Still Cautiously Optimistic: British Industry Responds to IPA Bellwether Report for Q1 2024

It is heartening to see the resilience demonstrated by the sector with full marketing budgets seeing the second strongest upturn since Q2 2022. Sustained growth in budgets and glimpses of positive economic signs are all encouraging and indicate a steadier landscape for the year ahead. 

My advice to all brand leaders and CMOs is to continue to think long term, with effective purposeful work sitting at the heart of brand’s marketing strategies, deployed across multiple channels.

Events and brand experiences have always been the standout category for us, seeing the Q1 data reinforces our belief, which is encouraging (but not surprising). In recent years, we’ve witnessed a significant uptick in both client focus, and marketing spend with more of our partners understanding the commercial value of placing their customers in the heart of the moment. 

It’s not comforting, paradoxically, to see continued growth in client A&P budgets since the nadir of Q4 ’22, because the economic rebound we’re all searching for looks like a pipedream. GDP growth levels are predicted to be nominal over the next five years, and when you add in global and environmental factors on top of our domestic challenges, there’s little to be excited about. 

In addition, Q1’s marketing investment growth is short-termist given the drop in media spend. Without serious brand-equity investment, brands operating in saturated, high-innovation categories will be unable to compete in the long-run, having fallen on their own swords of promotional-reliance, with inevitable diminishing return and ever-eroding margin.

The latest Bellwether report shows some signs of optimism which is a welcome relief for the sector, however the reduction in main advertising budgets is a bit of a warning sign. Businesses are turning to safer, short-term direct channels such as events, direct marketing and sales promotions in order to boost the bottom line. But what brands need are marketers who are willing to look to the future and start investing now, so that they are the ones that come through this stronger than ever. That takes a bit of bravery, as you need to stand up to the short term-ism that is clearly rife. As the saying goes, the best time to buy a house is 20 years ago. The second best time is today. The same applies to building a brand and we’re ready to help you get the keys.

The latest report does tally with some of the conversations we’ve been having with clients recently. The feeling is that clients see the possibility of better economic fundamentals, which provides a platform for more investment. 

But we still cannot escape the short-term nervousness around macro geopolitical events. So while clients are preparing to increase budgets, they remain generally reluctant to commit to sustained investment in brand and tech. 

This means you get a report like this one, which signifies general optimism but still shows cuts in main advertising budgets. Hopefully the optimism is a prelude to more sustained investment in the second half of the year, though a bit more certainty and consistency is something I’m sure the entire industry would appreciate!

Direct marketing continues to shine in the marketing landscape, marking a consistent rise for the fifth consecutive quarter. Despite a slight dip compared to last quarter's peak, a robust 18.5% of companies have increased their direct marketing budgets, showcasing a clear commitment to personalised, targeted outreach. Surprisingly, this strategy is not garnering more aggressive investments, especially as event upticks highlight the undeniable value of one-on-one engagement. With a net positive outlook for the coming financial year, it's evident that direct marketing remains a vital, yet underappreciated, tool in building meaningful consumer connections.

Spring may well be in the air but, unfortunately, we haven’t seen the back of these bloody storms yet! Of course, it’s good to see sustained growth in overall spend and I’m sure those in the events industry will be delighted with these figures. However, confidence in the economy hasn’t fully returned yet and it’s disappointing to see the main media segment decline whilst sales promotions increased. Thankfully the 2024/5 forecasts look more positive.

This report largely matches our experience of the last quarter and we’ve seen a healthy optimism in Q2 and for the rest of the year. However it’s clear we need to remain agile to prepare for economic fluctuations. While the UK economy is showing signs of recovery, we need to be mindful of potential upheavals from geopolitical uncertainties. We all need to be prepared to adjust budget allocations swiftly in response to economic indicators and market conditions; monitoring interest rate changes, inflation, and other financial pressures. But there is no doubt that this is a positive start to 2024.

The unwavering resilience of the events industry, marked by its highest growth in 11 years, speaks volumes about businesses' steadfast dedication to engaging with their customers to drive loyalty. This surge in performance underscores marketers' growing recognition of experiences as potent avenues for forging connections with their target audiences.

As the UK economy emerges from the recent recession, brands have come to appreciate the vital role that experiences play in driving their bottom line. By offering a unique experience alongside authentic content, they can cultivate genuine, long-lasting connections with their audience to drive meaningful, sustainable growth.

