Data shows that UK ad spend has dipped dramatically for the third quarter in a row as marketers grapple with Covid-19 restrictions, Brexit and economic uncertainty. The Drum delves deeper into the numbers presented in latest Bellwether report from the Institute of Practitioners in Advertising (IPA).
In the three months to October, UK ad budgets were reduced drastically, representing the second-biggest decline since records began.
Though reductions softened slightly in the third quarter of the year (after hitting the nadir in Q2), the figures show the severe pressure facing marketers as they navigate coronavirus-related lockdowns, declining consumer confidence and the increasing possibility of a ‘no-deal’ Brexit.
According to the IPA’s latest Bellwether report – which draws data from a panel of around 300 UK marketing professionals from the UK’s top 1,000 firms each quarter – the pandemic has led to sharp declines in ad spend across all monitored categories.
Paul Bainsfair, director general at the IPA says the trade body had hoped for “a slightly sharper rebound to UK marketing budgets” than the data revealed.
“With a second wave of Covid-19, coupled with ongoing Brexit negotiations, including bracing for no-deal, I think green shoots in the immediate term are increasingly unrealistic,” he added.
“We are at the mercy of these macro trends and we can’t know for sure right now whether it will be a V-shaped, U-shaped or perhaps a W-shaped recovery.”
What were the top findings from the IPA’s Q3 Bellwether?
The study found that a net balance of -41.0% of panellists saw their marketing budgets cut in the third quarter (up from -50.7% in Q2). The result represented the second-quickest decline since the survey’s inception in 2000, only superseded by the reduction in the second quarter of this year. In Q3, over half of respondents (52.6%) recorded a decrease in budgets from three months ago, compared to only 11.6% that saw an increase.
Top marketers cited reduced revenues owing to coronavirus and the need to cut costs in order to maintain profitability as two key factors driving this downward trend. Ongoing social distancing measures meant that many firms were still operating below full capacity in the third quarter, particularly some services companies that rely on face-to-face client engagement – factors which were also blamed.
As has been the case since the start of 2016, Bellwether panellists were pessimistic towards industry-wide financial prospects. This was reflected by a net balance of -31.3% of firms that were downbeat, with only 16.8% of firms reporting an optimistic view compared to exactly 48% that were pessimistic.
When reporting on own-company financial prospects, firms were also pessimistic during the third quarter. Only 30.7% of panellists were more optimistic compared to three months ago, while 34.6% had a more negative view on financial prospects for their companies. That said, the resulting net balance of -3.9% was the least downbeat so far this year after severely pessimistic readings in both the first (-26.0%) and second (-55.1%) quarters.
What marketing disciplines were hit hardest?
Faced with reduced cashflow, businesses reported lower budgets in each of the seven monitored marketing categories. Events remained the hardest hit type of advertising, with a net balance of -64.1% of firms registering tumbling revisions compared to last quarter (up from -76.6% in Q2). Overall, just 3.8% of panellists saw an increase in available spend for events, while 67.9% recorded a decline.
At the other end of the spectrum, direct marketing and main media advertising saw the softest budget cuts. However, with a net balance of -25.3% of firms recording downward revisions in both categories, declines were again historically marked in both cases (-41.6% and -51.1% respectively in Q2).
What do the experts say?
The IPA’s Bainsfair pointed to the adage that evidence proves that those who can invest in marketing during the downturn will reap rewards in both the short and longer term:
“They will increase their brand recognition, strengthen their brand positioning and get ahead of the competition. In fact, because many advertisers do not heed this advice, just maintaining spend at normal levels leads to a greater share of voice and in turn greater brand share,” he advised.
Eliot Kerr, economist at IHS Markit and author of the report said broad-based decline across all types of marketing budgets highlights the negative impact that the public health crisis is continuing to have on business conditions.
He explained: “Looking forward, if the UK can avoid another large-scale coronavirus outbreak and achieve a smooth exit from the European Union, we should see an improvement in economic conditions as firms learn how to better operate in this new business environment.”
When is a recovery likely?
The Covid-19 outbreak and resulting restrictions on businesses have led IHS Markit, the Bellwether authors, to forecast an -11.2% contraction in GDP during 2020 as a whole.
Assuming restrictions remain at their current level of stringency, it foresees a -13.2% reduction in consumer spending and a -20.0% decline in business investment during 2020. These figures correspond to a Bellwether forecast of a -23.3% fall in ad spending for the year as a whole.
Looking forward, IHS Markit anticipates a robust recovery in economic conditions during 2021, as firms continue to adapt to a ‘new normal’.
This would translate to a +4.6% expansion in GDP and a Bellwether forecast of a +11.3% rise in ad spending during 2021, followed by a steady trend towards long-term growth rates.
These outcomes, however, hinge largely on positive outcomes regarding the evolution of the pandemic and the development of Brexit negotiations before the end of the transition period at the end of this year.