Companies’ total UK marketing budget growth is at its strongest since Q2 2022, despite an intensely challenging economic environment both domestically and globally. This is according to the Q1 2023 IPA Bellwether Report.
The data reveals the net balance of firms registering upward revisions to their marketing budgets in Q1 2023 is +8.2%, considerably higher than the +2.2% recorded in Q4 2022. While 21.1% of firms saw an expansion, 12.9% of firms registered budget cuts and around two-thirds (66.0%) recorded no change in spending.
Main media marketing, which includes online advertising activity and budgets for big-ticket campaigns on TV, recorded its strongest expansion in spending since Q1 2022 (net balance of +5.8%, from +4.4%). The breakdown of this category showed continued marked expansions in other online (+10.5%, from +6.3%) and video (+7.9%, from +13.7%), and a renewed upturn in audio (+1.7%, from 0.0%). Published brands (-1.9%, from -3.9%) and out of home (-12.4%, from -8.8%) were, however, drags on main media in Q1,.
Sales promotions budgets returned to expansion in Q1 (net balance of +8.8%, from -4.0%), rising at the strongest pace in nearly two decades as companies dedicated more resources to supporting their customers through the cost-of-living crisis. Another round of budget growth was also seen for events (net balance of +6.3%, from +5.7%) as marketing executives look to re-engage with new and prospective clients face-to-face. Direct marketing spending also rose at the start of the year (net balance of +4.2%, from -0.6%).
The remaining categories all recorded budget cuts, led by other marketing activity not already accounted for (net balance of -5.8%, from -10.1%), although declines eased in each case. A net balance of -0.6% of firms cut their PR budgets (from -1.9%), while a modest reduction was seen in market research spending (net balance of -3.2%, from -8.8%).
Finalised data showing Bellwether firms’ expectations towards their marketing budgets for the 2023/24 financial period were strongly positive, in line with the findings from the preliminary estimates collected at the end of last year. More than a third (36.6%) of respondents foresee greater total marketing spend in real terms in the year ahead, compared with 16.9% anticipating cuts. This yielded a strongly positive net balance of +19.8%.
Firms’ appetite to engage in face-to-face marketing activities remained strong. A net balance of +14.5% of companies expect events marketing spend to rise in 2023/24, the greatest level of optimism among the seven categories where budget plans are monitored. Bullish budget setting was also recorded in main media advertising (net balance of +13.5%), suggesting that companies plan to use marketing tools to combat a potential period of economic turbulence.
Sales promotions budgets are also set to rise in 2023/24, a sign that firms plans to provide support to cash-strapped customers (net balance of +6.3%), while direct marketing was the final monitored category where budget expectations were positive (net balance of +1.4%).
Budgets reserved for PR and other marketing activities are expected to be unchanged in 2023/24 (net balances of 0.0%), while market research was the only segment where budgets are set to be reduced (net balance of 0.7%).
Amid some recent signs of easing cost pressures, latest Bellwether data signalled a fresh sense of optimism among panellists regarding their own company financial prospects. This was indicated by a net balance of +7.0% of firms that were optimistic towards their business outlook (vs a net balance of -17.2% previously).
Meanwhile at the industry-wide level, Bellwether panel members remained pessimistic towards the financial outlook compared to three months ago. However, while still offsetting the proportion who had grown in confidence (15.7%), 22.8% of companies were downbeat in their assessment (down from 41.8% previously). The resulting net balance of -7.1% signalled the weakest degree of negativity in a year and compared with a reading of -33.2% previously.
Bellwether authors, S&P Global’s forecast for the UK economy has been modestly upgraded, with GDP in 2023 expected to decline by -0.2%, instead of the -0.8% anticipated in the last Bellwether Report. However, households continue to face shrinking purchasing power due to high inflation and borrowing costs, which will weigh heavily on the economy. The Bellwether therefore forecasts a small decline of -0.9% (vs. -0.3% previously) in adspend this year, a marginal improvement in adspend next year of 0.5% (1.2% previously), before expected growth to 1.6%, 2.0% and 2.2% in 2025, 2026 and 2027 respectively.
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"This is a positive start to the financial year for marketing budgets, all things considered, The overall increase in confidence from UK companies regarding their financial prospects is being reflected in their marketing budget decision making.
"As the cost-of-living crisis continues, it is understandable for companies to offer sales promotions to help their customers’ tightened purse strings. To ensure brand loyalty isn’t eroded and to protect the long-term health of their brands, however, such activity must be coupled with investment in longer-term brand building media. We are pleased, therefore, to see that while investment in sales promotion activity has spiked this quarter, investment in main media advertising was revised up to its strongest level since this time last year."
"The latest Bellwether survey once again highlights the resilience of UK businesses who have endured both a pandemic and a period of plunging consumer confidence and multi-decade high inflation. Total marketing budget growth broadened out during the opening quarter, showing that more companies are tapping into their marketing resources to help them successfully navigate through economic turbulence."
"As we see increasing resilience in marketing budgets and UK businesses recognising the need to support their brands – no matter what the broader economic headwinds – many aspects of marketing activities are holding their own or growing.
"Within that mix, events and experiences are faring particularly well – a net 6.3% growth on current budgets and a forecast of 14.5% for 23/24 budgets. This illustrates marketers’ understanding of the power of in-person elements within hybrid brand experiences and the increased focus on using experiences to reach existing and new potential customers."
"The welcome green shoots of total marketing budget growth demonstrate the resilience of UK businesses and point to a cautiously optimistic outlook. Within Market Research, despite a negative net balance of -0.7%, the softest reduction in budget contraction for five quarters hints at increasing confidence in the sector."
"Against a backdrop of consumer and economic frailty, it remains encouraging to see net growth in total marketing budgets. With marketing spending growth at its strongest since Q2 2022, including an increase in main media advertising budgets. Brands that are seizing opportunities to appeal to new audiences and grow market share may also be fuelling the optimism we see in expected increases to total marketing spend in the year ahead."
"Given the continuing economic backdrop, it was heartening to see a net balance of 8.2% companies recording an upward revision to marketing spend. Main Media spend was up (net balance +5.8%), driven by online and video but interesting to see OOH spend revised down (net balance -12.4%) which may indicate continued short-term planning. Employment prospects seem to be on the rise again with a net balance of +16.7% of businesses anticipating increases in staff which could put pressure again on the labour market- one to watch."
"It’s encouraging to see the positive shift in forecasted marketing budgets (albeit with market challenges in place), and the recognition of the need to invest in brands to drive sustainable growth. The reported rise in main media advertising, re-imagined events and sales promotion will require a strong collaborative approach between partner agencies, ensuring that the creative platform / big idea is effectively translated and maximised across the various consumer media connections and touchpoints."
"So far, so positive! Marketers are continuing to invest through the downturn. One watch out though: plan revisions appear to be down weighting brand investments and shifting towards sales promotion. Consumers will welcome sales promotions, as inflation keeps prices high. However, neglecting brand investment for short term gains is a risky business. Let’s hope pricing for the moment does not over-power building for tomorrow."
For additional information, please purchase the full Q1 2023 report (£99+VAT for IPA members, £140+VAT for non-members) that also has content detailing threats and opportunities facing marketers and their companies over the coming 12 months. The report includes charts comparing business confidence among survey panellists to wider economic output, which depicts how views on financial prospects are a function of the current business environment. Annual subscriptions are available by contacting economics@ihsmarkit.com