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IPA Bellwether Report: UK marketing budgets shrink again during Q4 2020

UK advertising budgets saw a further sharp decline during the final quarter of 2020, according the latest IPA Bellwether Report. A net balance of -24.0% of Bellwether panellists recorded a contraction in marketing budgets during the latest survey period.

The Bellwether Report is based on a questionnaire survey of around 300 UK-based companies that provide regular quarterly information on trends in their marketing activities.

Overall, only 16.4% of firms noted an increase in available funds, which was heavily outweighed by the 40.4% that experienced a decline. Although marked overall, the latest reduction in budgets was weaker than those recorded in both the second (-50.7%) and third (-41%) quarters of 2020, when the economic impact of COVID-19 was most severe.

Broken down by marketing category, Events budgets were the most severely impacted in the latest survey period, with a net balance of -62.9% of firms recording a decrease in available spend. Budgets for Other Marketing (-29.6%), Sales Promotions (-26.5%), Market Research (-25.0%), Main Media Advertising (21.8%), Direct Marketing (-13.9%) and Public Relations (-8.5%) also continued to fall during the final quarter.

Commenting on the latest survey, Paul Bainsfair, IPA Director General, said: “It is no surprise that Q4 sees UK marketing budgets remain in negative territory. We are still in the grip of the pandemic and the impact of Brexit is uncertain, with some marketers citing concerns regarding the potential for tariffs, and increased paperwork, delays and costs. While the situation remains bleak for now, the Q4 2020 Report does, however, reveal significant promise of green shoots ahead. Budget plans for 2021/2022 are into positive territory.”

Outlook for 2021

Looking ahead, a net balance of +12.0% of firms expect their total marketing budgets to be upwardly revised. Of the seven broad marketing categories, expectations for next year are strongest in Main Media Advertising, where a net balance of +4.6% of firms anticipate higher ad spending. Panel members also expect a rise in budgets related Direct Marketing (net balance of +3.3%) and Public Relations (+3.2%).

The remaining four types of marketing are expected to see further declines, with forecasts regarding Events spending the most subdued (-30.9%), followed by Other marketing (-6.2%), Market Research (-4.7%) and Sales Promotions (-3.7%) respectively.

As has been the case in each quarter since the start of 2016, panellists were pessimistic towards industry-wide financial prospects, but increasingly optimistic about their own company’s financial prospects in the latest survey period. A net balance of +18.1% of firms were more confident of an improvement compared to three months ago (Q3: -3.9%), marking the first positive outlook since the end of 2019.

Eliot Kerr, Economist at IHS Markit and author of the Bellwether Report, said: “Although advertising budgets continued to fall sharply at the end of 2020, it was promising that the rate of decline continued to soften following the unprecedented contraction during the second quarter. Firms are now looking forward to a recovery in domestic economic conditions, which will likely begin in the second half of 2021 as the UK’s coronavirus vaccination programme starts to take effect.

“As such, businesses are now forecasting an increase in total marketing budgets for 2021/2022, although growth will likely be limited to certain areas. Given the current COVID-19 restrictions in the UK could last for several more months, it is unlikely that categories such as Events spending will start to grow. The recovery in those areas is more likely to begin in 2022, when we hope that the current economic climate is nothing more than a distant memory.”

Should the roll-out of COVID-19 vaccines prove effective in reducing cases, the outlook for the next few years is far more positive. IHS Markit predicts a +3.5% expansion of GDP in 2021, predominantly supported by strong growth in the second half of the year, followed by a +4.9% increase in 2022.

Industry reaction

Responding to the findings of the new report, Martin Vinter, managing director media at marketing consultancy Ebiquity, said: “Unsurprisingly, the IPA Bellwether report shows that we are still seeing the impact of Covid19 on the marketing industry. However, optimism is on the horizon – budget plans for the year ahead are looking beyond the ongoing uncertainties and towards recovery. We are starting to see the light at the end of what has been a very dark tunnel.

“Advanced analytical techniques to attribute and forecast the impact of marketing investments on business performance will be the only saviour in the coming months. In the age of media fragmentation, advertisers need to work harder than ever to drive return on investment. Understanding which levers are holding you back and where the opportunities are across creative, cost, reach, attention, and engagement will make the difference between those brands that aim to survive and those that seek to thrive in 2021.”

Robin Trust, CEO of The Kite Factory, commented: “Brands are right to be cautious amidst constant changes in government restrictions. But we mustn’t forget that lockdown has also contributed to rising investment in digital services, the acceleration of online shopping and different channel exposure and models due to changed working routines. We must look for the opportunity in adversity as with that comes the chance at greater agility, local solutions and new ways of looking at marketing.

“There is still an understandable degree of caution, marketing budgets have by no means returned to normal levels, but it is encouraging to see that brands are still spending. We’ve certainly come a long way since the knee jerk reactions back in March when many marketers cut spend entirely, so while the IPA Bellwether results aren’t surprising, I’m remaining optimistic about the future of advertising.”