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Bellwether Q2: Covid-19 brings marketing to its knees, but is there light ahead?

More than half of companies cut marketing budgets in the second quarter of this year, as the devastating impact of the Coronavirus outbreak took hold.

UK marketing budgets were slashed to their lowest levels in the twenty-year history of the IPA Bellwether Report, according to figures revealed yesterday. Some 50.7% of firms cut marketing budgets in Q2, compared to just 6.1% the quarter earlier – the previous low point was 41.7% of firms slashing spend in Q4 2008, following the global financial crisis.

How different this was from just six months ago when, on the cusp of a new decade, confidence was high and budgets were expected to ease ever upwards.

Every category reported declines in budgets

In every category overall budgets declined with the events sector hit hardest, as restrictions prohibited anything other than small gatherings. Some 76.6% of panelists registered a decline with just 3.6% posting a rise.

Brand advertising also reported a steep decline with reduction in budgets the most severe since the survey’s inception. Over half (51.1%) of marketing executives reported a drop in available spend, with out-of-home advertising the worst hit of the ‘main media’ at 61.2%, followed by audio (50%), published brands (49.2%), video (39.3%) and other online (35.1%).

Direct marketing and public relations saw the joint-softest budget cuts in the second quarter, although with net balances of -41.6%, the downturns were still severe. Meanwhile, market research (-42.2%), sales promotions (-51.2%) and other marketing expenditure (-59.2%) saw historic reductions for their respective categories.

Pessimism is at both company and industry level

Bellwether panelists remained pessimistic towards both their own and wider industry finances, with own-company prospects recording a negative sentiment of -55.1%, the highest since Q4 2008 when the net balance measured -55.7%.

Prospects for the second half of 2020 remain muted with an expected 11.3% reduction in ad spend for the year overall. The report anticipates a “robust recovery” in macroeconomic conditions during 2021 as businesses move closer to operating at full capacity – and implied ad spend growth of 6%.

However, Paul Bainsfair, IPA Director General, cautioned that a “significant part of this coming to fruition hinges on the decisions companies make now”. He said: “Ultimately, companies must invest in marketing in a recession in order to profit in a recovery.”

“Unprecedented” declines this quarter, but expect a strong bounceback next year

Report author Eliot Kerr, economist at IHS Markit, added: “Given the steady flow of awful economic data that we’ve seen since the start of the UK lockdown in March, a further reduction to marketing budgets in the second quarter was anticipated.

“However, the sheer scale of the latest decline, unprecedented since we first started producing this report over 20 years ago, shows the catastrophic impact that 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.”

WNIP asked industry figures to comment on the findings and this is what they had to say:

Amit Kotecha, Marketing Director at Permutive comments: 

“Publishers are set to lose more than most, as the latest IPA Bellwether figures seem to confirm. All areas of marketing have seen sharp declines in budgets during the second quarter of 2020, which will have come as no surprise to many, but ‘main media’ has been particularly hard hit. This comes at a time when our trusted news brands and quality journalism are producing more than ever, but often without the right amount of ad spend to support it.

“The IPA anticipates a strong bounceback in spend next year, but urges advertisers to invest now in order to profit from recovery. As publishers hold the keys to the open web, now more than ever is the time to support those premium and quality environments that deliver better business outcomes.”

Amy Jackson, Business Director at Incubeta comments:

“Consumption habits and marketing budgets are unlikely to change for the year ahead, but we will see recovery in 2021 provided Government aids proves successful, and the economy comes out of this without a second wave. Marketing will be an essential part of this recovery, so long as budgets don’t get reinvested elsewhere.

“Usually in a crisis – business or otherwise – marketing is the first wire to be cut, yet this time it’s different, as it has been brick and mortar businesses which have been impacted the worst. This only further demonstrates that many brands haven’t been using online to its maximum potential, and are now quickly adapting in a way that will see investment in online grow.

“As the IPA Bellwether report suggests, brand exposure advertising – predominantly OOH – has been severely hit, and there are reasons to be pessimistic if we compare this to the 2008 global financial crisis. If you look at the state of play for marketing then, those who cut their marketing did struggle to return to normality as quickly as others, with issues such as a lack of brand awareness, and competitors moving in on their space.”

Justin Taylor, UK MD at Teads comments:

“The socio-economic impact of this quarter has been devastating to all industries, including advertising.

“We must give credit to all of those who have worked tirelessly to maintain continuity and equilibrium to keep businesses afloat and people in employment. We are at the start of our journey, looking at today’s GDP growth it shows how much work is still to do.

“However, there are glimmers of hope. That out of cuts and restrictions, often comes the best innovation and chance to reset best practices. We certainly saw, coming out of the 2008 recession, that those who leaned into a new way of working were able to succeed rapidly, and there are signs of this already happening in H2 and into 2021.

“Those who are able to review working practices, with a renewed focus on responsible advertising strategies that harness the power and agility of quality digital environments, will emerge stronger.”

