Over the past three months, UK marketing budgets have declined at their fastest rate since the 2008/9 global financial crisis. However, marketers’ spending is poised to start recovering from the shockwaves of the pandemic by 2021.
According to the quarterly Bellwether report from the Institute of Practitioners in Advertising (IPA) – which draws data from a panel of around 300 UK marketing professionals from the UK’s top 1000 firms – the spread of Covid-19 has caused sweeping cuts to all forms of marketing activity from UK firms.
The IPA found that a net balance of -6.1% of UK companies had slashed their budgets since the start of the year. The sum was calculated by tallying the percentage of respondents showing an improved revision to their marketing budgets minus those that indicated a fall. 25% of respondents recorded a budget cut, compared to 18.9% signalling growth.
The figure marks a notable swing from the final quarter of 2019 when the net balance stood at +4.0%, buoyed by a degree of political certainty presented by Boris Johnson’s decisive election victory. The figures also come at a time when big global brands including Coca-Cola, Budweiser and Airbnb are freezing or reallocating advertising spend.
When it comes to which areas have been impacted most, market research budgets were identified as the worst hit by Covid-19 cutbacks, with a net balance of -21.0% of companies reporting a downturn.
This was closely followed by events at -15.9%. Elsewhere, PR was the next worst off at -14.3%.
Though not a single strand of the marketing mix has seen growth since January, for British businesses, direct marketing and sales promotions were among those to observe the slowest reductions, with net balances of -6.6% and -7.2% respectively.
There have been repeated warnings from the likes of Warc that Covid-19 could bring about a global ad recession. The accompanying suggestion is that marketers should invest in brand-building campaigns if they wish to emerge from the crisis in a strong position, a strategy that’s been adopted by the likes of clothing retailer Next. However, the IPA noted that the key brand-building category (which includes online video, TV, cinema and radio) had recorded its strongest downward revision since 2009 at -9.9%.
‘A sobering snapshot’
For the IPA’s director general Paul Bainsfair, the numbers offer a “sobering snapshot” of the initial impact the global pandemic has had on advertisers’ budgets.
He observed how fieldwork for the Q1 Bellwether Report closed just a few days after UK government enacted the official lockdown, adding: “These are undoubtedly the toughest overall trading times that any business and indeed any marketer will have ever experienced, but while we suspect the fuller, sharper extent of this global pandemic to be captured in Q2 data, the hope from this report is that we will see a more upbeat end to the year.”
Given the extreme degree of uncertainty surrounding the UK at present, the IPA Bellwether Report ad spend forecasts could be subject to "substantial revision" in the future as the impact of coronavirus on the UK economy becomes clearer in line with the release of official data statistics, which at present are lacking.
The IPA Bellwether Report has used IHS Markit’s latest forecasts for GDP, consumer spending and business investment which assume an extended lockdown to May but then a gradual reopening of parts of the economy.
IHS Markit estimates that GDP will contract by -4.3% in 2020 as a result of the coronavirus pandemic, under which scenario the historical relationship with ad spend implies a -13.7% decline in expenditure. However, as the current situation is clearly unprecedented, there is an unusually high degree of uncertainty pinned to these forecasts, with risks tilted to the downside.
Consequently, 2021 may also pose a difficult year for marketers as the recovery spills over and Brexit negotiations creep back in. The IPA Bellwether Report forecasts that ad spend will rise modestly in 2021 (by +1.0%), before seeing more robust growth in 2022 onwards when the economy is more stable.
To achieve this return to growth will require UK marketers to make “bold decisions,” asserted Bainsfair, who acknowledged that when recession looms it is “understandable” if businesses try and shore up short-term profits by tightening the purse strings.
“However, as our evidence from past downturns shows, unless companies are saving cash simply to survive, or because they can no longer supply advertised services, cutting ad budgets – relative to competitor spend – is a high-risk strategy,” he went on.
“Such a move exposes firms to losing market share, forgoing sales and delaying the recovery of profits in the long term. Those brands that hold their nerve will gain extra share of voice which will achieve competitive gains.”
The Bellwether data also showed a sharp deterioration in both company-specific and industry-wide financial prospects during the first quarter. This will come as a blow to agency giants, who in line with diminishing client budgets have had to introduce a series of cost-cutting measures to safeguard their own businesses.
Sentiment around own-company prospects moved into negative territory, reversing the marginal improvement seen at the end of last year which followed the partial decline of political uncertainty after the general election.
A net balance of -26.0% of firms felt less optimistic towards their company-specific financial prospects, down sharply from +1.0% in the previous quarter to the lowest since the global financial crisis in 2009. Almost half (46%) of panel members were pessimistic, compared to approximately 20% who said they still foresee growth.
Fran Cowan, vice-president of marketing, International Advertising Association (IAA) the report, though far from optimistic, offers an opportunity to apply learnings from previous times of crisis.
“Companies that maintain some marketing efforts will most likely reap the rewards and rebound quicker,” she said, agreeing with Bainsfair. “However, it’s important to do this in a controlled way. Now is the time to carefully consider where marketing budget is best spent, to look after employees, partners and suppliers as well as protect brand images.”
She continued: “Luckily in the UK, we have an industry that pulls together during these times. We’ve already seen some great collaborative thinking and initiatives that support the notion of ‘advertising for good’.”
Joe Hayes, Economist at IHS Markit and author of the report said firms are still very much in survival mode, reallocating funds to service liabilities and keep the business alive.
“This is critical to ensure that they can keep staff on the payroll, which will give their businesses the best chance to recover when the time comes. It will also support the economy on a broader scale if people remain employed and are earning, as they will be in the position to go out and spend when the lockdown is over.
“Positively, it seems that a number of firms expect a quick economic recovery and are planning to boost marketing budgets later in the year.”