British marketing spend hits 8-year high, but concerns mount over Ukraine and inflation
According to the latest IPA Bellwether report, British marketing spend is at an eight-year high point. Investment levels may have peaked, however, as external threats to business confidence mount.
Marketing expenditure rose for the fourth quarter in a row, increasing 14.1% in the last three months, according to the IPA’s latest data. Marketing spend reached a point not seen since 2014, aided by an easing of Covid restrictions in the UK.
The IPA has revised its ad spend forecasts down in light of rising inflation
However, the IPA revised its ad spend forecasts for 2022 and 2023 down, as it took into account rising inflation, the economic impacts of the Chinese Covid outbreak and the invasion of Ukraine.
What do the figures show?
Events marketing saw an 18.7% increase in spending, a major turnaround from the previous quarter, which had seen a 3.9% decrease in investment. That reflects the return to restriction-free gatherings and events in Britain and rising business confidence across many sectors of the economy.
Paul Bainsfair, IPA’s director general, says: “With Covid-19 restrictions ending, it is clear that UK companies are keen to capitalize on this moment and ramp up their marketing spend.”
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Primary media spending rose 18.6%, with video (9% growth) and publishers (1.3%) the biggest drivers of growth.
Some sectors saw a decline in spend, namely out-of-home (OOH), which dropped by 4.6%, and audio, which dropped 8.5%. Spend on market research also fell 3.5%, the survey found, though surveyed marketers expected investment in that area to be freed up thoughout 2022-23.
43.8% of the marketers surveyed by the IPA said they were expecting to increase their spend further yet, with events, media and direct marketing set to soak up much of that extra attention.
Joe Hayes, a senior economist at Standard & Poor Global, says: “As the UK switches its approach from stopping Covid-19 to living with Covid-19, many businesses have begun adjusting to a post-pandemic world. We’ve seen strong upward revisions to marketing budgets in a clear sign that companies are gearing up for growth. Events budgets, which saw a particularly strong uplift, were a notable beneficiary of the UK government’s new Covid-19 model.“
The eight-year high in spend may be the summit of a peak. Marketers surveyed by the IPA were more pessimistic about the financial prospects of the sector than three months ago, with more (27.3%) ‘downbeat’ about their prospects than those who said they were ‘upbeat’ (23.9%).
Respondents cited several black clouds on the horizon, such as the supply chains in China, which have been affected by its government’s approach to Covid, hitting both clients and some agencies directly. Furthermore, some businesses and consumers remain cautious of new coronavirus variants.
Rising inflation in the UK is also a major concern, hitting both business costs in the short term and consumer spending in the medium term.
Russia’s invasion of Ukraine was also cited as a concern, primarily for its impact on fuel and transport costs. The IPA reports that agencies are worried about client hesitancy, and a broader reluctance to spend when global markets are more volatile.
Bainsfair says: “We know we face soaring inflation levels, cost of living increases [and] supply-chain issues, all exacerbated by the war in Ukraine and some sector recruitment shortages. With forty years of downturn data to learn from, the IPA knows beyond doubt that brands do best when they maintain their investment in longer-term brand-building media, complemented by a smaller ratio of sales activation media. This is the survival code for surviving a downturn.“
With those risks in mind, the IPA downgraded its 2022 and 2023 spend forecasts. It now expects ad spend to increase by 3.5% throughout 2022 and 1.8% in 2023, while its GDP prediction for the UK has been revised down to 2.8% and 1.2% in 2022 and 2023 respectively.
Hayes says: “Risks to the economic outlook have built substantially so far this year. Living costs are rising, we may see inflation get close to or even hit double digits in the coming months, and this will weigh on purchasing power. Supply chain issues are still prevalent and have been exacerbated by the war in Ukraine. Rising geopolitical tensions also create uncertainty, and it may lead to companies re-assessing their decisions until all of these risks reduce.“
Responses to the IPA’s revised forecasts from agency experts were mixed. Discussing the new figues, Wavemaker’s chief data offier David Fletcher says: “After two solid quarters, market research has reverted to the long-term trend of a loss of share v all marketing investment. With so much pent-up demand and delayed innovation, many marketers will naturally want to focus their budgets ‘front of house’ to maximize returns. But we know that recoveries are unevenly distributed and there are myriad reasons to believe markets will remain turbulent. Researchers who offer both the agility to help advertisers navigate choppy waters and provide real understanding of how need states evolve under cost of living constraints will be best-placed to drive their own fortunes.
“There’s also a not unreasonable chance that consumers will better engage with researchers – respondent recruitment is a challenge in good times as incentives are of only marginal benefit; inflation’s bite may be a driver of better availability.“
Richard Kelly, chief revenue officer of Mindshare UK, tells The Drum: “It is encouraging to see ad-spend continue to grow as we return to something approaching normality following the pandemic. However, despite today's good news, we still remain in a challenging and complex environment. In the short to medium term, we'll see both advertisers and the public grappling with the rising cost of living, challenges in the supply chain, and the impact of the conflict in Ukraine.
“It's important to remember that advertising funds quality content, sites and journalism. In periods of uncertainty both at home and internationally these things become more important than ever, and we're keen to see momentum to support areas that champion enduring, sustainable and responsible growth”
And Liam Patterson, founder and chief executive of Bidnamic, suggests rising inflation could lead to a change in tactics from retail advertisers. “We’re seeing the post-pandemic scramble of where to allocate marketing budgets that will give the best return on ad spend. It’s good to see ad spend up across most channels, but it’s also important that the return to in-person experiences doesn’t mean that online channels are neglected as they continue to provide a resilient source of revenue for advertisers. Double-digit growth in online spend is promising, but might reflect higher advertising costs rather than a tactical decision to invest more in digital.
“With consumers looking to mitigate the impact of inflation, they will increasingly turn to internet searches not just to make product comparisons, but also for final price checks before they buy. The savviest retailers and brands will double down on owned online channels such as search where they can leverage higher margins to offer the best prices, as well as using their first-party data to target the right customers.“
Tim Sleath, vice-president of product management and data protection officer at VDX, says it was good news for the growth of digital video. “The pandemic caused the acceleration of video consumption, and the growth of this format is set to increase further, especially with the rise in digital channels and the growing popularity of smartphones. As the world is moving away from behavioral targeting using third-party cookies, there’s an opportunity for marketers to continue to spend on video ad formats that use more first-party data and can accurately demonstrate ROI.
“CTV is one format that advertisers are beginning to invest more in as it is driven by real-time data, providing an opportunity for precise targeting at the local, household or even device level. CTV offers consumers increasingly appealing AVOD options and brands the detailed metrics they crave through household targeting so more interest and investment will naturally flow through the channel. As inflation bites and the cost of living rises, the pressure on household finances is growing, and this could see consumers opt to reduce their active subscriptions and move from SVOD to AVOD to save money.”
Meanwhile Mark Lister, chief commercial officer of OnBuy, comments: ”We are all too aware that we are entering very challenging times for everyone, and none more so than the retailer. Time will surely tell, but there is no doubt that consumers’ purse strings will get tighter while pressure to increase prices will grow, with increased operating costs such as advertising, energy, logistics and raw materials for the manufacturer.
”It will be vital in all of this for brands and retailers to review the various channels that they sell through and ensure they are prioritizing partners that really care about their long-term growth – predominantly those that offer the opportunity to reach a wide consumer base, but with fair fees that don’t eat too far into those all-too-precious margins.”