Cuts to UK marketing budgets ease in quarter one of 2021, report
The latest IPA Bellwether survey results point to a further decline in UK marketing budgets in the opening quarter of 2021, as coronavirus lockdown restrictions continued to hinder economic activity and businesses looked to reduce costs.
However, the downward trend softened for the third quarter in a row, in a sign that business conditions were beginning to stabilise after a year of turmoil in 2020.
A net balance of -11.5% of panellists reported a contraction in total marketing budgets during the first quarter of 2021. Although the rate of decline remained historically marked, it eased substantially from the final quarter of 2020 (net balance of -24.0%). Overall, just over a quarter (25.7%) of surveyed businesses saw a decrease in available adspend in the latest survey period, while 14.2% recorded an increase.
Unsurprisingly, restrictions related to COVID-19 continued to act as the main drag on marketing budgets, according to anecdotal evidence. Amid softer demand conditions and ongoing closures in some sectors, businesses mentioned cost cutting programmes which had weighed on adspending in the latest survey period.
Paul Bainsfair, Director General, IPA: "Despite remaining in negative territory overall, the vital signs from this quarter’s Bellwether Report are looking ‘V’ encouraging for a bounce back in UK marketing investment. With companies’ confidence levels regarding their financial prospects soaring and with almost three quarters of UK companies either revising their marketing budgets upwards or keeping them the same this quarter versus last, 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."
Revisions by marketing category
Each of the seven monitored marketing categories saw a further decline in budgets at the start 2021, the sharpest of which was seen in Events. Although the net balance of firms reporting a contraction eased to -43.2% from -62.9% at the end of last year, the pace of reduction was among the quickest ever recorded. Cuts to budgets were also seen in Market Research (net balance of -17.8%, up from -25.0% in 2020 Q4), Sales Promotions (-16.2%, from -26.5%), Other (-14.7%, from 29.6%), Direct Marketing (-11.8%, from -13.9%), Main Media (-8.2%, from -21.8%) and Public Relations (PR) (-8.0%, from -8.5%).
(Underlying data for Main Media indicated that the decline in this category was driven by lower budgets for Out of Home advertising (net balance of -24.1%, from -36.7% in 2020 Q4), Published Brands (-22.2%, from -29.0%) and Audio (-9.0%, from -21.6%). At the same time, Other Online spending budgets stabilised (0.0%, from +0.7%), while Video adspending returned to growth in the first quarter (+3.3%, from -3.5%).)
Budget plans 2021/2022
Forward looking data regarding adspending in 2021/2022 suggests that budgets could recover in the next financial year. A net balance of +17.4% of firms expect their total marketing budgets to increase over the next 12 months.
This reading signals the strongest growth expectations for adspending since 2018, with the latest figure having been upwardly revised from a preliminary estimate of +12.0% in the previous report.
Of the seven broad marketing categories, expectations for the coming year remain strongest in Main Media Advertising, where a net balance of +10.1% of firms anticipate higher expenditure. Marketing executives also anticipate a rise in budgets related to Public Relations (net balance of +7.4%) and Direct Marketing (+6.8%), while expectations were neutral regarding Sales Promotions (0.0%). The other three types of marketing were forecast to experience further cuts, with the sharpest reduction expected in Events (-28.4%), followed by Other marketing (-5.4%) and Market Research (-4.9%) respectively.
Eliot Kerr, Economist at IHS Markit and author of the Bellwether Report: "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. Meanwhile, upbeat forecasts from UK marketers for the coming financial year, after the marked reduction in budgets through 2020, bolsters expectations for a post-pandemic recovery and bodes well for the UK economy. 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 adspending rise sharply in the second half of the year."
Industry-wide outlook points to recovery
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.
Overall, 41.2% of firms were more optimistic on industry-wide financial prospects compared to three months ago, while only 15.0% were less so.
When questioned on own-company financial prospects, panellists 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, the degree of confidence strengthened markedly, with a net balance of +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%).
Adspend recovery set to gather pace in 2022
With COVID-19 restrictions having been in place throughout much of the year, Bellwether author IHS Markit forecasts a -9.9% contraction in UK GDP for 2020. The sharp downturn in activity was predominantly driven by severe economic disruption in the second quarter of the year, when the lockdown restrictions caused many firms to temporarily close.
Although the reopening of businesses during the summer months provided a boost to GDP in the third quarter, this was not enough to offset the earlier decline. Consumer spending and business investment are estimated to have fallen by -11.0% and -8.7% for the year as a whole. These figures point to a decline of approximately -15.7% in adspending during 2020.
However, amid the ongoing rollout of COVID-19 vaccines and the planned relaxation of UK restrictions later this year, the outlook is set to improve. IHS Markit expects 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, it foresees a 3.5% increase in adspend during 2021, followed by a further acceleration to +6.9% in 2022, before stabilising nearer the long-run trend. Principle downside risks to these forecasts include the emergence of new vaccine-resistant strains of the virus and the delay of vaccine rollouts in other countries that act as key trading partners to the UK, such as those in continental Europe.
David Shearer, Managing Partner, MediaCom Edinburgh and IPA Chair for Scotland: "Entirely as expected, the consequences of the Coronavirus pandemic continue to cast a long shadow across Q1 2021 with a further decline in UK marketing budgets. However, the clear roadmap to easing of restrictions fuelled by the vaccination programme provides a plausible cause for optimism and as we’re in the business of advertising, we owe it to ourselves to bolster that outlook! An anticipated release of pent-up demand has prompted the strongest growth expectations for advertising expenditure in the last couple of years. I’m certainly looking forward to the retail, hospitality and leisure sectors starting on the road to recovery - followed shortly thereafter (hopefully) by the travel industry. Now is the time to be talking to clients about how they make the most of these opportunities."
Mark Howley, COO at Publicis Media and Interim Chair of the IPA Media Futures Group: "Media spend patterns are very much reflecting the progress, and chops-and-changes, of the pandemic. If the UK government can stick to the roadmap out of lockdown, we should see a significant resurgence in H2. The latest Bellwether report does give you hope that there is light at the end of the tunnel. Main broadcast media are predicted to lead the way as clients rebuild brands and emotional connection for a new, emergent consumer and economy. As Marg Jobling (CMO NatWest Group) observed, we could see a ‘right brain reset’ in the type of advertising, and media, that resonates post-pandemic."