For the first time since 2013, the IPA Bellwether report is predicting a fall in adspend and has significantly downgraded its forecasts for 2017 as a direct result of the wavering confidence and wider uncertainty caused by the UK’s decision to leave the EU.
Before the second-quarter, Bellwether had predicted +3.3 per cent and +2.7 per cent growth for 2016 and 2017 respectively. Now, that has been revised and a fall to -0.2 per cent for 2016 and -1.3 per cent for 2017 is expected. Warnings of such a drop were apparent in the immediate aftermath of the referendum when agencies told The Drum that their clients were already either pausing or pulling ad spend.
“While the uncertainty in the economy caused by the vote to leave Europe continues to linger, we will experience an inevitable period of flux - as reflected in the Bellwether’s downgrading of adspend forecasts,” said Paul Bainsfair, IPA Director General.
It sums up what has been a mixed quarter for marketers. The IPA Bellwether survey was conducted before the vote to leave the EU was made on the 23 June and it found that while there was uncertainty, there was a rise in the number of companies who would be increasing marketing budgets. A net balance of +10.7 per cent of marketers upped their budgets in the second quarter, up from the +3 per cent in the first quarter and the highest reading for a year.
Events, internet and main media advertising were the main beneficiaries of upwards revisions while cuts for market research, sales promotion and direct marketing was noted.
“Things were looking very positive just a month ago and that’s reflected in the Bellwether forecast. But taper that enthusiasm with the chilling thought that we still don’t really know the impact of Brexit, other than the fact the British will rally as we always have done," said Nick Fox, founding partner at Atomic London
Indeed, this seeming positivity was coupled with a record 68 per cent of marketers who signaled a freezing of their budgets, cementing the fact that Brexit uncertainty was impacting on decision-making long before the outcome of the vote was known.
Time will tell how this caution inevitably affects agencies in the long-term. Jonathan Barnard, head of forecasting at Zenith said it expects the Brexit result to have little immediate impact on the ad market and that its clients – which include RBS, Toyota and Costa – said prior to the vote that they didn’t plan to revise budgets in the event of an exit but will be monitoring the economy for signs of slowdown in demand.
However, Barnard went on to said: “These signs are likely to become more evident over the next few months, as uncertainty causes companies to scale back investment, and consumers to postpone big spending decisions. I would not be surprised to see some Brexit-related adspend cuts before the end of the year.”
It's a point Helen McRae, chief executive for UK and Western Europe at Mindshare agreed on: We haven’t seen any changes in spends really but I think it’s because everyone is still waiting to see how Brexit plays out. I would think that 2017 might see some downturn if businesses start to feel pressure on their own businesses (increasing costs, etc)."
For now, the IPA is reminding marketers that companies which invest during a downturn in perform better financially than those that that cut. “We may be in uncertain times but we can be sure of the ways in which marketing can transform brands and boost company profits. It is therefore more imperative than ever that both agencies and clients continue to trust in the value of their ideas, skills and inventiveness,” said Bainsfair.
Digital media are likely to do better in any slowdown than traditional media, because data-driven digital advertising provides more concrete evidence of return on investment. But this in turn will highlight advertisers’ requirements for reassurance on problems of viewability, fraud and ad blocking.
Discussing the future of the UK's advertising industry post-Brexit, Johnny Hornby, chief executive of The&Partnership anticipated greater experimentation with the channels on marketers' media plans as they syphon more ad pounds towards figuring out the areas they can eventually guarantee a return from.
“Whereas 15 years ago you’d be saying ‘are we going to spend big on TV’ if you were a traditional big FMCG marketer now I think we’ll be saying as an industry ‘why don’t we see what opportunities there are [elsewhere] – lets develop content marketing strategies with strong analytics and if we’re putting money into Instagram for example and [if] that’s delivering the returns we want then let’s put more in,” he said.
It's a point echoed by Mark Jackson, UK managing director at MC&C who said the upshot of Brexit - and indeed the IPA Bellwether predictions - is the opportunity to to re-evaluate the way budgets are spent and take a more performance-driven approach to advertising.
"This will enable agencies to weather any storm cause by Brexit, and come out the other side with better working relationships with their clients. The simple fact of the matter is that the tools and technologies are there to take a much more targeted approach to the way that we buy media, and produce increasingly efficient results for brands. Agencies that don’t operate in this way, however, run the risk of feeling any financial implications that could arise from the uncertainty of Brexit”.