Main media budgets down as brands ponder economic recovery

Main media advertising budgets have declined for the first time in three quarters, while overall marketing budgets have experienced an upturn amid an improving UK economy.

The latest quarterly IPA Bellwether report finds the net balance in main media budgets, which includes video, audio, published brands and out-of-home (OOH), shrunk -0.7%, down from 1.9% in the previous quarter.

Just 4.5% of companies registered an increase in main media marketing budgets, compared to the 15.1% recording a contraction.

At the same time, almost a quarter (24.4%) of businesses recorded an upward revision to their overall marketing budgets, signalling increased spend is not being committed to where it historically might – traditional media – but to sales promotions, events and direct marketing.

Sales promotions budgets grew for a second successive quarter, up 4.9% from 1.4% in January. Marketers anticipate sustained growth in this area for the year ahead, with a net balance of 6% forecasting an increase.

Since the last report in January, positive and improving business survey data indicates the UK recession will be short-lived, with growth expected to be confirmed by first quarter GDP data.

Principal economist at S&P Global Market Intelligence, Joe Hayes, points to “greenshoots” of recovery appearing across the UK economy, contributing to another strong round of marketing budget growth. The latest inflation figures, which fell to a 30-month low of 3.2% in March, reflect the positive outlook for the economy.

Marketing budgets get unexpected boost despite economic uncertainty

According to Hayes, cost-of-living pressures and high borrowing costs have led households and businesses to “retrench in recent times”, making the market more competitive for earning and retaining business.

“Throughout this period, we’ve seen marketing perform strongly, so it’s very encouraging to see that firms are staying true to the course that has clearly yielded positive results,” he adds.

The data indicates a much-reduced level of pessimism towards industry-wide financial prospects. Just under one-fifth (19.5%) of survey respondents were more optimistic towards their industry’s outlook than they were in the previous quarter. This was only narrowly cancelled out by 24.9% of firms expressing stronger negativity, yielding a net balance of -5.4% (up from -12.7%). Nevertheless, this was the highest seen for two years.

Still, macroeconomic challenges were identified as a key threat to the outlook in the coming 12 months.

OOH was the biggest driver of the decline in the main media sector, falling –10.8% from –8.1% in January. Meanwhile, 13.5% of businesses revised their budgets down for published brands – falling to -5.7% from -1.4%. This decline was slightly offset by a net balance growth of 7.1% for online advertising and 0.8% growth for video.

IPA director general, Paul Bainsfair, warned companies should be cautious when upping their promotional spend and revising their main media spend down.

“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,” says Bainsfair.

“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.”

Investment in events ramps up

The Bellwether report recorded the strongest increase in events budgets since data started being collected for this area of marketing 11 years ago.

With 31.9% of businesses signalling an upward revision, compared to just 8.8% which recorded a decline, the net balance of 23.1% was up from 15.9% in January. The results marked the ninth successive quarter an expansion of events marketing has been recorded and made the area the strongest of all Bellwether sub-categories for the first quarter of 2024.

Events are expected to be the main area of marketing budget growth for 2024/25, with a robust net balance of 18.7% of businesses anticipating an uplift in spend compared to the previous financial year.

Direct marketing was another category that experienced a noticeable uptick in businesses increasing their budgets. Close to a fifth (18.5%) of survey respondents signalled an upward revision to direct marketing budgets in the first quarter.

Market research budgets increased for the first time since the end of 2021, which marked a noticeable improvement on the previous quarter’s steep cut. Overall, the net balance was +1.4%, compared to -5% in the final quarter of 2023.

Despite 13.6% of businesses recording an upward revision to marketing research, modest growth in the first quarter of 2024 is unlikely to be extended into the current 2024/25 financial year, with a net balance of -4.4% of respondents anticipating a cut to market research -the most pessimistic forecast since 2021/22.

Bellwether asked businesses about any other paid-for marketing activity not already accounted for. In line with a trend apparent over the past six-and-a-half years, businesses recorded a further downward revision to budgets in the first quarter of 2024. However, the net balance was -4.3%, an improvement on the previous quarter’s -6.4% and the highest reading for two years.

Marketing budgets set to rise

Bellwether also asked respondents about their 2024/25 budget intentions. Across the board, businesses indicated they plan to increase marketing budgets, with 40.7% of the panel poised to increase the total amount available for marketing, compared to 18% reporting cuts.

Following on from last quarter, events have the strongest optimistic sentiment, with a net balance of 18.7% of survey respondents anticipating an uplift in spend compared to the previous financial year. Direct marketing follows a similar trend, with a net balance of 11.9% planning to raise budgets in the coming 12 months.

Despite the contraction during the first quarter, budgets for main media advertising are also expected to grow in 2024/25, with a net balance of 10.1% planning to increase available expenditure.

PR (6.3%) and sales promotions (6.0%) were the last two monitored marketing categories in positive territory for 2024/25.

That said, companies are still looking for cost-savings where possible, with spending in some areas of marketing expected to be withdrawn as a result. Market research (net balance of -4.4%) and the other category (-3.4%) are set to contract.