IPA Bellwether: pandemic-induced budget cuts soften as marketers’ confidence rises

In the three months to March 2021, just over one in 10 marketers reported a contraction to total marketing budgets, marking a substantial improvement on Q4 where a quarter of brand bosses admitted to tightening their belts.

Unsurprisingly, Covid-19-imposed restrictions continued to act as the main drag on marketing budgets, according to CMOs. Amid softer demand conditions and ongoing closures in some sectors, businesses told the IPA that cost-cutting programmes had weighed on ad spend in the latest survey period.

Despite continued cuts, things are looking up with more marketers displaying the highest levels of optimism in six years towards the financial prospects of their own business.

Though marketing budgets remain in negative territory overall, “the vital signs” from the most recent IPA Bellwether Report look “very encouraging for a bounce back in UK marketing investment” according to Paul Bainsfair, IPA director general.

“The trajectory is very much moving in a positive direction and at a good pace. As the nation comes out of lockdown consumers will be actively seeking out new products, experiences and entertainment, for which it will be more important than ever for companies to build and rebuild their brand awareness,” he added.

What were the top findings from the IPA’s Q1 Bellwether?

• With businesses closed and people under a ‘stay at home’ order for January, February and most of March, the data pointed to a further decline in UK marketing budgets in the opening quarter of 2021.

• A net balance of -11.5% of panellists reported slashes to ad spend during the first three months of the year. This means that a quarter (25.7%) of surveyed businesses saw budgets decrease in Q1, while 14.2% recorded an increase.

• Although the rate of decline remained historically marked, it eased substantially from the final quarter of 2020 (where the same number was -24.0%). In short, cuts have softened hugely. To put it things into context: in Q2 and Q3 of 2020 -50.7% and -41% of brand leaders noted budget dips, so this quarter’s figure is a major improvement.

• Both industry-wide and own-company financial prospects improved significantly in the opening quarter of 2021, following a year of subdued expectations during 2020.

• Bellwether panellists were optimistic regarding industry-wide financial prospects for the first time since the end of 2015 in the latest survey period. In fact, the net balance of firms that were more confident than three months ago was +26.2%, up sharply from -5.8% in the fourth quarter of 2020, and the highest since the start of 2015.

• When questioned on own-company financial prospects, marketers were also more upbeat than three months ago. The result followed the first positive reading for a year in the final quarter of 2020.

• In the first quarter of this year, this degree of confidence strengthened markedly, with +36.6% of firms more confident of an improvement in their own financial prospects. This marked the strongest level of optimism for six years, with almost four times as many companies reporting improved sentiment compared to those recording a deterioration (+49.5% versus 12.9%).

• Forecasts for 2021-22 suggest that budgets could recover in the next financial year; +17.4% of firms expect their total marketing budgets to increase over the next 12 months.

• This reading signals the strongest growth expectations for ad spend since 2018, with the latest figure having been upwardly revised from a preliminary estimate of +12.0% in the previous report.

What marketing disciplines were hit hardest?

• Each of the seven monitored marketing categories saw a further decline in budgets at the start 2021, the sharpest of which was unsurprisingly seen in events where -43.2% recorded budget declines. However, even this was an improvement on Q4’s figure of -62.9%.

• Main media advertising, which includes TV, saw a more cushioned blow with spend decreasing -8.2%, from -21.8% in the previous quarter.

• At the same time, online spending budgets steadied at 0.0%, from +0.7% three months ago. Video ad spend was the only segment to return to growth in the first quarter, rising to +3.3%, from -3.5%.

‘Businesses can now look forward’

• Consumer spend and business investment are estimated to have fallen by -11.0% and -8.7% for 2020 as a whole. These figures point correlate to a decline of approximately -15.7% in ad spend during 2020.

• However, amid the rollout of coronavirus vaccines and the planned relaxation of UK restrictions later this year, the outlook is set to improve. Economists at IHS Markit expect a +3.7% expansion of GDP in 2021, followed by an even quicker rise of +5.8% in 2022.

• Assuming that the economic recovery progresses as expected, analysts expect a 3.5% increase in ad spend during 2021, followed by a further acceleration to +6.9% in 2022.

• “Although marketing budgets continued to decline at a marked pace amid ongoing Covid-19 restrictions, it was positive to see a further trend towards stabilisation,” said Eliot Kerr, economist at IHS Markit and author of latest report.

• “Without a doubt, the improvement in budget plans from the previous survey period will have been supported by the release of the UK governments roadmap to relaxing restrictions. It has allowed businesses to look beyond the current climate and begin to build towards a time when demand will recover. If all goes to plan, a strong economic recovery should see ad spend rise sharply in the second half of the year.”