Paps Shaikh, Commercial Director EMEA of Nextdoor comments:

“This report is sobering reading, and there is no doubt that there will be casualties during this time. On a positive note, there are several sectors that are benefiting right now, while others have managed to remain on an even keel. On our platform, we have seen sectors such as Technology, Telco, Finance, Insurance, Groceries and home delivery services amongst others that have been strong throughout the pandemic. Now, we are starting to see activity from major retailers that are adapting how they deliver their services and experiences to consumers.

“Under these challenging circumstances, creative approaches to marketing strategies will be the key to success. Consumers want to be communicated in an appropriate way amidst the background of Covid – and this is where the opportunities lie. The most important notes to hit are honesty and trust. During this time of uncertainty, consumers want to feel reassured their investments and purchases are heading to a place that won’t negatively affect what is going on in their local communities or on a larger scale.”

Ben Little, Founder and Director of Fearlessly Frank comments:

“How quickly the world changes, and how relevant it is for us now to look at resilience and innovation. Marketing budgets have for too long been a measure of success, but they do not tell the whole story. What is going where, and why? Marketing can be the driver of growth but it must be bigger than just ‘advertising’ and spend. For those who understand this, Covid-19 will be a catalyst for change – a reason to reinvent how we operate in order to accomplish business goals.

“The IPA’s director general Paul Bainsfair rightly points to the need to invest in recession in order to profit from better days. But marketers must ask themselves – where should this investment occur? At a time when consumer behaviour is more frenzied than ever, at a point when nobody knows what’s round the corner, it is incumbent on all of us to reimagine how we operate. At a time when there is no business as usual, budgets must be allocated to enable imagining the unknown. This is a once in a generation opportunity to take a look in the mirror without fear or favour. Let’s take it.”

Vihan Sharma, Managing Director Europe, LiveRamp comments:

“It’s concerning but expected to see that most aspects of marketing have contracted over the last quarter. Yet fortunately for the industry there are many silver linings.

“Research suggests that while many advertisers pressed pause in the early weeks and months of the pandemic, they are committed to investing in the future and budgets are anticipated to bounce back in 2021. An increase in spend can’t come soon enough – slashed budgets have effectively forced certain brands into liquidation, while publishers have to become more creative and nimble in devising new ways to monetize their content amidst declining CPMs; quite the juxtaposition given content consumption is higher than ever.

“What’s more, given the pandemic has hit at a time when third-party tracking cookies are in the process of being eroded, brands and publishers have accelerated the pace with which they are evaluating alternative solutions that are more persistent and offer improved ways to target and engage with consumers via privacy-centric, first-party data strategies. 

Nick Morley, EMEA MD, Integral Ad Science (IAS) comments:

“Ahead of recovery expected in 2021, marketers need to make sure available budgets are spent wisely and efficiently – education around the technology and tools available will be key.

“Considering lockdown is beginning to ease, understanding the contextual environment of each ad, and the technology a marketer has deployed, is vital for a successful campaign. Also, an open dialogue between advertisers and publishers will not only enable publishers to communicate what their publishing environment entails, but brands, and their agencies, can define and communicate their brand’s suitability goals. It’ll be great to see more marketers taking this important step towards contextual control, to contribute to the industry recovery we are all working towards.”

Ivan Ivanov, COO, PubGalaxy, comments:

“With constant changes in buyer behavior as the pandemic unfolds, the supply-side must work to keep ad revenue steady, with an agile blend of experimentation, smart operations, and reliable demand. Importantly, publishers need to embrace the chance for experimentation, moving with buyer needs, and making the most of their assets, such as utilizing revenue from a variety of different campaign verticals. 

“Maintaining strong traffic should also always be a priority, and evaluating minor changes in UX and interface design could see increased audience engagement in the future. Digital publishers could also revise the programmatic setup to accommodate buyer requirements; a good place to start would be optimizing to satisfy different pricing models. Focusing on small steps to adjust activity for the best possible results now will help achieve greater future success.”

Phil Acton, Country Manager, UK & Benelux, Adform, comments:

“With the consumer behavior shift outlined in the report, marketers need efficient, accountable, and performance-driven solutions that enable them to accelerate their transition towards digital, continue to reach consumers at scale and better manage costs. This will largely come via digital platforms and particularly programmatic advertising, as unfortunately traditional media channels such as OOH and Cinema no longer provide the mass audiences marketers need. Instead, mobile, video, audio, and gaming are emerging as the leading routes to communicate with consumers.”

Nickolas Rekeda, CMO at MGID, comments:  

“Marketers should use this time to experiment with new formats and digital approaches; especially given the rise in online audiences. But to gain audience attention in the ’new normal’, brands cannot simply rely on assumptions. Brands must focus on making optimal use of their budgets by prioritizing performance-based marketing efforts where effectiveness is easy to track, instead of long-term brand awareness campaigns.” 

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