Brexit concerns cause UK ad budget to stall for first time since 2012

Cracked EU flagOngoing political and economic uncertainty surrounding Brexit has seen six years of continuous growth for UK marketing budgets grind to a halt.

According to the latest IPA Bellwether report, marketers noted no change to their overall budgets for the first time since 2012 in Q4 2018. Despite 16 per cent of marketers reporting an increase in spend, 16 per cent went the other way and cut their marketing spend – entirely offsetting those that upped their budgets.

“In uncertain political and economic times such as these, the understandable reaction for some advertisers is to lose confidence in brand building advertising and to think short term even to the point of heavily discounting their products and services,” said Paul Bainsfair, director general at the IPA. “We’ve seen this on and offline in the run up to Christmas – and now see the impact in black and white in this latest Bellwether Report.

“We know from the research we have done into what builds and what destroys brands – and it is proven – that too much short-term sales promotion activity destroys brand value in the long term. Marketers need to weather this turbulent period and think ahead. Now is the time to be bold, to keep up their share of voice and, if they can, increase it to grow their share of market. Businesses that rely on the strength of their brands need to follow the general 60:40 (brand building vs activation spend) rule of thumb.”

Looking at where the money is being spent, internet budgets fell to +2.1 per cent from +13.6 per cent in Q3 2018. Within this, search/SEO dropped from +5.8 per cent to -3.9 per cent – its first cut since Q2 2009 – and mobile advertising budgets were also revised down -2.4 per cent from +1.9 per cent in the third quarter.

Elsewhere, for the first time since Q3 2012, panellists involved in the Bellwether study were downbeat about the financial prospects for their companies, with a net balance of -0.9 per cent compared to +5.7 per cent in the three months prior. Meanwhile, industry-wide prospects continued to be negative, as has been the case since the fourth quarter of 2016. In Q4 2018, the net balance fell to -28.6 per cent from -21.0 per cent in Q3 2013 – representing the most pessimistic industry level view for seven years.

The industry reacts…

Julia Smith, director of communications, Impact EMEA
“The latest IPA Bellwether report heralds the news that, in Q4 2018, marketing budget growth ceased, after a six-year consecutive run. It is understandable that there has been a negative effect on spend given the fragility of the economy in the wake of a looming Brexit decision, with the report also predicting muted growth in 2019 in light of the ongoing and uncertain Brexit negotiations.

“There are going to be challenging times ahead and brands will be more focused on their own corporate challenges and shareholder pressures; rather than on their marketing spends. However, marketers will invest in digital advertising and reap the benefits of a performance driven sector that continues to deliver strong results. This is going to be driven by the fact that consumers are immersing themselves more than ever in their screens. It has therefore never been a more effective time to generate accountable results across video, mobile and display.

“Of course, there is still the white elephant in the room of a potential second referendum on Brexit and it remains to be seen to what extent this will affect the flow of marketing spend into digital advertising in 2019.”

Ben Little, founder and director, Fearlessly Frank
“The latest decline in marketing spend is the death rattle of the magic sales tap. For about thirty years too long, CEOs and investors, egged on by marketing directors and profit-driven agencies, have worshipped the magic tap. The arrival of digital made things worse.

“The belief works like this; make your product, turn on the magic sales tap and watch it fly. Turn the tap a little (small spend) and you get drips in return. Turn it on full (big spend) and you get a rush. Well, maybe it worked like that once.

“The current downturn is in part due to the economic uncertainty, but it’s also down to a decline in belief in the magic sales tap. We’re seeing many new businesses creating strong well-defined brands with little conventional marketing support. The real job is achieving sales with as little expenditure as possible.

“And in response critical thought and real creativity is beginning to return to the process of growing a business. We call it innovation.”

Chris Rowett, performance director, Journey Further
“An emerging theme for 2019 so far has been to find growth from a similar or decreasing overall budget, which fits with the findings of the report.

“Businesses across multiple sectors are trying to increase their margin by improving their marketing ROI, perhaps in response to increasing costs and uncertainty.

“As ever, our clients are looking to us to find new and innovative ways to help make their marketing spend go further. This often manifests itself in demands for greater transparency in media buying, so advertisers can better understand how digital works and interrogate its efficiency.

“’Where can we cut waste?’ and ‘Where can we find value?’ are the questions our clients are looking to answer.”

Jean-Christophe Conti, chief executive officer, VIOOH
“We are in a classic cycle of an uncertain economic and political time where advertising budgets are cut or pushed back, while brands wait for the uncertainty to pass.

“Yet at the same time, smart marketers have also understood that brands that weather the storm and continue to advertise through these periods have grown, and in some cases captured market share.

“And right now, we have a perfect storm building with specific political uncertainty in the UK due to Brexit and a continued trust crisis for advertisers regarding digital advertising channels such as Google and Facebook.

“As a result, traditional and trusted media channels which offer digital targeting capabilities are uniquely positioned to enable savvy marketers to make the best of what is perceived to be a market slowdown.”