British Industry Responds to Gloomy Q3 IPA Bellwether Report
The Institute of Practitioners in Advertising (IPA) has just published the report and core charts outlining the results of the Q3 2022 IPA Bellwether Report, in the midst of the cost-of-living crisis ravaging the UK’s economy. The report unveiled that total marketing budgets increased by a ‘weak positive’ net balance of +2.1%, which is the slowest pace since Q1 2021 due to the effects of the cost-of-living crisis, soaring energy bills and weakened demand and economic certainty stalling business decision-making.
The report also stated that “high inflation has caused consumers' purchasing power to deteriorate, weighing on demand. This has led some companies to retrench, with marketing budgets being reduced as a result.” While events remained “a key avenue of marketing growth” and saw some growth in Q3, budgets were cut in every other sphere. For example, the report revealed that TV and radio fell for the first time since Q1 2021 (net balance of -3.1%, falling from 0.0%) and published brands (net balance of -11.2%, from a previous -2.6%).
Financial prospects have also plummeted to levels seen at the beginning of the pandemic, as the UK anticipates “more challenging economic conditions”, stated the report. Comparing the data from three months ago, the research signaled a higher level of ‘negativity’ amongst Bellwether firms when it came to financial prospects of their specific industry.
The report finished on an optimistic note, though, revealing that 2022 adspend growth forecast for this year saw a slight uptick to 3.6%, due to the UK government’s energy support relief package.
LBB spoke to experts across the industry about their main takeaways from the report and what we should expect to see in the future.
Neil Henderson, CEO, St Luke's
2023 is set to be a challenging year for marketers. With budgets under pressure advertisers will be needing to get more for less and there will be a considerable push for short term sales results as demand weakens.
We have already seen communication strategies changing in response to the drop in consumer confidence.
The opportunity - as ever in a recession - will be to achieve greater share of voice as competitors abandon the market. Crisis can mean opportunity for those with the means and vision to respond to the new market conditions.
Brands that have previously invested in a clear positioning and an enduring brand platform will be best placed to flex to the challenge posed by the crisis. When times are tough consumers retreat to brands they trust.
As we saw in the pandemic, our job as agencies will be to use our insight and creativity to keep brands listening and relevant through these times.
Rowan Manning, President Dentsu Creative UK
Today’s report makes uncomfortable, though not unexpected, reading. The mirror image of the 2008 data is stark and given the turbulence of the last couple of years, layered with the current cost-of-living crisis, it’s natural that marketers are proceeding with just as much caution as we all are in our own lives. But we all know that brands strong enough to step up in a crisis prevail.
Modern creativity is a true value exchange for both brand and audience, and right now, it’s more important than ever to for brands to get genuinely, radically, people-focussed, and shift to deploy a truly future-facing model that delivers measurable business and customer value by outsmarting rather than outspending.
This is precisely the world Dentsu Creative was architected to serve and we are seeing strong interest from clients looking to innovate in how they engage customers in ways that are really useful, across our specialist Experience, Entertainment, Brand Transformation, and Earned Capabilities. It's the bespoke, responsive blending of these ecosystems which will drive growth in turbulent times as well as truly meet customer need.
Jeremy Hine, CEO, MullenLowe Group UK
Given the squeeze on profit margins caused by the cost of living crisis and rising energy prices, it’s unsurprising to see business leaders approaching their financial futures with renewed caution.
With further reluctance toward increasing marketing spending over the coming months, now is the time for advertisers to revise media strategies in line with consumer attitudes so that campaigns are targeting audiences with hyper-relevance. Those that don’t have a clear strategy will find it hard to resonate with audiences in an impactful and meaningful way.
Brands need to appear in touch with current economic challenges and place consumers at the heart of what they do. With the festive season approaching and the marketing spend for big-ticket campaigns dwindling, brands need to reflect the psyche of the nation through authentic and true-to-life communications.
Simon Harwood, head of strategy, the7stars
The Bellwether Report made for interesting reading with perhaps the only surprise being that overall marketing budgets are holding up well, with some inevitable pressure on media spend.
With recent experience of guiding their brands through a global pandemic and lessons learnt from the last financial downturn, marketers are more tooled up than ever to weather this period and protect their brand value from being eroded. Perhaps this is reflected in the relatively shallow nature of the declines so far, mostly coming under media channels already under pressure such as the publishing sector.
Les Binet’s recent analysis of the tools available points to the importance of researching what is important to each sector. No two recessions are identical and this one is especially singular, having started as a supply-side crisis before impacting demand.
