UK marketing budgets enjoyed a third consecutive quarter of expansion at the end of last year, but economic pressures have slowed their growth rate.
A net worth of 6.1% of companies revised their marketing budgets up in the fourth quarter of 2021, according to a recent IPA Bellwether report. Third-quarter growth was nearly double the rate at 12.8%, before the onset of the Omicron strain of Covid-19, strong inflationary pressures and severe supply chain disruption.
However, the report still describes the increase as “strong” compared to recent years, indicating the second strongest improvement since the first quarter of 2019.
However, while overall budget growth may have slowed, the number of companies increasing their investment in market research has grown rapidly, from a net balance of 0.7% in the third quarter of 2021 to 7% in the fourth.
In fact, market research was the top performing category in the most recent survey period, enjoying its strongest performance since Bellwether began tracking its budget growth more than nine years ago. According to the report, this reflects companies’ efforts to “better understand the impact of the Covid-19 pandemic on their existing customers and target audiences.”
Before marginal growth in the third quarter, market research budgets were experiencing a long-term decline. The proportion of companies planning to increase spending on market research was only greater than the proportion they planned to cut four times in the previous seven years, most recently in the second quarter of 2015, when a net balance of just 0.6% said they would. Increase investment. Market research budgets return to growth as marketing spending rises rapidly
In 2020, Marketing Week found that market research has been in a strong downtrend ever since, with that decline accelerating over the course of Covid-19. The net worth of marketers who said they intended to cut spending fell to a low of 42.2% in the second quarter of 2020.
By the first quarter of 2021, the net balance of 17.8% of marketers was still planning cuts, though that had fallen to 9.6% by the second quarter.
Looking at other categories tracked by the Bellwether report, direct marketing posted the next strongest budget growth with a net balance of 3.8%.
It was followed by major media ads with 3.1% of companies checking their budgets up, and video seeing the strongest growth within that category at 7.3%. However, budget reductions were observed in published brands (-5.9%), audio (-6.3%) and outside the home (-8.3%).
Optimism diminishes, but spending to keep growing
Meanwhile, several months of “strong” optimism waned significantly towards the end of 2021, Bellwether data revealed.
The net worth of respondents who were more optimistic about their company’s financial prospects fell from 37.5% in the third quarter to just 7.6%. According to the report, this represents the least confident forecast since the end of 2020.
Industry-wide, companies were more pessimistic about their financial outlook than before, with nearly 28% of respondents feeling less confident compared to 24% feeling more confident.
“As we can see, Omicron has increased uncertainty, changed consumer behaviour, and thus impacted the marketing budget decision-making of UK companies,” explains Paul Pensvier, IPA’s Managing Director.
“Going forward, new variables – along with supply chain issues and rising inflation – may actually lead to more volatility.”
Bainsfair adds that the key for companies “to weather these fluctuations” is to invest in long-term media and brand building where possible. “As the evidence proves, the brands that continue to invest in their marketing during the toughest times come out on top.”
In fact, Bellwether’s preliminary data on spending over the next year suggests that marketing budgets will continue to post “significant growth.” The net balance of 34.5% of the companies surveyed plan to increase their total marketing spend this year, with nearly half (45.7%) expecting budget growth. Only 11.2% expect cuts.
Net worth of 17.4% of companies expect to invest more in major media marketing, including “big-ticket” advertising campaigns that include television and radio.
While spending on all marketing categories is expected to increase, events were the strongest with a net balance of 19% of companies anticipating increased budgets. Sales promotion budgets are also set for solid growth, with a net score of 17.9%.
However, with economic pressures mounting this year, Bellwether lowered its forecast for annual ad spending growth to 5.2% this year, down from 6.2%. Growth in 2023 is expected to be 2.5% compared to 2.4%, declining to 1.3% in 2024, 2.3% in 2025, and 2.5% in 2026.