Marketing budgets went up in Q3 but growth slows down

Total UK marketing budgets saw upward revisions for the tenth consecutive quarter, contributing to growth in Q3 2023, according to the latest IPA Bellwether Report. The report highlights a trend of cautious optimism amidst a challenging economic landscape, with efforts to safeguard brands and capitalise on competitor hesitancy driving expansions, particularly in the main media category.

The growth, however, experienced a slight moderation due to persistent inflationary pressures, increased borrowing costs, and a deteriorating UK economic outlook. While 21.1 per cent of Bellwether firms increased their total marketing spending, 15.8 per cent reduced budgets, resulting in a net balance of +5.3 per cent, indicating the weakest quarter of total marketing budget growth since Q4 2022.

Main media advertising emerged as the key driver of growth in Q3 2023, with the strongest pace since Q1 2021. Efforts to reinforce brand positions in anticipation of an economic downturn and seize market share from competitors prioritising short-term cost-savings were observed. Notably, main media advertising categories like other online advertising methods (+9.1 per cent), video (+0.9 per cent), and published brands (+0.8 per cent) saw expansions, while audio (-10.8 per cent) and out-of-home (-12.1 per cent) contracted.

Events continued to be a growth area, extending its positive trend seen since Q1 2022, with a net balance of +5.9 per cent of companies increasing spending. Other areas of budget growth included direct marketing (+4.3 per cent) and public relations (+4.0 per cent), the latter experiencing its strongest pace in five years.

Financial prospects at both industry-wide and company levels remained subdued, though there was a slight improvement in sentiment for company-own prospects. The industry-wide outlook stayed negative, with a net balance of -12.7 per cent. Meanwhile, the UK economy is expected to face a shallow recession, with adspend forecasted to contract by -0.6 per cent and -0.4 per cent in 2023 and 2024, respectively, before a predicted recovery in 2025.

Commenting on the report, Paul Bainsfair, IPA Director General, emphasised the recognition of marketing spend as an investment rather than a cost, amid challenging economic conditions.

“This quarter, those companies that can are heeding the evidence that in general, investing more in main media will help to steady them through the uncertain times and help to ensure the longer-term health and profitability of their brands. Crucially, they – alongside the many investment analysts we have also recently surveyed - are recognising that marketing spend is indeed an investment not a cost.”

Joe Hayes, Principal Economist at S&P Global Market Intelligence, noted the shift from short-term sales promotions to brand-building strategies, demonstrating companies positioning themselves strategically.

"As storm clouds gather over the UK economy, it's encouraging to see total marketing budgets hold firm in expansion territory. We saw last quarter that firms had become concerned by persistence of the cost-of-living crisis, which drove a record rise in sales promotions spending.

"With demand conditions coming under pressure, companies will have to position themselves strongly to stand out from their competitors.”

Industry reactions varied, with optimism for the resilience of the events sector, increased interest in purpose-driven business models, and recognition of the need for long-term strategic planning.

Helen Blakely, Managing Director, Genesis and IPA Chair for Northern Ireland said: “Set against the continued economic uncertainty and global political instability, it remains an interesting and challenging time ahead for our industry. It is encouraging to see a +7.4 per cent for main media advertising in this quarter recognising the need to invest in brands as we move towards the end of the financial year and to help protect and grow future market share.

“The need for agility and an agency’s ability to service that also remains key to maximise and capitalise on short term opportunities. The upward revisions in PR, Direct Marketing and Online advertising spends should support in this effort. Locally the need to seamlessly integrate paid activity with client owned activity continues to become even more important to drive profitable growth and performance.”