Marketing budgets fall at fastest rate since 2009 as brands feel economic chill

But marketers appear confident of speedy recovery, with significant number forecasting budget growth this year.

Bellwether Report: net balance of 6.1% of businesses cut budgets in first quarter
Bellwether Report: net balance of 6.1% of businesses cut budgets in first quarter

Marketing budgets have suffered the most severe blow since 2009 as companies adjust to the decline in business and consumer spending caused by the coronavirus pandemic, the latest IPA Bellwether Report shows.

The study, which is authored by IHS Markit and surveys about 300 UK-based companies, found that a net balance of -6.1% of businesses cut their budgets in the first quarter. While 18.9% of respondents said their budgets had increased, 25% reported a decline.

It is a sharp change from the previous Bellwether, when a net balance of 4% of marketers reported an increase in budgets. The data was collected between 2 and 27 March, ending just a few days after the government announced the lockdown, raising the possibility that the figures would be significantly worse if the research was repeated today.

Jon Burton, marketing director at canned-fish brand John West, said the downtown in marketing budgets reflected the importance for businesses of protecting cashflow.

"One of the biggest challenges for marketers right now is adapting to dramatically new consumer buying patterns, which differ radically by category," he said. "We all know that brands which are able to still invest during a downturn have often been proven to bounce back stronger. However, these are unprecedented times. That said, I believe all brands need to retain a consistent connection with consumers which is honest, authentic and meaningful."

The data also shows a major deterioration in marketers’ confidence about both their own companies and the sectors in which they operate. In the previous report, a net balance of 1% said they were most optimistic about their own prospects. This figure has plunged to -26%, meaning far more are expressing pessimism than optimism.

As usual, respondents were far more negative about the prospects of their sector, with a net balance of -42%. That is down from -21% last time, itself already the weakest reading since 2011.

All segments of marketing spend are seeing decline, with market research (-21%) and events (-15.9%) seeing the biggest net balance of marketers reducing budgets. Main media advertising, meanwhile, has a net balance of -9.9% reporting cuts.

However, there appears to be confidence that the medium-term effects of the crisis will not be as pronounced as some fear. A net balance of 16.2% of companies anticipate higher spending allocations over the next 12 months, up from 15.7% last quarter and just 3.4% a year ago. Main media advertising recorded the strongest forecasts among the segments, with a net balance of 8.4% expecting a budget rise, followed by 6.3% for events.

IPA director-general Paul Bainsfair called the latest report a "sobering snapshot" of the impact of Covid-19 on marketing.

"These are undoubtedly the toughest overall trading times that any business and indeed any marketer will have ever experienced," he said. "But while we suspect the fuller, sharper extent of this global pandemic to be captured in Q2 data, the hope from this report is that we will see a more upbeat end to the year."

Bainsfair called on marketers to make "bold decisions" to help promote growth in their own businesses and the economy as soon as possible.

"When recession looms, it is understandable if businesses try and shore up short-term profits by cutting variable expenditure, such as advertising. However, as our evidence from past downturns shows, unless companies are saving cash simply to survive, or because they can no longer supply advertised services, cutting ad budgets – relative to competitor spend – is a high-risk strategy.

"Such a move exposes firms to losing market share, forgoing sales and delaying the recovery of profits in the long term. Those brands that hold their nerve will gain extra share of voice, which will achieve competitive gains."

But Joe Hayes, economist at IHS Markit and author of the Bellwether Report, illustrated the other horn of the dilemma that will be facing many companies.

"Firms are in survival mode, reallocating funds to service liabilities and keep the business alive," he said. "This is critical to ensure that they can keep staff on the payroll, which will give their businesses the best chance to recover when the time comes. 

"It will also support the economy on a broader scale if people remain employed and are earning, as they will be in the position to go out and spend when the lockdown is over."

This article first appeared on PRWeek sister title Campaign

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