UK companies registered another drastic reduction in marketing budgets during the third quarter amid ongoing COVID-19 restrictions, according to the latest IPA Bellwether Report. The result followed a record reduction in available funds during the second quarter, when many businesses were either temporarily closed or operating at reduced capacity.
The Q3 2020 IPA Bellwether Report indicated that a net balance of -41.0% of panellists saw their marketing budgets cut in the third quarter (up from -50.7% in Q2). The result represented the second-quickest decline since the survey’s inception in 2000, only superseded by the reduction in the second quarter of this year. In Q3, over half of respondents (52.6%) recorded a decrease in budgets from three months ago, compared to only 11.6% that saw an increase.
When explaining falling marketing budgets panellists often cited reduced revenues as a result of the COVID-19 crisis, and the need to cut costs in order to maintain profitability. Ongoing social distancing measures meant that many firms were still operating below full capacity in the third quarter, particularly some services companies that rely on face-to-face client engagement.
Reductions to marketing budgets in every category
Faced with reduced cashflow, businesses reported lower budgets in each of the seven monitored marketing categories. Events remained the hardest hit type of advertising, with a net balance of -64.1% of firms registering downward revisions compared to last quarter (up from -76.6% in Q2). Overall, just 3.8% of panellists saw an increase in available spend for events, while over two-thirds (67.9%) recorded a decline.
At the other end of the spectrum, direct marketing and main media advertising saw the softest budget cuts. However, with a net balance of -25.3% of firms recording downward revisions in both categories, declines were again historically marked in both cases (-41.6% and -51.1% respectively in Q2). Underlying data for the main media category signalled that funds available for ‘other online’ campaigns (-6.5% from -35.1% in Q2) were the least affected of the five sub-categories, followed by video (-16.1% from 39.3% in Q2), audio (-32.0% from 50.0% in Q2), published brands (-38.5% from 49.2% in Q2) and out of home (-50.0% from 61.2% in Q2) respectively.
Each of the other four broader categories posted softer, albeit still marked, downward revisions in the third quarter. The ‘other’ category (-40.2%, up from -59.2% in Q2) saw the second-steepest reduction of all categories after events, followed by sales promotions (-36.0% from -51.2% in Q2), market research (-32.6% from -42.2% in Q2) and public relations (PR) (-31.4% from -41.6% in Q2) respectively.
Sentiment on financial prospects trends towards stabilisation but remains negative overall
Sentiment towards both own-company and industry-wide financial prospects remained in negative territory during the third quarter. However, both trends began to move towards stabilisation following the sharp declines in expectations seen in the second quarter.
As has been the case since the start of 2016, Bellwether panellists were pessimistic towards industry-wide financial prospects. This was reflected by a net balance of -31.3% of firms that were downbeat, with only 16.8% of firms reporting an optimistic view compared to exactly 48% that were pessimistic. Nonetheless, the degree of negativity softened from the second quarter (net balance of -66.0%), when the global economy was severely hampered by coronavirus-related lockdowns. Although downbeat overall, the net balance for the third quarter was the highest since the fourth quarter of 2019.
When reporting on own-company financial prospects, firms were also pessimistic during the third quarter. Only 30.7% of panellists were more optimistic compared to three months ago, while 34.6% had a more negative view on financial prospects for their companies. That said, the resulting net balance of -3.9% was the least downbeat so far this year after severely pessimistic readings in both the first (-26.0%) and second (-55.1%) quarters.
Robust recovery in adspending forecast for 2021
The COVID-19 outbreak and resulting restrictions on businesses have led IHS Markit, the Bellwether authors, to forecast steep declines for a number of key economic indicators during 2020. Following temporary closures for many firms during the second quarter of the year, as well as ongoing capacity constraints due to social distancing measures, it foresees a -11.2% contraction in GDP during 2020 as a whole. The threat of a widespread second wave of infections also poses a significant downside risk to this forecast. A further sharp increase in case numbers could lead to a fresh lockdown and additional economic hardship unaccounted for by our current estimate.
Assuming restrictions remain at their current level of stringency, it foresees a -13.2% reduction in consumer spending and a -20.0% decline in business investment during 2020. These figures correspond to a Bellwether forecast of a -23.3% fall in adspending for the year as a whole.
