Q3 2018 Bellwether Report reveals weaker growth in marketing budgets

Total marketing budgets were revised higher during the third quarter of 2018, extending the current period of growth to six years, but to the weakest extent in almost three years. This is according to the Q3 IPA Bellwether Report, published today (17 October 2018).

Q3 2018 Bellwether Report reveals weaker growth in marketing budgets

Budget growth weakens to near three-year low

Almost 21% of panel members revised total marketing budgets up in Q3, while around 18% observed a decline in spending plans, yielding an overall net balance of +2.5%. Although positive overall, latest data signalled the weakest growth in total marketing budgets since the fourth quarter of 2015, with the net balance down from +6.5% in Q2 2018.

Drive towards digital marketing continues

An increasing onus on firms to engage in digital forms of advertising drove yet another strong quarterly expansion in internet-based marketing during Q3, as signalled by a +13.6% net balance of firms observing upward budget revisions. The finer details also revealed that search/SEO and mobile marketing budgets also received boosts (net balance of +5.8% and +1.9% reporting higher expenditure respectively).

Marketing executives were again given more discretion over spending plans on large scale marketing campaigns, such as those relating to TV, radio or cinema. The net balance of firms observing budget increases for main media advertising was broadly unchanged from the preceding quarter at +4.9% (+4.8% in Q2).

Elsewhere, other categories of the Bellwether survey to record budget growth included PR (+4.2%) and sales promotions (+0.6%).

On the other hand, marketing executives noted downward revisions to budgets for events marketing (-1.1%), market research (-3.7%), direct marketing (-7.4%) and ‘other’ marketing (-9.9%).

Industry-wide financial prospects deteriorate notably in Q3

As part of the Bellwether survey, panellists were asked about their assessment of financial prospects for their own companies and then for their industry as a whole. A net balance of +5.7% were optimistic towards their own company’s outlook, compared to three months ago. Although this signals a general upbeat view, it was notably weaker than that seen in Q2 (+13.3%) and the most downbeat assessment in six years.

Casting their views for the wider-industry, panellists were substantially more pessimistic than in recent surveys. The net balance fell in Q3 to -21.0%, from -9.0% in the second quarter, signalling the strongest level of negative sentiment since Q4 2011 (-44.9%).

Modest adspend forecasts for 2018 and 2019

With the Office for Budget Responsibility (OBR) yet to revise their forecasts for the UK economy since the Q2 Bellwether survey, the Report’s UK adspend growth projections are unchanged.

The Bellwether estimates adspend to rise 1.1% on the year. A lack of clarity over the UK’s future relationship with the EU after Brexit, alongside rising cost pressures, will both act as drags on marketing expenditure.

Looking to 2019, aside from the Brexit-related risks, headwinds to adspend growth are expected to come in the form of slower growth and muted consumer spending. As such, Bellwether estimates adspend growth of 0.7% for next year, but a pick-up in growth momentum from 2020 through to 2022 supports the view that advertising expenditure will improve at a quicker rate at the start of the next decade.

Commenting on the latest survey:

Paul Bainsfair, Director General, IPA:

"With ongoing Brexit uncertainty, it is perhaps no wonder that companies are having to be more cautious with their marketing spend and are inevitably increasingly downcast about their financial prospects.

“Despite this, however, we must take some solace in the fact that investment in main media spend is fairly constant quarter-on-quarter. As the evidence shows, main media is the most effective route to building brands.

“At a time when just under two-thirds are pressing pause on their marketing spend, perhaps this provides an opportunity for others to get cut-through and see whether fortune really does favour the brave."

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

“Since the end of 2016, there has been a distinct slowing of growth momentum in UK marketing budgets. Latest Bellwether data revealed further sluggishness, as growing uncertainty towards the UK economy’s outlook as well as rising cost and competitive pressures impact companies’ discretionary spending. Over 60% of the survey panel observed no change in total marketing spend, highlighting indecisiveness and risk-aversion.

“The outlook over the coming three months signalled further woes, with panellists’ assessment of industry-wide financial prospects at the most pessimistic since the end of 2011.

“Nonetheless, marketing executives are still being allocated greater expenditure, particularly in the digital space. Strong competition is driving firms to explore new innovative methods to bolster market shares and retain existing clients.”

Further industry reaction:

James Goddard Chief Executive, JJ Marketing:

“While there are signs of uncertainty throughout the broader industry, the increase in PR budgets is a sign of the times. There is a clear crossover between PR and disciplines such as content marketing. However, there’s also a significant need to incorporate PR into a wider marketing strategy and to consider better ways of measuring its effectiveness. Above all perhaps, creativity and innovative thinking are a must when trying to achieve cut-through among an ever-increasing range of media and influencers. While traditional media can’t be ignored, simply distributing a press release and making a few follow-up calls is often not enough. More intelligent thinking is a crucial part of PR  - and that’s reflected in an upturn in budgets.”

Pete Robins, Managing Partner, Agenda21 and chair of the IPA Digital Media Group:

“As anticipated the report shows the pressure felt on budgets. Digital activity has nearly become the norm, and maybe the go-to media for shorter term, less risk driven media given the amount that is biddable. Interesting that discoverability across all forms of search especially on mobile devices has correctly been identified as important, whether it be a brand defence mechanic right through to product innovation or market diversification."

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

“Uncertainty, pessimism and muted adspend forecasts for the remainder of 2018 and 2019 are the key takeouts of the Q3 Bellwether report, mostly spurred by the implications and lack of clarity surrounding Brexit. There is a slowing in UK marketing budgets, and a general sense of risk aversion, however, all is not total doom and gloom, there is still a continued increase in both PR and digital marketing. Also the prospects open to us with the adoption of digital technology for marketing purposes will drive new innovations with automated processing and AI technology resulting in an expected help to supporting business growth. The Bellwether reports for Q4 and Q1 in 2019 will make for some interesting reading, hopefully by then the ambiguity of Brexit will be resolved and we can look forward to a pick-up in advertising expenditure and growth… or perhaps not, watch this space!”

For additional information, please purchase the full Report that 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.

downloadable PDF for Q3 2018 can be purchased for £99+VAT for IPA members (£140+VAT for non-members). Annual subscription is also available by contacting economics@ihsmarkit.com