Q3 IPA Bellwether report: Growth slows, outlook hardens

q3 ipa bellwether Image by PublicDomainPictures from Pixabay

The cost-of-living-crisis has led to a slowdown in marketing budget growth among the world’s leading brands.

That’s according to the third quarter IPA Bellwether report on the state of the marketing industry, out today. 

Q3 IPA Bellwether

Another period of total marketing budget growth was recorded in the third quarter of 2022 continuing the positive trend that began over a year ago, the IPA said. 

“However, the expansion slowed for a second successive quarter as the cost-of-living crisis, soaring energy bills, weakening demand and economic uncertainty stalled business decision-making and led some companies to retrench”.

According to the latest survey findings, 22.2% of companies increased their total marketing budgets in the third quarter. 

Despite more challenging economic conditions, some Bellwether participants noted that efforts to invest in their brands would continue as they look to retain market share with new innovative methods to promote their products and services. 

Boosting brand visibility through digital channels was also frequently mentioned by respondents, the IPA said.

However, only a marginally smaller proportion of companies registered total marketing budget cuts during the third quarter (20.1%), resulting in a weak positive net balance of +2.1%. 

This, it said, was down from +10.8% in the previous period and its lowest seen across the current six-quarter expansion sequence.

Energy prices and inflation

Rising cost pressures was a principal challenge faced by UK firms in the third quarter. 

With energy bills and general prices for goods and services rising sharply, profit margins have ultimately been squeezed. 

At the same time, high inflation has caused consumers’ purchasing power to deteriorate, weighing on demand. 

This has led some companies to retrench, with marketing budgets being reduced as a result. 

Record growth for events sector

Indeed, of the seven categories of marketing spend monitored by the Bellwether report, only events saw growth in Q3, reflecting the continued appetite for face-to-face meetings and engagements in person following the lifting of COVID-19 restrictions. 

Even here however, growth slowed notably (net balance of +4.5%, from +22.2%)

Mainstream media declines

Elsewhere, main media marketing budgets– which includes big-ticket advertising campaigns relating to TV and radio – fell for the first time since Q1 2021 (net balance of -3.1%, from 0.0% previously). 

The decrease was only mild overall, indicative of a cautious reduction amid rising risks to the UK economy. 

Within main media, the largest drags were published brands (net balance of -11.2%, from -2.6%) and out of home (net balance of -7.6%, from -15.9%), while audio also fell slightly (net balance of -2.0%, from -16.4%). 

Other online advertising (net balance of +9.3%, from +4.4%) and video (net balance of +8.7%, from +0.8%) meanwhile saw growth.

The largest downturn was once again seen in the segment containing other forms of marketing not accounted for by the survey (net balance of -10.5%, from -8.3%). 

Sales promotions budgets also fell, marking a second successive quarterly decrease. The net balance registering a drop in spending here fell to -7.5%, from -0.7%.

Cuts of a more modest nature were seen in the remaining segments. 

PR budgets

Public relations budgets fell for the first time in a year (net balance of -4.8%, from +3.7%), while a decrease of a similar strength was seen for market research (net balance of -4.1%, from -6.5%). Lastly, direct marketing budgets fell fractionally (net balance of -0.6%, from 0.0%).

Commenting on the latest survey results, Joe Hayes, Senior Economist at S&P Global Market Intelligence, said:

“Bellwether survey data suggests that UK companies were able to squeeze out another round of marketing budget growth in the third quarter, although momentum has faded quite significantly since the first half of 2022 as the broader economic picture has darkened. 

“Budget cuts are being seen across the majority of the monitored segments of marketing spend as companies move into retrenchment mode due to soaring costs and slowing demand. 

“The cost-of-living crisis will continue to weigh on household earnings throughout the winter, meaning discretionary spending cutbacks are inevitable for the UK’s low-to-middle income groups that are at the heart of the economy.”

Outlook

The IPA noted that a number of businesses were optimistic due to the products and services they had on offer in the sustainability and eco-friendly space. 

This formed part of a broader theme seen throughout the opportunities section in the latest Bellwether survey, with many companies also noting their efforts to promote energy-saving goods and services, as well as innovative offerings to help households and businesses mitigate climate change.

The focus on energy-saving was propelled by developments across both international and domestic gas markets during the third quarter. 

Russia’s invasion of Ukraine, and the subsequent fragmentation of gas supply to Europe, has caused wholesale gas prices to soar. 

Although the UK government has unveiled targeted measures to soften the impact, many survey respondents still highlighted their considerable concerns. 

Fears were especially pronounced among manufacturers as high energy costs challenged the viability of production lines.

The energy situation was also at the heart of the cost-of-living crisis faced by UK consumers. 

Companies expressed their fears that, due to soaring household bills and general inflation, consumer purchasing power will be squeezed, leading to a reduction in demand for their goods and services and possibly even a UK recession. 

Some companies were also worried about knock-on effects such as staff retention issues as workers look for higher wages elsewhere to offset inflation.

Overall, the expectation that high inflation would continue was ultimately the main underlying factor behind the threats noted by Bellwether panellists in the third quarter. 

Currency weakness, supply-chain dislocations and rising borrowing costs were also cited as reasons for caution.