Looking forward, IHS Markit anticipates a robust recovery in economic conditions during 2021, as firms continue to adapt to a ‘new normal’. This would translate to a +4.6% expansion in GDP and a Bellwether forecast of a +11.3% rise in adspending during 2021, followed by a steady trend towards long-term growth rates. These outcomes, however, hinge largely on positive outcomes regarding the evolution of the pandemic and the development of Brexit negotiations before the end of the transition period at the end of this year.
Commenting on the latest survey:
Paul Bainsfair, Director General, IPA:
“While Q2 marked the nadir for UK marketing budgets, we had hoped for a slightly sharper rebound to UK marketing budgets this quarter than we see here. With a second wave of COVID-19, coupled with ongoing Brexit negotiations, including bracing for no-deal, I think green shoots in the immediate term are increasingly unrealistic. We are at the mercy of these macro trends and we can’t know for sure right now whether it will be a V-shaped, U-shaped or perhaps a W-shaped recovery. What we do know, however, is that the evidence proves that those who can invest in marketing during the downturn will reap rewards in both the short and longer term. They will increase their brand recognition, strengthen their brand positioning and get ahead of the competition. In fact, because many advertisers do not heed this advice, just maintaining spend at normal levels leads to a greater share of voice and in turn greater brand share.”
Eliot Kerr, Economist at IHS Markit and author of the Bellwether Report:
“With UK businesses continuing to adjust to a ‘new normal’ amid the coronavirus pandemic, marketing budgets remained under severe pressure in the third quarter of 2020. The broad-based decline across all types of marketing budgets highlights the negative impact that the public health crisis is continuing to have on business conditions. Unsurprisingly, events remained the hardest-hit category, with social distancing measures limiting the viability of such spending, although reductions in every other monitored area were also substantial. Looking forward, if the UK can avoid another large-scale coronavirus outbreak and achieve a smooth exit from the European Union, we should see an improvement in economic conditions as firms learn how to better operate in this new business environment.”
Michelle Wright, MD, Gough Bailey Wright and IPA Chair for England & Wales:
“The latest report reflects the turbulent period we are experiencing as a result of COVID-19, with marketing budgets continuing their decline, albeit at a slower rate than earlier in the pandemic. Ad spend has reduced across all platforms which is understandable. As the virus continues to disrupt markets, it is important for all businesses to consider their local situation and the likely impact it will face. Reducing marketing spend during a downturn is known to be a risky strategy and ultimately stunts future growth, so brands revising their marketing budget should act with caution and remain flexible.”
Valerie Ludlow, CEO, ASG & Partners and IPA Chair for Northern Ireland:
“As we entered Q3 clients restarted previously abandoned projects or asked that we replan their campaign approach to ensure it would withstand a second lockdown (should it be required). We hope this reignited desire to commit to marketing spend is the beginning of recovery for the industry in NI, but I am cautious right now.
“COVID-19 has shown the strengths and weaknesses that devolved decision making across the four regions can bring. The exit from the EU is also looming, and recent news to prepare for a no-deal scenario will have especially challenging consequences for Northern Ireland. As a Regional Head, I am hoping that any negative consequences from both these issues can be avoided to allow our local industry to start on the road to recovery and growth in 2021.”
Mark Howley, COO at Publicis Media and Interim Chair of the IPA Media Futures Group:
“The report is broadly in line with expectations. There are two known-knowns of downturns; cashflow is King, and we can see 39% of companies reported a reduction in main media budgets with an eye to cashflow. But equally, there is never a better time to win new customers and build market share, advertising is at its most elastic in downturns. 14% of companies surveyed are seeing opportunity and spending more on main media. The other pandemic effect is the accelerated shift to digital customers, for the average business one-in-five customers were digital at the end of 2109, this is now one-in-three. This shift is reflected in the relative buoyancy of online media spend.”
Sean Feast, Director and Co-owner of Gravity Global:
“The statistics of course reflect our own experiences in relation to PR, with some businesses either reducing their overall spend or stopping PR altogether. But the figures do not perhaps tell the whole story. There are also many examples of businesses that have, in fact, increased their spend in recent months and not only among the challenger brands (where you might expect it) but also within major corporates. Spend is very much dependent on the sectors in which your clients operate, and for every loser there is more often than not a winner, and a winner happy to invest. New business volumes have also increased substantially, so any reports that the industry is dead on its feet are a little wide of the mark!”
