The third quarter of 2023 saw marketing budgets revised up slightly as brands prepare to take on tumultuous economic headways, according to the latest IPA Bellwether Report. 

The report finds that the quarter's overall growth was driven by upward revisions to the main media category. The data suggests that consistency in marketing spend is as a result of efforts to protect brands as the economy heads toward recession.

As businesses respond to inflationary pressures some become more cautious with budgets, while others capitalise on competitor hesitancy and look to marketing as a way to protect brand value and price premiums. As a result 21.1% of Bellwether firms increased their total marketing spending, while a significant 15.8% registered a downgraded budget. This equates to an overall net balance of +5.3%, which makes Q3 the weakest quarter of the year so far.

Mood split among marketers

Sentiment amongst respondents remained generally subdued as Bellwether firms report to be only slightly optimistic. On the financial prospects for their own businesses, Bellwether firms saw a net balance of +5.2% of companies reporting stronger sentiment than three months ago. Yet while 25.4% of respondents were more upbeat on their financial outlook, 20.2% signalled weaker confidence. A majority (54.3%) cite no change.

Industry wide the mood was a little more negative, as a third of panelists reported to be downbeat towards the outlook for their sector (24.9%) over double the proportion who were positive (12.1%). A resulting net balance of -12.7% is the greatest degree of negativity towards overall industry financial prospects in the year so far, yet has changed only slightly from from the previous quarter which saw a net balance of -12.6%.

Category growth amid uncertainty

Despite the somewhat gloomy outlook the panel members that registered growth look to invest within categories in a bid to to reinforce their brand's position ahead of a potential market downturn. The main media advertising category, largely recognised for its long-term brand building capabilities, was the strongest-performing segment of the Bellwether survey in Q3 seeing +7.4% growth, at the strongest rate in a year-and-a-half (-2.5% previously). 

The popularity of the main media advertising category is attributed to brand efforts to seize additional market share as competitors prioritise short-term cost-savings over long term business growth. In a cost of living crisis purchase decisions are up for grabs and brand building can help capture a moment of change. In contrast to the Q2 report which saw a focus of sales promotions budgets as cost-of-living pressures peaked, many companies are now looking to brand building to survive steep price hikes. 

Within main media companies reportedly engaged more with new innovative tools such as artificial intelligence and the likes of video (+0.9%, from +3.2%) published brands (+0.8%, from -5.0%), audio (-10.8%, from -8.0%) and out of home (-12.1%, from -7.1%) were categories that all experiences some form of growth.

Events has remained an area of expansion since the opening of 2022 as companies continue to harness the power of connection post pandemic. Other areas of growth include direct marketing (+4.3%, from +7.3%) and public relations which experienced its strongest pace of growth in the past five years, +4.0, from -1.9%.

Elsewhere cuts could be found in the final three segments of the report in market research, other and in sales promotions -1.5%, from +13.4%. Sales promotions being a segment which had previously experienced significant growth, its decline reinforces brands’ change of approach as they ready for recession.

“This quarter, those companies that can are heeding the evidence that in general, investing more in main media will help to steady them through the uncertain times and help to ensure the longer-term health and profitability of their brands. Crucially, they – alongside the many investment analysts we have also recently surveyed - are recognising that marketing spend is indeed an investment not a cost.” adds Paul Bainsfair, IPA Director General.

Getting ready for recession

According to report author’s S&P Global Market Intelligence's latest forecast, the UK economy will expand in 2023 by 0.3%, and has downwardly revised its growth forecast for 2024 to -0.1%, from 0.4% previously. The next year looks set to be lacklustre as the full impact of the Bank of England's interest rising rates has yet to materialise and inflationary pressures remain. As such, S&P Global expects the UK economy to endure a shallow recession over this period. 

Growth for the ad industry isn't expected to be seen again in real terms until 2025. S&P expect a a modest recovery of 1.3% in annual growth terms as the UK economy picks up, currently this means 0.9% in 2025, with a further improvement in 2026 as economic growth strengthens and then 1.4% on a year-on-year basis for 2026 and beyond.