UK marketing budgets climbed higher in the second quarter, however, stubbornly high inflation has created a gloom scenario that saw main media budgets fall for the first time since Q3 2022.
That’s the latest reading from the IPA Bellwether survey, which noted that, whilst total marketing budgets appear to be continuing the positive trend that began two years ago, spending weakened slightly as persistent inflationary pressures, ongoing interest rate hikes and an uncertain economic outlook led some companies to retrench.
Growth amid the gloom
Just over a fifth of survey respondents observed growth in total marketing spend during the second quarter, more than the 14.4% who registered budget cuts and yielding a modestly positive net balance of +6.4%.
The Bellwether report noted that, while the latest reading signalled a slight softening in budget growth since the beginning of the year (net balance of +8.2% in Q1), it represented some resilience to UK marketing spending given the increasing challenges faced by companies, including still-high inflation, rising competitive pressures and soaring interest rates.
Notably, the second quarter’s performance for marketing budgets compared positively to the latter half of 2022 when fears of a recession were at their most elevated.
Data split by the different marketing categories monitored by the Bellwether survey displayed mixed trends, with three out of seven registering budget growth.
The top performing segment was sales promotions, where the net balance of firms recording budget expansion rose to +13.4% (up from +8.8%).
Notably, the uplift in spending in this area was the most pronounced in over two decades of survey data, indicating that firms were supporting their customers through the cost-of-living crisis.
A solid budget expansion was also registered for events (net balance of +9.8% from +6.3%) reflecting the continued appetite for face-to-face meeting and engagements in person.
The final area to record spending growth was direct marketing, where the expansion was the sharpest since the third quarter of 2006 (net balance of +7.3% from +4.2%).
As mentioned earlier, a notable finding from the survey was for the main media segment as marketing budgets here fell for the first time since the third quarter of 2022.
The drop in main media and rise in sales promotions spending suggesting a reactive change by UK businesses in response to the economic climate.
Within the main media category, other online (net balance of +8.3, from 10.5%), and video (+3.2%, from +7.9) remained in growth territory, although this was offset by audio (-8.0%, from +1.7%), out of home (-7.1%, from -12.4%) and published brands (-5.0%, from -1.9%).
Commenting on the latest survey results, Paul Bainsfair, IPA Director General, said: “It is welcome news that total UK marketing budgets remain in positive territory, despite the latest figures from the ONS which reveal a ‘listless’ UK economy.
“It is therefore not surprising to see a dramatic increase in sales promotion this quarter. But we would not want to see this as a long-term trend because our comprehensive bank of evidence shows that price promotions damage brands because they lower consumer price references and do not build brand loyalty.
“While, understandably, brands may think this is the right thing to do for their customers during the current cost-of-living crisis, it is a counter-productive exercise that may generate short-term spikes in sales volumes but will almost never change how consumers think or feel about their brand because they are only interested in the lowest price point.
“What happens next is the eventual erosion of a company’s long-term brand health and profitability.
“We continue to advocate the well-tested rule of thumb that a 60:40 ratio of brand building to sales activation is the best way to grow business through marketing activity.”
Commenting on the latest survey results, Laura Denman, Economist at S&P Global Market Intelligence, said: “Bellwether survey data highlights the resilience of UK businesses, who appear to have weathered a challenging economic landscape over the past six months a lot better than many had anticipated.
“Surveyed companies continued to expand their marketing budgets in the second quarter despite still-severe inflationary pressures and continued interest rate hikes.
“We’re seeing evidence that UK companies are proactive in their decision-making, and are adapting to the competitive business environment and challenging economic landscape in a robust manner.
“This bodes well for more stronger-than-expected results in the second half of 2023.”