Patrick Reid, Group CEO, Imagination:
“Whilst it is no surprise that the events industry continues to feel the shockwaves of the pandemic, it has clearly shown the opportunity for experiences to reach outside of the communications’ silo of marketing, beyond the stunts and spectaculars that have become the playbook of comms-driven experiential, and into product and proposition. We anticipate an eventual positive recovery, and already see more brands leaning on businesses like ours to help design valuable new customer experiences. Ultimately this approach leads to an increase in the lifetime value of current customers and underpinning next-generation products, services and business models that will be built on the new consumer behaviours and expectations that emerge in the years to come.”
David Fletcher, Chief Data Officer, Wavemaker UK:
“With almost all ventures now looking to dig in for a longer haul, then it comes as no surprise that research investments are carrying their share of any decline. As with all crises, COVID should present an opportunity for research practitioners to innovate and reinvent to help advertisers best navigate choppy waters now and better drive growth as recovery inevitably follows. If nothing else, the near daily presentation of data on regional COVID trends – including some excellent visualisations – should inspire all researchers to look again at the importance of data story-telling.”
Ashwin Navin, Co-founder and CEO, Samba TV
“There are parallels in the U.S. and U.K. advertising markets, with Q2 taking the biggest hit across the board. While the broader economic recovery has been slower in the U.K., we expect to see brands in E-commerce, Entertainment, and Pharma paving the way to recovery in Q4 and 2021. Taking into account the disruption that’s happened in traditional media in 2020, I would expect a vastly different and much more progressive media mix in 2021.”
Rachel Powney, VP of Marketing, Dugout, a global digital media company
“Ongoing uncertainty about consumer behaviour has meant muted ad spend figures overall, but silver linings are clearly visible. Online advertising in general, and video in particular, have fared significantly better than average, which shows advertisers are keen to capture the attention of more digitally savvy consumers, whether that’s when they are grocery shopping or catching up on sports.
“We’ve seen concrete examples of this; with an organisation such as the Thai Tourism Board using online videos featuring famous footballers to build up anticipation for when travel rules are relaxed and holidaymakers are once again free to visit. As we move towards 2021, and in-person experiences like going on holiday and attending football matches remain on pause, advertisers will have to continue to be creative and use digital channels effectively to retain the attention of remote audiences.”
Ross Caveille, Co-Founder, Acorn-i, an eCommerce specialist
“We’ve seen an acceleration in the shift to eCommerce in 2020, which is reflected in digital and direct response marketing budgets being more heavily protected than other areas. At the other end of the spectrum, sales promotion spending was down. It’ll be interesting to see how much this recovers in Q4 2020, with the combined effects of a delayed Amazon Prime Day and the traditional run-up to the holiday season providing a potential boost. As ad spend recovers in 2021, I would expect to see digital, direct response and sales promotions as the key categories for investment, as advertisers make the most of the move to online buying; something that increasingly appears to be a long-term trend.”
Richard Wright, Head of Marketing, Scoro
“The prolonged contraction of advertising budgets will make the latest IPA Bellwether Report disheartening reading for many media agency leaders, who are already under pressure to do more with less. If cuts earlier in 2020 haven’t had an effect already, this report should act as an impetus for agencies to reform their processes with the aim of increasing both productivity and efficiency. “This means cutting out time-consuming practices, such as mandatory meetings that aren’t relevant to all attendees. It means allowing more flexibility for staff who should no longer need to navigate the rush hour to get to the office for 9am. And it means scrapping all the unnecessary apps and tech tools agencies stocked up on in the initial rush to prepare for home working, which have now become weapons of mass distraction and additional sources of worry for staff. These reforms can help agencies bring budgets under control while taking pressure off staff and allowing them to become more productive, positioning them for a bigger and better bounce-back in 2021.”
