With the Brexit transition period drawing to a close and COVID-19 continuing to wreak havoc across the global economy, UK marketing executives saw another sharp decline in advertising budgets during the final quarter of 2020, according to the Q4 2020 IPA Bellwether Report.
A net balance of -24.0% of Bellwether panellists recorded a contraction in marketing budgets during the latest survey period. Overall, only 16.4% of firms noted an increase in available funds, which was heavily outweighed by the 40.4% that experienced a decline. Although marked overall, the latest reduction in budgets was much weaker than those recorded in both the second (-50.7%) and third (-41%) quarters, when the economic impact of COVID-19 was most severe.
Although the impact of the virus was not quite as marked as earlier in the year, it was still the main reported reason for cuts to adspending in the final months of 2020. Although businesses have continued to adapt to new market conditions and changing government restrictions, anecdotal evidence indicated that cost cutting was widespread and that marketing budgets continued to suffer as a result.
Broken down by marketing category, Events budgets were the most severely impacted in the latest survey period, with a net balance of -62.9% of firms recording a decrease in available spend (-64.1% in Q3). Budgets for Other marketing (-29.6% vs -40.2% in Q3), Sales Promotions (-26.5% vs 36.0% in Q3), Market Research (-25.0% vs -32.6% in Q3), Main Media Advertising (21.8% vs -25.3% in Q3), Direct Marketing (-13.9% vs -25.3% in Q3) and Public Relations (-8.5% vs -31.4% in Q3) also continued to fall during the final quarter. Breaking down the Main Media Advertising category, Out of home remained the worst performing category at -36.7% (up from -50.0% in Q3); followed by published brands at -29.0% (up from -38.5% in Q3); Audio at -21.6% (up from -32.0% in Q3); and Video at -3.5% (up from -16.1%). Other online was the only category within Main Media to record a positive net balance revision, at +0.7%, up from -6.5% in Q3.
The preliminary outlook for adspending in 2021/2022 suggests that budgets are likely to recover in the next financial year. A net balance of +12.0% of firms expect their total marketing budgets to be upwardly revised. If realised they would represent a significant turnaround from the steep declines seen throughout 2020.
Of the seven broad marketing categories, expectations for next year are strongest in Main Media Advertising, where a net balance of +4.6% of firms anticipate higher adspending. Panel members also expect a rise in budgets related Direct Marketing (net balance of +3.3%) and Public Relations (+3.2%). The remaining four types of marketing are expected to see further declines, with forecasts regarding Events spending the most subdued (-30.9%), followed by Other marketing (-6.2%), Market Research (-4.7%) and Sales Promotions (-3.7%) respectively.
Sentiment regarding own-company financial prospects improves, while industry-wide outlook continues to deteriorate
As has been the case in each quarter since the start of 2016, panellists were pessimistic towards industry-wide financial prospects in the closing months of 2020. This was indicated by a net balance of -5.8% of firms that expected financial prospects to deteriorate over the coming year. That said, the degree of negativity eased to the softest since the opening quarter of 2017 (-5.7%) and was far weaker than the historic lows registered in the first three quarters of 2020 (Q3: -31.3%; Q2: -66.0%; Q1: -42.0%). Overall, around a quarter (25.1%) of Bellwether panellists were more optimistic on industry-wide financial prospects compared to three months ago, while 31.0% were less so.
In contrast, there was increasing optimism among firms regarding own-company financial prospects in the latest survey period. A net balance of +18.1% of firms were more confident of an improvement compared to three months ago (Q3: -3.9%), marking the first positive outlook since the end of 2019. The result followed severely negative readings in the first half of 2020 when COVID-19 lockdown measures were first introduced (Q2: -55.1% and Q1: -26.0%).
Robust recovery in adspending forecast for 2021
Following lockdown periods and other strict public health measures driven by the COVID-19 pandemic, and the subsequent disruption to economic activity, IHS Markit anticipates a -11.6% decline in GDP during 2020. Economic performance was particularly hampered by an extremely weak second quarter, in which many businesses were temporarily closed to help stem the spread of the virus. It also anticipates severe declines in both consumer spending (-15.6%) and business investment (-12.7%). These figures correspond to a -17.8% decrease in Adspending during 2020.
