UK marketing budgets were cut by their highest levels in the more than 20-year history of the IPA Bellwether report, laying bare the impact the Covid-19 pandemic has had on the industry.

The net balance of companies cutting their marketing budget fell to -50.7% in the second quarter, down from -6.1% in the previous three months. This is a worse result than during the last recession, when the net fall hit -41.7% in Q4 2008.

Overall, 64% of respondents registered a decrease in spending, while only 13% said there was an increase. Many said they were forced to cut costs amid a severe decline in revenues.

IPA director general Paul Bainsfair says: “As we suspected, these Q2 Bellwether figures reveal the very grave impact of Covid-19 on UK companies’ marketing budgets, financial prospects and employment plans. Understandably companies in the most severely disrupted sectors have had few options but to preserve cash and operations to survive until trading conditions are more benign.

“We can only hope that the range of Government aid – from VAT cuts to the ‘Eat Out’ scheme, in addition to the furlough scheme and more, can help to facilitate this.”

Nevertheless, marketers are preparing for an extremely difficult year, with a second wave of infections chief among the risks, as well as concerns over the long-term if a vaccine cannot be found. Brexit is also still on the agenda, with respondents to the survey concerned that little progress has been made on negotiations with the transition period due to end in less than six months.

Areas of positivity includes hopes that the government’s schemes will boost the economy and help facilitate new areas of business development.

Cuts across the board

The IPA’s ‘main media advertising’ category, usually used for brand building, reported a net balance of 51.1% cutting spend. Within this, outdoor performed worst on -61.2%, followed by audio on -50%, ‘published brands’ on -49.2%, video on -39.3% and other online on -25.1%.

Bainsfair believes that while the economic outlook remains unpredictable, companies should invest in marketing to strengthen their brands in the near-term and set them up for growth and profitability in the long-term: “Ultimately, companies must invest in marketing in a recession in order to profit in a recovery.”

Events marketing was the worst hit as a category, with a net balance of 76.6% of respondents cutting spend. More than 80% of marketers report cutting spend and just 3.6% increasing it.

The sheer scale of the latest decline, unprecedented since we first started producing this report over 20 years ago, shows the catastrophic impact this crisis has had.

Eliot Kerr, IHS Markit

Direct marketing and public relations were least hard hit, although a net balance of 41.6% still cut spend. Market research was down 42.2%, sales promotions 51.2% and ‘other’ 59.2%.

Unsurprisingly, this has led marketers to feel pessimistic both about their own company’s financial prospects and those of their industry. A net balance of 55.1% reported a pessimistic outlook for their own company, although this was above the low of 57.7% in Q4 2008.

Across the industry, a net balance of 66% of businesses are downbeat, although this is again above the nadir of the financial crisis when it hit 71.1%.

While the numbers paint a gloomy picture of the marketing industry, there is some cause for optimism. Bellwether does predict that ad spend will fall by 11.3% this year, a forecast that is dependent on most sectors of the economy remaining open for the rest of the year and avoidance of a significant second wave.

However, it expects a robust recovery in 2021, with ad spend forecast to grow 6%. In 2022 and 2023 it once again expects above-average growth, before stabilising at average growth rates in 2024 and 2025.

IHS Markit economist and Bellwether report author Eliot Kerr says: “The sheer scale of the latest decline, unprecedented since we first started producing this report over 20 years ago, shows the catastrophic impact this crisis has had.

“Despite the weak headline figures and the corresponding hardship that many businesses will face for the rest of this year, we do expect a strong bounceback in 2021.”

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