Media release: UK marketing budgets continue to contract markedly amid impact of COVID-19


UK companies registered another drastic reduction in marketing budgets during the third quarter amid ongoing COVID-19 restrictions, according to the latest IPA Bellwether Report published today (22 October).

The result followed a record reduction in available funds during the second quarter, when many businesses were either temporarily closed or operating at reduced capacity.

The Q3 2020 IPA Bellwether Report indicated that a net balance of -41.0 per cent of panellists saw their marketing budgets cut in the third quarter (up from -50.7 per cent in Q2).

The result represented the second-quickest decline since the survey’s inception in 2000, only superseded by the reduction in the second quarter of this year. In Q3, over half of respondents (52.6 per cent) recorded a decrease in budgets from three months ago, compared to only 11.6 per cent that saw an increase.

When explaining falling marketing budgets panellists often cited reduced revenues as a result of the COVID-19 crisis, and the need to cut costs in order to maintain profitability.

Ongoing social distancing measures meant that many firms were still operating below full capacity in the third quarter, particularly some services companies that rely on face-to-face client engagement.

Reductions to marketing budgets in every category

Faced with reduced cashflow, businesses reported lower budgets in each of the seven monitored marketing categories. Events remained the hardest hit type of advertising, with a net balance of -64.1 per cent of firms registering downward revisions compared to last quarter (up from -76.6 per cent in Q2).

Overall, just 3.8 per cent of panellists saw an increase in available spend for events, while over two-thirds (67.9 per cent) recorded a decline.

At the other end of the spectrum, direct marketing and main media advertising saw the softest budget cuts. However, with a net balance of -25.3 per cent of firms recording downward revisions in both categories, declines were again historically marked in both cases (-41.6 per cent and -51.1 per cent respectively in Q2).

Underlying data for the main media category signalled that funds available for ‘other online’ campaigns (-6.5 per cent from -35.1 per cent in Q2) were the least affected of the five sub-categories, followed by video (-16.1 per cent from 39.3 per cent in Q2), audio (-32.0 per cent from 50.0 per cent in Q2), published brands (-38.5 per cent from 49.2 per cent in Q2) and out of home (-50.0 per cent from 61.2 per cent in Q2) respectively.

Each of the other four broader categories posted softer, albeit still marked, downward revisions in the third quarter. The ‘other’ category (-40.2 per cent, up from -59.2 per cent in Q2) saw the second-steepest reduction of all categories after events, followed by sales promotions (-36.0 per cent from -51.2 per cent in Q2), market research (-32.6 per cent from -42.2 per cent in Q2) and public relations (PR) (-31.4 per cent from -51.2 per cent in Q2) respectively.

Sentiment on financial prospects trends towards stabilisation but remains negative overall

Sentiment towards both own-company and industry-wide financial prospects remained in negative territory during the third quarter. However, both trends began to move towards stabilisation following the sharp declines in expectations seen in the second quarter.

As has been the case since the start of 2016, Bellwether panellists were pessimistic towards industry-wide financial prospects. This was reflected by a net balance of -31.3 per cent of firms that were downbeat, with only 16.8 per cent of firms reporting an optimistic view compared to exactly 48 per cent that were pessimistic.

Nonetheless, the degree of negativity softened from the second quarter (net balance of -66.0 per cent), when the global economy was severely hampered by coronavirus-related lockdowns. Although downbeat overall, the net balance for the third quarter was the highest since the fourth quarter of 2019.

When reporting on own-company financial prospects, firms were also pessimistic during the third quarter. Only 30.7 per cent of panellists were more optimistic compared to three months ago, while 34.6 per cent had a more negative view on financial prospects for their companies. That said, the resulting net balance of -3.9 per cent was the least downbeat so far this year after severely pessimistic readings in both the first (-26.0 per cent) and second (-55.1 per cent) quarters.

Robust recovery in adspending forecast for 2021

The COVID-19 outbreak and resulting restrictions on businesses have led IHS Markit, the Bellwether authors, to forecast steep declines for a number of key economic indicators during 2020. Following temporary closures for many firms during the second quarter of the year, as well as ongoing capacity constraints due to social distancing measures, it foresees a -11.2 per cent contraction in GDP during 2020 as a whole.

The threat of a widespread second wave of infections also poses a significant downside risk to this forecast. A further sharp increase in case numbers could lead to a fresh lockdown and additional economic hardship unaccounted for by our current estimate.

Assuming restrictions remain at their current level of stringency, it foresees a -13.2 per centreduction in consumer spending and a -20.0 per cent decline in business investment during 2020. These figures correspond to a Bellwether forecast of a -23.3 per cent fall in adspending for the year as a whole.

Looking forward, IHS Markit anticipates a robust recovery in economic conditions during 2021, as firms continue to adapt to a ‘new normal’. This would translate to a +4.6 per cent expansion in GDP and a Bellwether forecast of a +11.3 per cent rise in adspending during 2021, followed by a steady trend towards long-term growth rates. These outcomes, however, hinge largely on positive outcomes regarding the evolution of the pandemic and the development of Brexit negotiations before the end of the transition period at the end of this year.

Commenting on the latest survey: Paul Bainsfair, director general, IPA, said: “While Q2 marked the nadir for UK marketing budgets, we had hoped for a slightly sharper rebound to UK marketing budgets this quarter than we see here. With a second wave of COVID-19, coupled with ongoing Brexit negotiations, including bracing for no-deal, I think green shoots in the immediate term are increasingly unrealistic.

“We are at the mercy of these macro trends and we can’t know for sure right now whether it will be a V-shaped, U-shaped or perhaps a W-shaped recovery. What we do know, however, is that the evidence proves that those who can invest in marketing during the downturn will reap rewards in both the short and longer term. They will increase their brand recognition, strengthen their brand positioning and get ahead of the competition. In fact, because many advertisers do not heed this advice, just maintaining spend at normal levels leads to a greater share of voice and in turn greater brand share.”

Added Eliot Kerr, economist at IHS Markit and author of the Bellwether Report: “With UK businesses continuing to adjust to a ‘new normal’ amid the coronavirus pandemic, marketing budgets remained under severe pressure in the third quarter of 2020. The broad-based decline across all types of marketing budgets highlights the negative impact that the public health crisis is continuing to have on business conditions.

“Unsurprisingly, events remained the hardest-hit category, with social distancing measures limiting the viability of such spending, although reductions in every other monitored area were also substantial. Looking forward, if the UK can avoid another large-scale coronavirus outbreak and achieve a smooth exit from the European Union, we should see an improvement in economic conditions as firms learn how to better operate in this new business environment.”


About the Bellwether Report

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

The survey panel has been carefully selected to ensure that the survey data provide an accurate indication of actual marketing trends in the whole economy.

Participating companies therefore include a broad variety of advertisers in terms of market sector and geographical location. The survey panel has been recruited from the nation’s top 1,000 companies. Respondents are primarily marketing directors or similar. Questionnaires are dispatched to companies in the final three weeks of each calendar quarter.

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