Following the development and approval of COVID-19 vaccines, as well as the swift commencement of immunisation programmes, the outlook for the next few years is far more positive. IHS Markit therefore expects a +3.5% expansion of GDP in 2021, predominantly supported by strong growth in the second half of the year, followed by a +4.9% increase in 2022. Assuming that economic conditions recover as expected, it anticipates robust adspending growth of +6.9% and +6.2% in 2021 and 2022 respectively, before a steady trend towards long-term rates. Downside risks to these positive forecasts include possible delays in the UK’s vaccine rollout and slow uptake of immunisation programmes in other countries which could hinder trade.
Commenting on the latest survey:
Paul Bainsfair, IPA Director General:
"It is no surprise that Q4 sees UK marketing budgets remain in negative territory. We are still in the grip of the pandemic and the impact of Brexit is uncertain, with some marketers citing concerns regarding the potential for tariffs, and increased paperwork, delays and costs. While the situation remains bleak for now, the Q4 2020 Report does, however, reveal significant promise of green shoots ahead. Budget plans for 2021/2022 are into positive territory.
As the vaccination roll-out continues, as the lockdowns begin to ease and as firms adapt to post-Brexit rules, perhaps we can dare to ready ourselves for the roaring twenties after all. Those brands that have withstood the storm, kept their voices heard and their subsequent market share up, will be the ones consumers turn to first in the good times.
Eliot Kerr, Economist at IHS Markit and author of the Bellwether Report:
"Although advertising budgets continued to fall sharply at the end of 2020, it was promising that the rate of decline continued to soften following the unprecedented contraction during the second quarter. Firms are now looking forward to a recovery in domestic economic conditions, which will likely begin in the second half of 2021 as the UK’s coronavirus vaccination programme starts to take effect. As such, businesses are now forecasting an increase in total marketing budgets for 2021/2022, although growth will likely be limited to certain areas. Given the current COVID-19 restrictions in the UK, that could last for several more months, it is unlikely that categories such as Events spending will start to grow. The recovery in those areas is more likely to begin in 2022, when we hope that the current economic climate is nothing more than a distant memory."
Michelle Wright, MD, Gough Bailey Wright and IPA Chair for England & Wales:
"The pandemic continues to have a negative effect on marketing spend and this was evident in the last quarter of the year, with the events industry not surprisingly taking the biggest hit which looks set to continue into the next financial year. The report does however point to some recovery of budgets forecasted in the Main Media Advertising, Direct Marketing, and PR areas respectively, in the next financial year.
"It’s good to see a general increase in confidence from firms about their own financial prospects, and assuming a smooth roll-out of the vaccine the report points to a more positive 2021/22. IPA agencies will continue to encourage brands that are riding the storm to invest in their share of voice, as this will ensure that they are above the competition when consumer spending recovers."
Sean Feast, Director and Co-owner of Gravity Global:
"The latest figures confirm that while certain sectors have reduced spend or stopped spending altogether - for example in hospitality or transport - it is not an exact science and there are no absolutes. Some have increased their spend conscious, no doubt, of the need to maintain communications with key stakeholders through these difficult times. New business volumes are especially encouraging and across a hugely diverse range of sectors, which is keeping us all keen, but while the latest statistics suggest things are improving (though still negative), the vicissitudes of this pandemic and its impact mean it's likely to be a lumpy year."
David Fletcher, Chief Data Officer, Wavemaker UK:
"It's easy to excuse the declining fortunes for market research as a response to the 'war-footing' of the pandemic and the continuing uncertainties around easing of lockdown restrictions. But it also suggests an urgent need for practitioners to adapt and innovate in approaches that will satisfy marketers' needs for real world insight that will help chart exceptional growth as the pandemic subsides. If we can't make insight relevant now, when will we?"
For additional information, please purchase the full Q4 2020 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 subscription is available by contacting economics@ihsmarkit.com
Purchase the Q4 2020 Bellwether Report
Last updated 01 May 2024