UK marketing budgets have experienced their biggest reduction since the 2009 global financial crisis as emergency measures to stem the spread of Covid-19 puts a sudden halt to consumer and business spending.

Data from the IPA Bellwether Report for the first quarter of 2020, which was compiled between 2 and 27 March, shows a net balance of -6.1% of companies revised their total marketing budgets lower.

This is a notable swing from the final quarter of 2019, where the net balance stood at 4%. In March, 25% of panel members recorded a budget cut and 18.9% signalled growth.

Market research was the worst-performing category of the survey in the first quarter with a net balance of 21% revising their budgets down, followed by events (-15.9%) and public relations (-14.3%).

None of the broad slices of total marketing budgets saw growth, with direct marketing and sales promotions observing the slowest reductions at -6.6% and -7.2% respectively. The key brand-building category, main media, recorded its strongest downward revision since 2009, with a net balance of 9.9% saying budgets are being reduced.

Brands that hold their nerve will gain extra share of voice which will achieve competitive gains.

Paul Bainsfair, IPA

Bellwether respondents are more optimistic about their 2020/21 financial year budget plans, however, which shows expectations for a sharp rise in total marketing budgets over the coming year.

A net balance of +16.2% of firms anticipate higher spending allocations over the next 12 months, suggesting many companies plan to grow their businesses and brands.  A number of companies also expressed a determination to tackle the current challenging economic climate, which they expect to be short-lived.

Encouragingly, the crucial main media advertising segment recorded the strongest forecasts, with a net balance of 8.4% of companies expecting upward budget revisions. Events marketing budgets are also set to see growth (net balance of 6.3%) once public health restrictions are relaxed. Modest upward revisions to direct marketing budgets are forecast (net balance of 3.7%), while the outlook for public relations was narrowly positive (net balance of 0.6%).

Sentiment around own-company prospects moved into negative territory, reversing the marginal improvement seen at the end of last year which followed the partial decline of political uncertainty after the general election.

A net balance of 26.0% of firms felt less optimistic towards their company-specific financial prospects, down sharply from the 1.0% which felt more optimistic in the previous quarter and the lowest since the global financial crisis in 2009. Almost half (46%) of panel members were pessimistic, compared to approximately 20% who still foresee growth.

Industry-wide financial prospects were also down sharply as a net balance of 42.0% of surveyed firms were downbeat compared to three months ago. This was a steep decline from Q4, where the net balance stood at -21.0% and marked the weakest reading since 2011. The 11.5% of firms which viewed the prospects for their industries in a positive light were outweighed by the 53.5% who expect conditions to deteriorate.

Shrinking ad spend to return to growth next year

Given the extreme degree of uncertainty surrounding the UK, and the lack of official data statistics at present, the Bellwether ad spend forecasts could be subject to substantial revision as the impact of coronavirus on the economy becomes clearer.

As it stands, the report has used IHS Markit’s latest forecasts for GDP, consumer spending and business investment – which assume an extended lockdown to May but then a gradual reopening of parts of the economy.

IHS Markit estimates that GDP will contract by 4.3% in 2020 as a result of the coronavirus pandemic. Under this scenario, the historical relationship with ad spend implies a 13.7% decline in spend this year.

However, as the current situation is clearly unprecedented, there is an unusually high degree of uncertainty pinned to these forecasts, with risks tilted to the downside, according to Bellwether.

Consequently, 2021 may also pose a difficult year for marketers as the recovery spills over and uncertainty about Brexit creeps back in. The IPA Bellwether report forecasts another modest rise in ad spend rise of 1% year on year, before seeing more “robust” growth in 2022.

“These are undoubtedly the toughest overall trading times that any business and indeed any marketer will have ever experienced, but while we suspect the fuller, sharper extent of this global pandemic to be captured in Q2 data, the hope from this report is that we will see a more upbeat end to the year,” says IPA director general, Paul Bainsfair.

“To achieve this return to growth will require UK marketers to make bold decisions. When recession looms it is understandable if businesses try and shore up short-term profits by cutting variable expenditure, such as advertising.

“However, as our evidence from past downturns shows, unless companies are saving cash simply to survive, or because they can no longer supply advertised services, cutting ad budgets – relative to competitor spend – is a high risk strategy. Such a move exposes firms to losing market share, foregoing sales and delaying the recovery of profits in the long term. Those brands that hold their nerve will gain extra share of voice which will achieve competitive gains.”

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