Six Things We Learned About Ad Spend From Q1 Bellwether Report

Despite having entered a "short-term" recession last year, as business conditions in the UK slowly strengthen and the recent extraordinary levels of inflation decreased, the IPA's latest Bellwether report claimed that growth in marketing budgets was up by almost a quarter (24.4 per cent) of UK companies during the first three months of the year.

That continues a sustained period of growth dating back to the summer of 2021 with a long-term positive outlook for next year and beyond.

The quarterly Bellwether report is based on the responses of around 300 UK-based companies that provide regular updates on trends in their marketing activities.

Five things we learned about marketing spend this year

• Alongside the growth in spend recorded by almost a quarter of the panelists, 15 per cent also said that they saw their budgets recede during the same period, leading to an overall 9.4 per cent balance of growth for the beginning of the year.

• Events proved to be the stand-out category with a record expansion of 23.1 per cent - up from 15.9 per cent at the end of last year when it also proved to be the best-performing marketing sector for spend.

• Online spend continued to prove robust at 7.1 per cent growth, cooling from the 13.2 per cent recorded during the previous period. Other sectors on the rise included Direct Marketing (+7 per cent), Sales Promotion (+4.9 per cent), Market Research (+1.4 per cent) and PR (0.6 per cent).

• One significant area of decline was in media (-0.7 per cent) which reflected a cautious approach to big budget advertising spend during the period. It has previously recorded 1.9 per cent growth. Also down were out of home (-10.8 per cent), published brands (-5.7 per cent) and audio (-4.5 per cent).

• Budget planning for the next financial year found that 40.7 per cent of marketers was seeing a lift in their marketing while just under a fifth (18 per cent) expected cuts. This has led to just under one-fifth (19.5 per cent) of respondents feeling more optimistic for the year ahead than previously.

• Consumer confidence remains weak as the UK economy continues to face ongoing challenges, however post election it is expected that tailwinds from lower inflation and borrowing costs will support household incomes, driving business and ad spend growth. Early forecasts expect spend to improve by 1.2 per cent next year, followed by 1.9 per cent for each year through until 2027.

In January, the Advertising Association and WARC Expenditure Report revealed that UK advertising spend soared by 15.9 per cent to £9.6 billion during the period from July to September 2023. That was the first time Q3 advertising spend had surpassed £9 billion milestone, driven largely by an increase in online advertising.

Reaction:

Paul Bainsfair, director general of the IPA sounded a note of caution despite the green shoots of positivity from the report.

“We are seeing companies revert to upping their promotional spend while revising their main media spend down – a trend that had been bucked over the past couple of quarters. While sales promotions can stimulate short-term sales increases, the evidence also shows that their over-use can undermine a brand’s profit margins and pricing power over time by habituating consumers to buy mainly on price. As always, a careful balance needs to be struck to ensure longer-term growth, for which greater investment in brand advertising particularly in main media, pays dividends.”

Tommy Smith, managing director of McCann London told Creative Salon that the report offered "a quiet sense of confidence" that was slowly building again for the advertising industry.

"It’s surprising but reassuring to see the +18.7 per cent anticipated uplift in spend on events, which expanded at the fastest rate on record (surprising). Despite anticipating a cooling after the near-decade peak experienced in Q4 2023, the sustained momentum in events spending underscores brand’s continued eagerness for face-to-face engagement with customers and vice versa," he added.

Smith also stated his expectation of a steady increase in main media spend among clients from next year as well.

Amy Lawrence, digital partner, UK & Global for EssenceMediacom and chair of the IPA Digital Marketing Group added her hesitance to celebrate while also highlighting the positive trajectory for direct marketing sales promotion in particular.

“Whilst there is caution in main media advertising with a slight contraction, this lean towards promotions is echoed by the continued growth in online media, which is an indicator of a move towards more performance focus. As always advertisers should be cautious of moving away from brand spend and the long-term impacts that that can have.”