subdued since 2009

Marketing executives erred on the side of caution with their forecasts for marketing spend for the 2019/20 financial year. A modest net balance of +3.4% anticipate budgets to grow during this period, which was notably weaker than past forecasts made before a new financial year and the lowest since 2009.
Although approximately 26% of panellists foresee growth, the remaining 74% expect cuts or no change. Compared to this time last year, a net balance of +18% of firms anticipated budget growth for the 2018/19 period.

Positive expectations were centred on main media marketing campaigns and advertising at events, which yielded net balances of +4.8% and +2.5% respectively. Some companies expect that brand-building initiatives seen during the most recent quarter will continue through the coming financial year, as they look to defend their brand and stave off tough competitive pressures. Plans to launch new products in some instances were also seen as opportunities for marketing budget growth.

Nevertheless, firms were much more downbeat for the remaining Bellwether categories. Negative outlooks were recorded for other marketing (-13.1%), PR (-7.0%), sales promotions (-5.3%), market research (-4.0%) and direct marketing (-1.8%).

Marketers’ confidence levels remain significantly negative

Following the first downbeat outlook towards own company financial prospects since Q3 2012 during the previous Bellwether survey, latest data showed no signs of an improvement. A net balance of -2.7% of surveyed marketing executives indicated a pessimistic assessment towards their company’s finances, compared to -0.9% during the final quarter of 2018, thereby indicating a stronger degree of negativity.

Industry-wide financial prospects also remained pessimistic during the first quarter. Although the net balance of firms casting a downbeat assessment was slightly lower than previously, registering -22.6% (- 28.6% in Q4 2018), it still signalled one of the most negative industry-wide outlooks since the global financial crisis.

Adspend forecasts for 2019 revised lower

With the Office for Budget Responsibility (OBR) releasing new forecasts in March, the IPA Bellwether Report has revised its expectations for adspend growth over the coming forecast horizon.

The OBR downwardly revised its growth projections for 2019 by 0.4 percentage points since October (previously 1.6%), reflecting weaker growth forecasts for consumer spending and expectations of reduced business investment. As such, the Bellwether Report is forecasting a modest 1.1% annual expansion to adspend this year, compared to 1.3% previously. This downgrade reflects the challenging environment caused by Brexit uncertainty, slowing global growth and rising competitive pressures.

Nevertheless, under the assumption of restored business and consumer confidence once future UKEU relations become clearer, investment and consumption are expected to bounceback. The OBR has revised up its consumer spending and capex projections for the forecast period from 2020 through to 2023. Increased expenditure by consumers and businesses alike should bring renewed opportunities for marketing. The Bellwether Report’s adspend growth estimates for this period have also subsequently been revised higher.

Commenting on the latest survey:

Paul Bainsfair, IPA Director General:

"This sharp increase following Q4 2018’s flatlining signals that UK marketing budgets have received a much-needed kiss of life in an economy gripped by Brexit uncertainty. The smart marketers realise that to grow their businesses, they must invest in them, particularly in mass reach, long-term media. While the forecast for the year ahead remains uncertain given the seemingly endless Brexit negotiations, those that want real competitive advantage should follow the proven rule that if you increase your share of voice above your share of market, you should expect to experience growth."

Joe Hayes, Economist at IHS Markit and author of the Bellwether Report:

"A return to growth in marketing budgets during the opening quarter of 2019 may come as a surprise given the uncertainty that shrouds the UK political and economic climate has only built further since the previous Bellwether Report. However, some companies began to show a determination to step up brand-building and protection in these challenging times, taking a pro-active, yet defensive approach in the face of business belt-tightening and weakening consumer confidence. That said, cautious undertones were still apparent in budget plans for the 2019/20 financial year, with panellists providing only modest growth expectations in available marketing spend. In fact, the outlook was the most subdued since 2009."

Tom George, CEO, Group M UK and Chair, IPA Media Futures Group

“Given the continuing economic uncertainty surrounding Brexit, it may appear surprising that the latest Bellwether reports an upturn versus the last quarter 0f 2018. Although our own GroupM forecasts also point to growth in UK advertising expenditure in 2019 albeit at a slightly lower level at around 5%. versus 6% growth in 2018.

"Pure-play internet advertising’s ability to more precisely target has driven performance marketing’s share of total budgets so it comes as no surprise, in uncertain economic times, that the survey reports increases in sentiment for search, SEO and targeted mobile advertising. The improvement in sentiment for the main media channels is evidence, perhaps, that our industry’s message of the importance in investment in long-term brand building, particularly in difficult times, is being heard and that both short-term and long-term strategies are needed to drive brand growth."

James Goddard, Chief Executive, JJ Marketing:

"What to do in challenging times? Sit back and let it all happen or face it head-on and get your brand out there? The rise in marketing budgets certainty suggests the latter is the case for many organisations. Continuing to expect the unexpected and being ready to react and adapt are necessary parts of the current marketing landscape. The last 12 months have shown us the importance of this and, with the Brexit saga now seemingly destined to drag on for months, being on the front foot remains an effective way for brands to deal with whatever is around the corner."

Patrick Reid, Group CEO, Imagination:

"Through periods of economic uncertainty, experience continues to grow as brands look to create more meaningful connections with customers. We believe in the power of experience to transform behaviour, they provide a platform to truly change how people feel, think and act. At Imagination, we’re continuing to invest in technology and strategic partnerships, to create the experiences of the future."

James Pais, IPA Scotland Chair and Creative Services Director, Frame:

“The uncertainty of the Brexit uncertainty is becoming more uncertain, and now we have more time to be uncertain. I am certainly losing track. The Q1 2019 Bellwether Report, however, has some surprising revelations - most notably an increase in growth of marketing budgets. It is also as if some companies took heed of Paul Bainsfair's comments in the Q4 Report that marketers need to be bold and businesses need to step up brand building.

"This Q1 Report has shown that companies have taken a more proactive approach and looked to push resources into their brands; enhancing digital marketing methods and a more prevalent presence on social media platforms; which is all very encouraging. Even more optimistic is the notion that some firms are spending more on on marketing and advertising and launching and developing new products. Now don’t get me wrong, there are some threats and negativity referred to in the report, but I am a glass half-full type of guy so let's reflect on the positive."

For additional information, please purchase the full report which also has content detailing threats and opportunities facing marketers and their companies over the coming 12 months. The report also includes charts comparing business confidence amongst survey panellists to wider economic output, which depicts how views on financial prospects are a function of the current business environment. A downloadable PDF for Q1 2019 can be purchased for £99+VAT for IPA members (£140+VAT for non-members). Annual subscription is also available by contacting economics@ihsmarkit.com

Last updated 21 January 2022