Long term brand building should remain a focus, aligning experiences across the touchpoints to build loyalty is crucial for navigating the dynamic marketing environment.

The past year has been tough for brands to navigate amidst the cost of living crisis and talk of a recession. However as budgets are evidently increasing, it’s a really positive indication that the tide is turning across the marketing industry. As a brand experience agency, we haven’t seen the needle shift yet, but it’s encouraging to know it could be coming.

For a long time, brand experiences have been an afterthought for marketers because they haven’t understood the power of them. Now, with more robust data points available, such as measurable audience participation and social engagement metrics, there's an opportunity to authentically deepen brand loyalty while proving ROI. It's crucial for brands to consider incorporating experiential marketing at the outset of campaign planning to maximise the value of investment.

 

The report confirms what we already know: while overall marketing investment is holding, there is a discernible shift underway. Owned and earned media is more powerful than ever before because people have more ways to influence each other. Marketing models need to reflect this. People want to participate in culture and feel part of communities that share the same passions. The report reinforces the vital importance – as demonstrated by the growth in events – of identifying and working with the communities where brands can participate in a relevant way. This is a driving principle behind Iris’ positioning as The Participation Agency.

Although the Q1 Bellwether Report shows signs of economic recovery, growth in certain parts of the industry and bigger budgets overall, agencies should be cautiously optimistic. The cost of living crisis coupled with elections in 64 countries and political unrest in several regions means the uncertainty is set to continue. We can see the impact of lower client budgets reflected in the agency landscape with “mega-mergers” and the loss of several big, well established agency brands. It’s also reflected in the increase of small, independent agencies popping up who will be built to ride the waves of uncertainty from day one. 

As the country holds its breath in anticipation of a change in government and all the uncertainty that goes with it, its unsurprising  brands are investing in tactics that generate immediate results.  

But if the most optimistic predictions for consumer sentiment in 2025 come good, then increasing spend on customer experience could  turn out to be a great bet. Agencies should be helping brands to optimise sales journeys and improve customer comms so that they’re well placed to capture market share when the feel-good factor returns.

Some encouraging early results for 2024 that hopefully marks the start of a proper, quarter on quarter recovery rather than the false starts and false hopes of the last three years. Two key themes emerge; short term lead gen and sales driving activity is up. That’s been an emerging trend over multiple periods of financial difficulty in the UK economy over the decades so no great surprises there. But more notably this time, we’re seeing continued growth in social, video and digital media underlining a broader industry trend. With more brands than ever existing in the world today, they’re able to access more targeted, lower cost of entry channels to build their brands in the long AND the short term. And it’s where AI is making the most significant impact in enabling that.

 

But for brands being able to efficiently get more ‘stuff out there’ there is no substitute for making sure the creativity and content is actually effective at engaging and rewarding real people. That’s how the best brands will grow quicker as the economy starts to improve.

Tentative growth and optimism in ad budgets, shaky as it is, is good news. Investment in advertising drives economic growth as well as reflecting consumer optimism, and that’s positive for the whole sector.

However, the shift to short-term spending over brand building is something that we would hope to see change in the future - it isn’t an indicator of long term confidence. More investment there would be a greater indicator of a sector in robust health.

Cautious optimism still seems to be the name of the game. It’s encouraging to see confidence returning to the market, with total marketing budgets seeing the second-strongest upturn since Q2 2022. Some positive news on inflation will help consumer pockets, and a summer of sport gives us all something to look forward to, but we’re also well aware of wider geopolitical uncertainties which seem to be constantly on the horizon. We’re certainly advising clients to hold their nerve.

I am concerned that there seems to be a tendency towards short term, tactical / promotional spend, but I’m not surprised to see many observations in the comments section around AI. We’re big believers in building brands over the long term, be that through distinctive brand assets, finding meaningful difference or shaping culture through communities. Creativity is our superpower, and as the world of AI continues to knock at the door, creating future demand for our clients through authenticity and originality will be the only way to combat the sea of sameness, like a tidal wave, that is inevitably heading towards us. Brands that learn to work with AI, whilst being resolutely transparent and staying true to their core values, and most importantly their consumers’ beliefs, will be the ones that hold that consumer trust and ultimately benefit from their share of wallet.