Marketing budgets slashed | WARC – Warc

UK marketing budgets have been slashed to their lowest levels in twenty years as figures in the Q2 2020 IPA Bellwether Report show a dramatic increase in the net balance of firms that have cut marketing budgets: from -6.1% in Q1 to -50.7% in Q2.

The full impact of the COVID-19 outbreak is apparent in the report, with almost 64% of panel members having registered a decrease in spending compared to the first quarter, while only 13% posted an increase. These figures supersede the Report’s previous nadir of -41.7% evidenced in Q4 2008, following the global financial crisis.

Anecdotal evidence from the Q2 2020 Report suggests that many businesses were focused on cutting costs amid the severe declines in revenue caused by the pandemic. Although firms utilised the UK government’s furlough scheme to ease the burden of staff costs, other reductions were required in order for many businesses to survive.

Service sector companies faced particularly challenging circumstances, with little-to-no access to their clients amid enforced closures.

Event marketing hardest hit

With coronavirus restrictions prohibiting anything other than small gatherings, it comes as no surprise that funding for events marketing saw the sharpest reduction in the second quarter. A net balance of -76.6% of panellists registered a decline in events budgets, with more than 80% reporting a decrease. Just 3.6% posted a rise.

Main media advertising was also hard hit, with a net balance of -51.1% of marketing executives seeing a decline in available spend. Again, as one might expect, the worst performing sub-category was out of home advertising (-61.2%). This was followed by audio (-50.0%), published brands (-49.2%), video (-39.3%) and other online (-35.1%).

Of the seven broad marketing types covered in the report, direct marketing and public relations saw the joint-softest budget cuts in the second quarter, but net balances of -41.6% indicate the severity of the downturn for everyone.

Meanwhile, market research (-42.2%), sales promotions (-51.2%) and other marketing expenditure (-59.2%) each saw historic reductions for their respective categories.

Pessimism is widespread

Sentiment on own-company prospects plunged far deeper into negative territory compared to the first quarter, when the severity of the COVID-19 pandemic was only just beginning to become apparent. In the second quarter, precisely two-thirds of survey participants reported a pessimistic outlook for finances against 11.5% that expected an improvement, taking the net balance to -55.1%.

Reporting on industry-wide prospects, firms were also more pessimistic in the second quarter, with 72.4% of businesses pessimistic on financial prospects compared to just 6.4% that were optimistic. As a result, a net balance of exactly -66% of firms were downbeat, eclipsing the recent low of -42.0% registered in Q1.

Better times ahead in 2021

IHS Markit, author of the Bellwether Report, predicts an 11.9% decline in GDP for 2020 and an accompanying 11.3% reduction in adspend, with proviso that these figures are conditional on most sectors in the economy staying open for the rest of the year; a second wave of coronavirus infections remains a significant downside risk.

With a robust recovery in macroeconomic conditions during 2021 as businesses move closer to operating at full capacity, IHS Market predicts a 4.9% expansion in GDP and implied adspend growth of +6.0%. Beyond that, it expects the economy to achieve above-average growth during a further recovery phase, before stabilising near long-run rates in 2024 and 2025.

Welcoming the positive forecasts for a return to adspend growth in 2021, Paul Bainsfair, IPA Director General, cautioned that “a significant part of this coming to fruition hinges on the decisions companies make now. Ultimately, companies must invest in marketing in a recession in order to profit in a recovery.”

WARC with the Advertising Association will be releasing the latest figures for the UK advertising market on July 30th. More information is available here.

Sourced from IPA

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