Charlie Johnson, VP, UK & Ireland, Digital Element
“While 2020 has brought with it a series of unprecedented challenges, this is not the first time the industry has had to adapt. As long as marketing has existed it has continually evolved to suit shifting consumer behaviours. “The current contraction of marketing budgets has been dramatic, but it doesn’t mean the industry has to come to a standstill. For those looking forward to the recovery, the key will be in getting the details right. Having access to, and properly analysing, detailed, relevant and up-to-date data is vital to understanding what consumers will engage with right now – not what they liked last year or last week. As we see the impact of regional lockdowns unfold, this understanding is critically important and when recovery begins next year, we’ll see those who have got their data practices right shine through.”
Alvaro Megias, Global Project Manager, Audiencerate
“If one thing is clear from this report it is that the future of marketing still remains largely unclear, but it is important to recognise declines are at a much softer rate than they were in Q2. Therefore, it is critical that marketers continue preparations for a recovery of macroeconomic conditions in 2021.“To stay ahead of their competitors and the ever-shifting climate, marketers need to focus their efforts on direct sales and one-to-one relationships with their customers. With consumer behaviour and market conditions more changeable than ever, marketers must strengthen their data monetisation strategies with hyper-targeted data that can be used to reach and engage audiences that best match their needs, in the fastest times possible, helping to deliver more impactful and competitive campaigns.”
“Despite the report showing some signs of stabilising budgets, the pandemic continues to put pressure on many marketers, with the combined effects of lockdowns, distancing rules and limited funds making it a challenge to create new campaigns that resonate with audiences – when emotional mindsets are harder to predict – and deliver ROI. Every bit of budget must be maximised to return results and creative is the next frontier for optimisation as it has the greatest impact on campaign results. Brands with a transformation mindset who see the power of technology to improve creative workflow, speed and effectiveness will come out the strongest.“With the holiday shopping period upon us and more consumers likely to buy online this year, we expect that Q4 will see digital advertising playing an important role as brands with an e-commerce presence attempt to regain some of the losses experienced so far in 2020.”
Lucy Hinton, Head of Client Operations, Flashtalking
“This year, we have seen a shift away from premium digital ad formats, such as rich media and dynamic ads, to standard ad-serving, as companies sought out ways to save money. But the brands that used dynamic creative were able to respond and adapt to the evolving global markets. Advertising performs better when it is personalised and targeted, and the increase in time spent online during COVID has given marketers more insight than ever about their consumers. In the year ahead marketers must use that intelligence to deliver flexible and agile data-driven creative which will enable them to reach their audiences in an environment that will still be in a state of flux.”
Faye Daffarn, Managing Director, UK, Tug
“The report highlights the importance of agility and efficiency in marketing. With spend reduced, it’s vital marketers are able to move budgets seamlessly between the best performing channels while balancing brand awareness metrics to ensure maximum return. “For search marketers, this could simply mean making search engine optimisation (SEO) and pay-per-click (PPC) work harder and more efficiently together, by religiously scrutinising the keyword mix across channels to ensure a strict balance of visibility and budget efficiency.“Agility is also crucial from an account management perspective – many brands have seen cuts to their marketing teams, so agencies must be able to adapt to become a further extension of their team, while being fluid enough to react as quickly as possible when marketing plans are torn up and changes are instigated.”
Michal Marcinik, CEO and Founder at AdTonos
“It’s easy to understand the continued contraction across marketing channels, but looking to consumer behaviour cues, there are certain areas which provide a glimmer of hope. Audio budgets – which incorporate everything from traditional broadcast radio, to digital radio, and music streaming – were down 32% in Q3, compared to down 50% in Q2. However, in the first few weeks of the pandemic we saw audiences shift to digital radio because of the need for information and the intimate nature of audio, and this consumer behaviour looks to continue – eMarketer predicts that time spent with digital audio will increase 11% as we approach 2021, to almost 79 minutes per day. “It’s possible that advertisers took lessons from the 2007/08 financial crisis and realised cutting entire budgets is not an option. The ability to utilise programmatic radio inventory offers advertisers a way to reach the same audience at a fraction of a terrestrial radio budget. The other driver for digital audio is the capability to run campaigns which precisely target audience groups and provide detailed post-campaign analysis, rather than pure run-on-network campaigns. Advertisers are prioritising their budget allocations to where there is a precise ROI measurement to make informed decisions.”
