The Institute Practitioners in Advertising's (IPA)’s latest Bellwether report has indicated that the majority of UK marketing budgets have been “paralysed” by Brexit uncertainty over the past three months. However, the wider industry remains buoyant about the long-term outlook – particularly when it comes to digital growth.
The quarterly report, which features original data drawn from a panel of around 300 UK marketing professionals, that almost 70% of marketers have not recorded any change to their budgets since Q2 of this year.
Increases to marketing budgets have been impinged by the “hard to quantify” impact of Brexit negotiations, according to marketers.
In Q3, around 21% of the survey panel noted an upward revision to marketing budgets during the latest survey period, 11% of companies recorded a cut; resulting in a net balance of +9.9% which was notably down on Q2’s +13.1% and the weakest quarterly increase since 2016.
Meanwhile, uncertainty undermined gains with a high number of companies leaving budgets unchanged in Q3 at 69%, versus 57% in Q2.
While the latest figures appear to be informed largely by jitters around Britain's exit from the EU, other factors like squeezes on spending from giants like P&G and Unilever are continuing to weigh on sentiment as a tumultuous year for the industry enters it’s final quarter.
Charlie Rudd, chief executive of Ogilvy & Mather London, said that he is in no doubt the Brexit decision and resulting negeotation process is having an “adverse” effect on UK marketing sentiment. The results of this, he argued, such as increased import cost for manufacturing clients, dented consumer spend and inflation are having a domino effect on industry budgets.
“Although we're not yet at a 'cliff-edge' moment in marketing spend, there is more caution going into 2018 than we had this time last year and significantly more than existed pre-23 June 2016,” he added.
With the economy expected to slow further in 2018, with GDP growth forecast at just 1.6%, undermined by a weak increase in consumer spending, the IPA has predicted a stagnation of adspend next year, however it has penciled in a muted increase in adspend for 2017 at 0.6%.
State of paralysis
Paul Bainsfair, director general at the IPA argued that geo-political factors have left the majority of marketers in a “seeming state of paralysis.” However, Google’s Michael Todd, was more pragmatic, noting that while the numbers were disheartening they were to be expected in the current economic climate.
The executive, who heads up UK ad industry relations for the tech giant, said: “Despite the sour feeling this will cast across the industry, it’s important not to despair – this is still a period of growth, albeit a smaller one than we have become accustomed to.”
He continued: “The increase in online and mobile spend reflects the growing mood that digital marketing is a reliable and cost-effective way to ensure a brand’s message reaches consumers, even in times of uncertainty,” pointing to the +17% net balance of companies which increased their internet budgets, and the +5.8% of firms which increased mobile ad budgets in the third quarter of the year.
While online ad budgets clearly enjoyed growth, the overall figure indicated a lower increase that the previous quarter’s decade high of +22.7%, but was nonetheless indicative of healthy expansion in the face of ongoing challenges in the space around transparency, viewability and measurement.
While Todd said he hoped to see this strength filter through the industry, helping marketers create opportunities outside of online, Bainsfair cautioned: “While we acknowledge the benefits of internet advertising and welcome the growth in internet advertising budgets, we wouldn’t recommend sole investment in online at the expense of offline. A careful balance is required."
Taking an alternative point of view was Mark Jackson, managing director at independent performance marketing agency MC&C who asserted that while the desire to conserve budgets was natural, advertisers and agencies must address their own knowledge gaps.
“Brands should be asking their agencies whether they’re simply scaling back on spend in a particular area, or altering the mix to ensure cross channel presence is maintained," he said. "Any agency should be constantly measuring and creating continuous growth – no matter the climate."
Due to competition diversifying and consumers increasingly buying into single brands through subscription models, Jackson believes that marketers "should be keeping a keen eye on the channels that are driving growth, then maximising that impact to drive results for their business.”
When asked to rate their optimism around financial prospects for their industry compared to three months ago, close to 24% of UK marketers were less confident, compared to around 15% that had become more optimistic.
Although the resulting net balance of -8.2% was an improvement on the -12.6% seen during Q2, the latest data marked the seventh successive quarter that a negative net balance has been registered.