Marketing budgets cling to growth despite recession fears

UK marketing budgets continued to grow in the last three months of 2022, despite high levels of pessimism as marketers face a recessionary 2023, finds the latest IPA Bellwether report.

A modest net balance of 2.2% of firms increased their total marketing spending in the fourth quarter of 2022. Around one fifth (20.2%) of the 300 marketers surveyed reported an upward revision in their marketing budgets, while 18% made cuts.

This marked the seventh consecutive quarter of budget growth. The balance of firms to increase marketing spend remained consistent with the previous quarter, when a net balance of 2.1% reported total marketing budget growth.

Despite gloomy macroeconomic predictions for the year ahead, respondents indicated the intention to maintain increased marketing spend throughout the year. Almost four in 10 (39.5%) of the firms surveyed expect marketing budgets to be higher in the 2023/24 financial year, with just 15.3% expecting spending cuts.

This means a strong positive net balance of 24.2% expect marketing budgets to grow this year, suggesting firms are protecting spend despite economic concerns.

Unlike the previous quarter, the last three months of 2022 saw a net balance of 4.4% of companies increase main media spend. The third quarter had seen a net balance of -3.1% make cuts in the category, including spend on TV, radio, out of home and online.

A net balance of 13.7% increased spend on video, while a balance of 6.3% increased online advertising spend. Audio budgets remained unchanged, while a net balance of -3.9% decreased spend on published brands and a balance of -8.8% cut investment in out of home.

A strong net balance (13.4%) of respondents expect to increase main media spend in the next financial year.

Events was the only category outside of main media to grow during the quarter, as post-pandemic demand for in-person experiences continued. It recorded a positive net balance of 5.7% in the quarter.

However sales promotions, market research, PR, direct marketing, and other marketing activities were all cut. A net balance of -8.8% of firms reduced their market research budgets compared to -4.1% in the previous quarter, while sales promotions were slashed by a balance of -4.0%.

Given the macroeconomic situation has worsened since the last IPA Bellwether report, IPA director general Paul Bainsfair describes the positive balance in marketing spend and outlook as “most welcome”.

“We can see that the companies that can are holding their nerve and continuing to invest in marketing through the downturn, with supporting anecdotal evidence from the report also revealing that a lot of companies who are concerned about losing market share to competitors have either maintained or increased their spend accordingly,” he says.

“This indicates that marketing is being used both defensively and offensively.”

The findings are consistent with the predictions of media agencies last month, who told Marketing Week they weren’t expecting big budget cuts among major advertisers this year.

“Everyone knows next year [2023] is going to be tough and people have been planning for it and trying to ringfence and protect their marketing budgets,” the7stars head of strategy Chris Gilfoy said.

Negative financial sentiment

However, the report finds companies are on the whole pessimistic about the financial future of their industries.

Over four in 10 respondents (41.8%) believe the financial prospects within their specific industry have worsened compared to the three months prior, and only 8.7% of firms believe prospects have improved. This means a net balance of -33.2% are more negative about prospects for their specific industry than they were three months ago.

This figure is actually slightly better than it was in the third quarter, when a net balance of -44.3% believed industry-wide prospects had deteriorated. However, the figure from the latest report still represents the second most pessimistic assessment of industry-specific financial health since the second quarter of 2020, which marked the beginning of the pandemic.

The proportion of respondents who were more pessimistic about their own companies’ prospects has also reduced from three months ago, dropping from a net balance of -27.6% to -17.2%. However, over double the proportion of respondents were more downbeat (32.8%) than more optimistic (15.6%).‘Sweat every single pound’: How will media spend shape up in 2023?

Inkeeping with gloomy expectations for the year ahead, report authors S&P expect gross domestic product (GDP) to shrink by 0.8% in 2023. As macroeconomic conditions worsen in 2023, it expects ad spend to decline by 0.3% in the year.

However, it expects the recession to be “short and shallow” and for GDP to return to growth of 0.6% in 2024. In line with this, it expects ad spend to grow by 1.2% in 2024.

Beyond next year, it has forecasted higher GDP growth than it did in previous reports and has predicted ad spend will continue to grow in 2025 and 2026 by 1.8% and 2.0%, respectively.