Pierce Cook-Anderson, Managing Director UK & NL, Smart AdServer
“With budgets tight, we’re seeing buyers move towards private marketplaces as they seek to reduce wastage and increase the return on their media investments. With financial and operational efficiency of the utmost importance amid continued uncertainty, it’s likely the industry will continue to see demand and supply move closer together, with media buying becoming more direct, transparent, and accountable. This shift is fuelled in part by growing discontent for the untrustworthy practices of larger tech giants, with industry players demonstrating a desire to partner with more independent alternatives moving forwards.”
Victoria Usher, Founder and CEO, GingerMay
“While the pandemic created daunting statistics for many businesses and caused mayhem in 2020, I am excited for what the future holds. Business leaders across advertising and marketing were forced to think and act like entrepreneurs, striving to overcome challenges by creating new solutions that will ultimately become the foundation for a more innovative and agile sector.“With a significant uptick in current market activity, we’re anticipating a busy 2021 as new ideas come to fruition and marketing teams continue to adapt. It is fantastic to see how the industry can mould itself to suit their new environment and it is this flexibility that will drive the recovery next year.”
Nicola Bevan, Managing Director of Operations, Xaxis EMEA
“After a summer of restriction, it was likely the advertising forecast would remain muted. But that doesn’t mean advertisers shouldn’t focus on securing positive outcomes from the ad spend they have available to them during this time. As often happens during a recession, inventory prices drop lower, offering more accessibility for those advertisers keen to retain brand awareness. Yet advertising spend can deliver more than awareness, focusing effort on deliverables that will achieve core business outcomes and impact the advertiser’s bottom line. “As we head into Q4, a traditionally key consumer spending period, and look forward to 2021, prospects are more positive with confidence and spend intentions rising – up by 11.3% next year. A continued focus on return on investment and targeting spend to achieve core business outcomes will put the digital advertising industry in a strong position to stabilise into 2021.”
Chris Hogg, Managing Director EMEA at Lotame
“With economic conditions predicted to make a robust recovery in 2021, advertising strategies will need to remain agile in order for marketers to gain a competitive advantage for the upturn. The term ‘the new normal’ has become ubiquitous with COVID-19 and while the accompanying uncertainty was initially received as disruptive and an obstacle to marketing strategies, it is now being seen as an opportunity – by those that get it right – to create a more reactive and better connected future for the digital industry. “Set against a backdrop of ever tightening privacy regulations and cookie deprecation, the new normal has meant the digital life of the consumer has become even more fragmented, adding further complexity to audience understanding. For marketers to build a panoramic view of their audience to be able to engage with real people, and their multidimensional needs and emotions, identity is an essential piece of the puzzle. An ever growing market segment, identity may also prove instrumental in marketers looking to justify their ad spend in a climate where every marketing penny is under the microscope. The rest of the year remains a pivotal one for marketers looking to gain a competitive advantage in 2021, and it will be those who adopt a people based, privacy focused and open-to-all approach to identity that will have the most success in creating new opportunities for brands and publishers to reach their desired audiences.”
Jeremy Cartwright, Director Customer Success, UK
“The budget cuts as a result of the pandemic have brought the significance of accurate, trustworthy measurement to the fore. After all, marketers need to be able to squeeze maximum efficiency out of every penny when investment is tight.
“A focus on effective measurement now will allow marketers to optimise their advertising spend through a strategic view of what is working today. Maintaining an emphasis on measurable improvement throughout this challenging time will put brands ahead of the curve, placing them in prime position to thrive when the economic forecast begins to improve.”
Lisa Menaldo, Co-Founder, The Advisory Collective
“As expected, marketing growth remained slow in Q3 while UK businesses continue to adjust and navigate through the ongoing pressure of Covid-19. Understandably they are looking to protect finances to ensure their businesses remain sustainable throughout this period. Although some industry sectors have certainly fared better than others (digital and video) and more gains will be made into Q4, this will not be to the extent the industry would like to see.
“Interestingly, even with mass job instability consumers are continuing to spend, with online sales increasing month on month. Unfortunately, many brands are missing out as consumer awareness is decreasing due to the lack of marketing spend. Q3 has been the largest overall quarter since Q4 2019, however, with the uncertainty of the ongoing pandemic and what Brexit will hold, for me, it would be correct to assume that a robust bounce back will not be initiated until Q2 2021.”