The elephant in the room is that since this research was conducted, the ‘Trussonomics’ mini-budget has ravaged the mortgage market to the extent that rising interest rates may supplant energy costs as the next wave of pressure on disposable income. Each category will be affected, but where some brands will inevitably trim spend in line with falling demand, others will see opportunities.
It's welcome to see that marketers aren’t turning to price promotions (the second-worst performing segment of marketing spend) as a short-term demand fix. Understanding the price elasticity of the brand is critical, and price promotions tend to erode the strength of your brand to command a premium and reduce the chances of trading down.
Prioritising media choices based on maximising profit, not ROI will be key. Some media will get cheaper if investment comes under pressure, which means there is value to be had (and a SOV boost) for those advertisers who can afford to maintain budgets.
It’s interesting that many companies hope to increase their brands' visibility across digital channels during the downturn. Every channel is pretty much ‘digital’ these days from your TV to the poster on the street and the news you read or listen to. So digital isn’t quite the get-out-of-jail-free card it might have been in the last recession. Plus digital can do a ‘brand’ job now too. Tweaking your investment between brand and activation will likely drive stronger profit increases than moving money across arbitrary digital and traditional divides.
Michelle Whelan , U.K. CEO, VMLY&R COMMERCE
The indicators from the Bellwether Report are not a surprise. Recent discussions with our clients indicate that companies will move money out of main media marketing budgets into commerce channels where performance continues to grow. We are at an inflection point where brand equity building activities and conversion are all happening on the same platforms driving greater efficiencies and therefore return. We will see this mirrored by consumer behaviour as people search for smarter ways to manage their decreasing budgets.
Karla Smith, CFO, Ogilvy UK
The Bellwether Report shows what many are feeling around them. There is still year on year growth in marketing spend but it is slowing. There is uncertainty and CFO’s are reacting by pausing or cutting spends, or sending messages that is what might happen soon.
Now is the time for the CMO to partner with their CFO. In times of economic uncertainty the CFO feels a responsibility to steer the ship through the storm. Sometimes this can feel a very lonely task, having to revert to behaviours of control and command when they want to be enablers that springboard their businesses. How you articulate your request to maintain or even grow marketing spend during a period like this is crucial. If you have conversations that focus on measurable targets that ladder up to your company strategy, if you commit to outcomes that you and your team will hold yourselves accountable for that is a position a CFO might be able to tolerate. Use your own commercial teams and the commercial teams at your agencies to translate your vision into the language a CFO speaks. Remind your CFO of the importance of a mix, that short term cuts have long term implications on brands and that even though the market might not be growing now is the time for you to be growing market share by standing side by side with your customers through uncertainty and reassuring new ones that you are the brand that will weather the storm with them.
Anastasia Leng, CEO and Founder of CreativeX
The latest IPA Bellwether report comes with a word of caution – budget growth is likely to come to a halt. One would be forgiven for assuming marketers are doing everything to make the most of their spend but the reality is quite the opposite: marketers are wasting millions in ineffective advertising spend by running tens of thousands of ads with a low creative quality score.
The reason is simple: thanks to the rise of visually led platforms like TikTok and YouTube, not to mention the onslaught of programmatic video, most brands have scaled content production volume 5-10x in the last few years yet haven’t sufficiently adapted their processes to revamp how they create, adapt, review, measure and learn from all their visual marketing.
The result? Over 70% of Fortune 500 images and videos produced are not in line with basic creative “first principles,” whether that’s consistent logo usage, product framing, usage of supers and subtitles and more. Together, these principles make up something called the Creative Quality Score (CQS), a KPI that has been statistically linked to improved media efficiency, like cheaper CPMs and cost-per-completed view, not to mention higher ROAS. We can cut our budgets and accept that we will just do less, or we can take this opportunity to explore whether now is the time to try doing things differently.
Gabrielle Stafford, CMO of Supermetrics
Enormous marketing budgets solve a lot of problems but whenever economic turmoil hits, marketers across both large and small brands are desperate to explore the ways to get more bang for their buck. However, as the IPA has previously warned, marketers must be cautious of pulling back on spend as it can often do more harm than good. While overall marketing spend is set to grow – albeit at a slower level – this is still encouraging reading (at least for now), but it requires brand consistency and presence across all channels. And usually, this doesn’t equate to dropping budgets, but maintaining or increasing them, particularly in periods of economic downturn.
That’s why it’s important to let data-driven insights drive the marketing plan. For instance, marketers should always study the demographics of each channel’s audience and match their customer avatar or persona with their knowledge of the major advertising and social channels. Having these sorts of insights in the toolbox is what allows brands to understand what customers want and the kind of content that engages them. Such an approach can anticipate customer needs or challenges and pivot accordingly, putting brands ahead of competitors when budgets are tight in time for the festive season.
