Marketing budget growth slows as economic headwinds strengthen

Nearly a quarter of brands increased their marketing spend in the second quarter of 2022 despite growing economic uncertainty, showing their intention to “market aggressively” during this tumultuous time.

Some 24.2% of the companies surveyed increased their expenditure against 13.4% registering budget cuts, which translates into a net balance of 10.8%. This indicates a slight slowdown in growth compared to the first quarter of the year when budget growth reached 14.1%, but means that it remains in solid positive territory.

Although the latest figure represents a decrease from the previous quarter, it is significantly higher than the fourth quarter of 2021, when a net balance of only 6.1% revised its marketing expenditure upwards.

Event marketing was by far the best performing category in the second quarter and a key driver of overall growth. A net balance of 22.2% from companies increased the event budget in the second quarter of 2022, compared to 18.7% in the last quarter, as brands seek to organize face-to-face activities now that lockdown restrictions are easing. are relaxed.

Public relations is the only other category to have seen its budget increase since the first quarter, from a net balance of 0.6% to 3.7%.

Elsewhere, marketing budgets have stagnated. Ad spending for major media fell from a net 9.4% in the last quarter to 0% in the second quarter, ending a long period of growth.

Video advertising (down 9% to 0.8%) and other online advertising (down 18.6% to 4.4%) are both down significantly but remain in positive territory. Meanwhile, audio and outdoor saw steep declines, dropping from -8.5% to -16.4% and -4.6% to -15.9%, respectively. Published brands fell into negative territory, falling from 1.3% in the last quarter to -2.6% in the second quarter.

Amid growing economic headwinds, a number of companies have signaled their intention to market aggressively to support their brand and gain market share from less prepared competitors.

Paul Bainsfair, API

After four quarters of growth, direct marketing also stagnated in the second quarter, falling from a net balance of 3.8% in the first quarter to 0% in the second quarter.

Similarly, market research budgets also fell in the second quarter. In the last two quarters of 2021, market research budgets increased, with a net balance of 0.7% of companies increasing their budgets in Q3 and 7% in Q4. However, in the first quarter of 2022, market research recorded a net decline of -3.5% and this widened to -6.5% in the second quarter.

Sales promotion also fell from a net balance of 8% in the last quarter to -0.7% in the second quarter, while other marketing activities not recorded elsewhere fell from -0.9% to -8, 3% in the second quarter, resulting in lower total expenses. research budgets see biggest increase in nine years as marketing spend slows

Deterioration of the financial outlook

The latest Bellwether report shows companies are also more optimistic about the industry-wide financial outlook, with a net balance of -26.7% more pessimistic companies compared to three months ago. This compares to a net balance of -3.6% in the first quarter of 2021 and is the most negative outlook since the third quarter of 2020.

Respondents’ opinion of their own company’s financial outlook also deteriorated, slipping into negative territory for the first time since the third quarter of 2020 with a net balance of -9.5%.

This deteriorating financial outlook for companies shows that marketers are “understandably concerned” about the tough economic climate ahead, says IPA chief executive Paul Bainsfair.

“It is interesting to see, however, amid growing economic headwinds, a number of companies have signaled their intention to market aggressively to support their brand and gain market share from less prepared competitors. It’s usually a wise and shrewd decision,” he adds.

“All of the IPA’s analysis of who does best in a downturn shows that the fastest recovering companies are those that maintain or increase their marketing spend during tough economic times. Similarly, cutting advertising budgets — relative to competitors’ spending — during a recession undermines companies’ ability to grow market share and future profits.

Bainsfair says some companies have also indicated that they are planning for the challenges ahead by positioning their businesses to support customers through difficult times.

“Brands must be seen and continue to work for the benefit of consumers,” he explains. “They are important because they provide choice that guarantees competition and lower prices, which in the months to come will be important for consumers looking to spend their money wisely.” “Strong Brands Always Win”: Why Marketing Investment is Crucial to Surviving Inflation

Lower forecasts

Although the ad spend forecast for this year and next remains in positive territory, it has been revised downward since last quarter as the economic outlook deteriorates.

While consumer confidence and disposable incomes are expected to be hit as the cost of living crisis intensifies and the risk of recession becomes more of a reality, the ad spend forecast for 2022 has been lowered. from 3.5% to 1.6%, according to the IPA Bellwether report authored by S&P Global Market Intelligence.

Given that interest rates are expected to rise further and many of today’s economic challenges will likely be present next year, the 2023 ad spend forecast has been revised down 1.8% to 0 .8%.

Ad spend forecasts for 2024, 2025 and 2026 have also been reduced accordingly, to 1.4% (from 1.7%), 2% (from 2.2%) and 2.3% (from 2.4%). %), respectively.

Joe Hayes, Senior Economist at S&P Global Market Intelligence and author of the Bellwether report, said: “Against a deteriorating economic outlook for UK businesses, the continued growth in total marketing activity is encouraging. However, the stagnation in major media marketing budgets is a disappointing result of the second quarter survey and suggests concerns about the outlook are weighing on decision-making.

“Risks are clearly on the downside as the deepening cost of living crisis weighs on disposable incomes, while businesses face tough spending decisions at a time when their costs continue to inflate. “