In line with the trend seen since the end of 2012, UK marketing budgets were increased further during the first quarter of 2018 as marketing executives helped launch new products, bolstered events marketing and continued to enhance the role of digital platforms within their marketing strategies. This is according to the IPA’s Q1 2018 Bellwether Report released today (18 April 2018).
However, latest data revealed that growth momentum was lost amid reports of challenging market conditions and financial pressures squeezing budgets. Underlying sales were reported in some instances to be a little softer, whilst investment funds were being directed away from marketing to other business areas.
The Q1 survey indicated that 22.9% of companies benefited from an increase in their marketing budgets during the latest survey period, compared to 17.9% of companies that recorded a fall. The resulting net balance of +5.0%, down from +8.6% in the previous quarter, was the lowest recorded by the survey for two years.
Internet marketing remained best performing Bellwether category
Encouraged by positive returns from previous digital marketing campaigns, panellists continued to step-up their adoption of internet advertising during the latest quarter. The Q1 survey results indicated that internet marketing spend was raised for a thirty-fifth successive quarter at the start of 2018, albeit at a slower rate.
Whilst once again the strongest of all Bellwether categories, the net balance of +8.7% was the lowest recorded by the survey since the end of 2015. Within this category, search/SEO expenditure also grew at a slower rate, with the net balance falling to +5.6% from +12.4% in Q4 2017. Meanwhile there was a stagnation in mobile advertising observed, with an equal proportion of marketers revising their budgets up to those indicating a fall, resulting in a net balance of +0.0%, from +6.0% in Q4 2017.
Elsewhere, marketing executives continued to reap the rewards of direct engagement with current and potential clients by increasing events marketing in the first quarter of 2018. Budgets in this category have now been raised continuously for four-and-a-half years, with the respective net balance improving to +7.8% (from +5.5%).
Meanwhile, the closely watched main media advertising category, which includes big-ticket campaigns related to TV, radio and cinema, slipped into negative territory during Q1 2018. Falling from +1.7% at the end of 2017, the net balance of -2.1% meant that a negative reading was recorded for only the second time in the past five years (Q3 2016 was the previous time the net balance was below zero). Other areas to suffer budget cuts during the first quarter included market research (-3.1%, up from -5.4%), other (-3.0%, previous: -5.8%), sales promotions (-5.3%, compared to -3.0%) and direct marketing (-5.6%, from -4.5%) as marketing executives sought cost and efficiency savings to bolster spending in other areas or to balance already squeezed budgets. PR recorded a stagnation of activity (+0.0%, from
-6.6% in Q4 2017). Spending in mobile failed to rise for the first time in a year-and-a-half (+0.0%, from +6.0%).
Company financial prospects remain positive but pessimism for wider industry prospects
Company financial prospects remained in positive territory during the first quarter of 2018. Latest data showed that a net balance of +13.1% of companies have grown more optimistic over the past three months, compared to +10.6% in the previous quarter. The Q1 2018 reading was the best recorded by the survey for a year, though remained slightly below the historical trend.
When considering wider financial prospects, marketing executives remained pessimistic. The net balance of -13.6%, compared to -12.1% in the preceding quarter, was the worst outturn since the end of 2016.
Adspend set to rise by just 0.8% in 2018
Having shown some resilience during 2017 (the Bellwether’s real-terms adspend growth estimate is now 1.7%, compared to a previous estimate of 1.4%), and with OBR forecasts for GDP and consumption growth slightly stronger, the Bellwether Report has become a little more optimistic about 2018 adspend growth.
However, at 0.8% (revised from 0.3%) the Bellwether Report estimate for growth remains historically muted. It expects Brexit-related uncertainties and ongoing pressure on household finances to continue to restrain consumption and therefore adspend growth.
Bellwether expects some of these factors to persist into 2019, with adspend growth of just 0.4% forecast. However, stronger gains in adspend are anticipated for 2020-2022 in line with an expected improvement in the underlying performance of the economy.
Commenting on the latest survey:
Says Paul Bainsfair, Director General, IPA:
"Despite the slowdown, this quarter's results mark over five years of successive upward revisions to marketing budgets, signifying that regardless of external pressures - particularly Brexit uncertainties - most marketers still appreciate the value of advertising in building and maintaining their brands.
“Once again we are also seeing significant investment in internet budgets - for 35 quarters continuously – showing that in an 'always on' world, marketers are following the eyeballs. While we welcome this, it is worth remembering that the evidence shows that the most effective advertising achieves a 60:40 balance of brand building to sales activation media."
Dr Paul Smith, Director at IHS Markit and author of the Bellwether Report:
“The ongoing slowdown in marketing budget growth comes as little surprise in the context of the challenging business environment and disconnect in recent surveys between budgets and subdued financial prospects.
“Rising costs and the ongoing uncertainty that exists over the future direction of the UK economy in a post Brexit world have led to caution and belt-tightening across a number of sectors, especially those more exposed to retail and consumption.
“Despite losing clear momentum since last summer, the positive news is growth is being sustained meaning the longest bull-run in the survey history continues. Whether this can carry on remains to be seen. Although the latest survey shows anticipated growth in 2018/19, the degree of optimism is the lowest in five years.”
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 2018 can be purchased for £99+VAT for IPA members (£140+VAT for non-members).
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