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“A strong economic recovery should see adspending rise sharply”: IPA Bellwether Report

Business conditions are beginning to stabilise after a year of turmoil in 2020, according to the latest IPA Bellwether Report, published today.

The IPA 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, and gives an indication of actual marketing trends in the whole economy.

Q1 2021 IPA Bellwether Report reveals that cuts to UK marketing budgets eased in the first quarter of 2021 and the signs are looking good for a more positive longer-term outlook. 

While the report points to a further decline in UK marketing budgets in the opening quarter of 2021, as coronavirus lockdown restrictions continued to hinder economic activity, the downward trend softened for the third quarter in a row.

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.

Paul Bainsfair, IPA Director General

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.

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.

Eliot Kerr, Economist at IHS Markit and author of the Bellwether Report

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.

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.

Industry reaction

Reaction to the report has been broadly very positive with publishers’ data strategies being a particular point of focus. WNIP asked a number of leading publishers and industry executives to comment on the findings and we’ve rounded them up below:

Zack Sullivan, UK CRO, Future

Now is a pivotal time to shift focus to winning the battle for consumer spending, as both COVID-19 restrictions and budget cuts begin to ease.

“Our recent research into post-lockdown purchasing power found that Brits have amassed over £245 billion in savings since the pandemic began, 25% of which will be spent immediately or soon after lockdown ends. While holidays and trips to pubs and restaurants are top of the list (53% and 42% respectively), consumers will continue to spend on the items that saw popularity during lockdown, including home decoration (11%), garden products (10%), and personal and home technology (10% and 9% respectively).

“These findings highlight how the pandemic has caused a lasting shift in consumers’ wants and needs, meaning marketers must think carefully about how they connect with audiences if they wish to stay ahead of their competitors. Partnering with established media brands will be a vital strategy to achieving this.”

Karin Seymour, Client Strategy Director, News UK

“It’s hugely encouraging to see cuts to marketing budgets easing as we make our way through 2021. With less uncertainty expected in the macro environment, brands can begin to explore the consumer landscape as the economy opens up, so we expect to see a gradual improvement in ad spend throughout the year.

“One of the things that’s stood out during the pandemic is the public hunger for stories on how ordinary people have overcome adversity in these trying times. Whether it’s Captain Tom, our NHS and key worker heroes or local volunteer networks, it’s the human stories that have cut through and brought the country together. Brands should continue to share these stories and show what they are doing to support the country as we emerge from the pandemic. It is the human stories that connect with consumers who are looking for positive news in these difficult times.

“As coronavirus restrictions begin to lift, consumers will also be looking for excuses to spend. Brands need to be agile in order to flex strategy quickly and keep up with expanding demand, making sure their messaging is aligned with the current climate at all times. Brands should use the new environment to emotionally engage with their audience, on a human level.”

Alison Harding, VP Data Solutions EMEA, Lotame

“Whilst budget plans for the year ahead point to a recovery, marketers will need to prove their hard-won spend is working. This will require a data strategy that enables them to understand, find, and accurately target and message their customers without using third-party cookies. Identity can solve this challenge but education is needed on how identity (probabilistic and deterministic) and non-identity (context, FLoC) solutions can work together. Importantly, marketers are clear that they need multiple identity solutions which are interoperable, so we can expect to see them seeking collaborations across the industry that will enable them to build up their data supply with other first-party data and high-quality third-party data.”

Marketers are clear that they need multiple identity solutions which are interoperable, so we can expect to see them seeking collaborations across the industry.

Alison Harding, VP Data Solutions EMEA, Lotame

Filippo Gramigna, CEO, Audiencerate

“This report is a welcome indication that we are slowly returning to some stability. There is of course still room for recovery, and as the industry continues to evolve in the way it can use third party cookies and other identifiers, there is the potential of change for the better. By using the myriad of tools available to them, such as predictive audience modelling, identity resolution and analytics, marketers can source granular data to boost both effectiveness and efficiency in their advertising campaigns, ensuring they continue to move in the right direction.

“The ability to be flexible in advertising strategies will be paramount now for brands and marketers, not just ahead of the changes to cookies, but also as UK consumers get back to living their lives outside of lockdown. Consumer needs are changing fast and technology continues to evolve, so being agile and tuned in to your audience needs to be a top priority.”

Nick Morley, EMEA Managing Director, Integral Ad Science (IAS)

“As the UK eases out of lockdown restrictions, and confidence increases, marketers will remain focused on ways to efficiently spend budgets and maximise ROI. By utilising granular data points, advertisers can understand performance, drive engagement, and achieve valuable business outcomes.

“Looking ahead, we can expect to see more marketers make investments in programmatic and contextual advertising. Using first-party data is not only more cost-efficient and scalable than third-party audience tracking data, such as cookies, but will also address data privacy concerns. Those that make investments now will reap the long-term benefits, particularly when considering that the majority (70%) of UK consumers say that their perception of an online ad is impacted by the surrounding content on the page.”

Sivan Tafla, CEO, Total Media Solutions

“The figures from the IPA Bellwether Report coincide with the experience both traditional and non-traditional publishers have had for the first few months of the year. Overall it has been a muted and atypical period, with no uptick towards the end of the period that is usually expected.

“That said, ad budget cuts have been eased across the board in most areas, with digital investment remaining stable since the last quarter despite the economic challenges associated with prolonged restrictions. This budget stability and show of confidence from advertisers is filtering through to publishers who have been finding it easier to deliver on their KPIs,  from eCPM to fill rate. Combined with some of the key parameter improvements publishers experienced towards the end of 2020, there are clear signs industry investment will continue to improve alongside the broader economic recovery.”

The full report is available to purchase from the IPA website.