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UK budgets continue to grow despite economic uncertainty: IPA Bellwether Q2 Report

UK marketing budgets continue to grow, despite sharply deteriorating financial prospects as inflation skyrockets and the cost of living spirals, according to the latest IPA Bellwether Report.

According to the survey data, budgets were revised up by 10.8% in Q2. This continued emphasis on keeping ad spend high is at odds with the increasing pessimism felt by many in the industry. IPA recorded the most pessimistic quarter since Q3 2020, with 40.3% of marketers expressing negativity about their own business prospects.

As in-person activities are now back in full swing, it is unsurprising that the biggest revisions came in event budgets, with an average increase of 22.2%. Online ad spending also increased by 4.4%, while video saw a small increase of 0.8%, though both experienced a slowdown of growth when compared to the previous quarter. More worrying was the stagnation of main media advertising, dropping from +9.4% the previous quarter to 0.0%.

Treading the tightrope

The reticence to cut ad spend even when faced with a possible recession indicates that many are aiming to navigate this period of instability by maintaining a strong marketing presence. This is a fine tightrope to walk, but one that Pierce Cook Anderson, Managing Director, Northern Europe, Equativ (formerly Smart AdServer) believes marketers will need to tread:

“The signs are that we are sliding into a recession and, from a technical perspective, are probably already there. The downturn will likely last for some time, impacting overall marketing spend and leading to further budget cuts in Q3 and beyond as clients shift spend.

But shutting down marketing budgets and media activities completely is not the correct response to this complicated economic situation. Certain sectors will still need to advertise, and should be able to afford to do so. The challenge is finding the right balance and the most effective methods. In other words, buyers need to adapt their strategies and create greater cost efficiencies to drive ROI by targeting quality over quantity. This means investing in the open web and relying on trusted partners that will ensure efficient media buying – notably by offering curated marketplaces and contextual targeting, which will become even more relevant in a cookieless future.”

The key for brands looking to boost efficiency and maintain high levels of impact despite shrinking budgets will be flexibility and for this, brands need a good handle on their data, states Harriet Durnford-Smith, Chief Marketing Officer at Adverity:

“Inflation, cost of living and recession fears are rising fast. In a time of uncertainty, marketers need to be operating as efficiently as possible. By being able to make quick decisions and accurately forecast the impact of these economic shocks means that marketers can ensure they continue to deliver ROI.

Additionally, we are still seeing industries bouncing back from the pandemic. With ongoing disruptions — such as Heathrow capping sales of flights during the summer — it has never been more critical for marketers to have access to accurate data in order to mitigate risk and optimize spend.”

Cutting waste

With marketers looking to squeeze more value out of their budgets than ever before, John Stoneman, SVP, Global Demand at TripleLift, asserts that extra value can be found by optimizing the programmatic buying process:

“Although the financial headwinds have impacted the growth of main media marketing budgets, we continue to see steady demand flow through our exchange. Buyers understand the value of programmatic media trading as a proven and efficient way to reach their target audiences. As the route to the consumer becomes more complicated, less trackable, and overall more expensive, investing in Supply Path Optimisation is crucial for marketers to gain a better understanding of their investments, cut further waste, and improve their KPIs.”

Ben Putley, CEO and Co-Founder, Alkimi Exchange believes that new technology can assist with making the buying process more transparent and therefore cost-effective:

‘’Despite the modest growth in budgets, the increasing economic uncertainty in the UK will likely cause marketers to be more cautious with their spend – and rightly so. With brands needing to maintain a good level of consumer awareness, marketers are going to have to maximize the potential of their budgets. For advertisers and publishers looking to find extra breathing room, decentralized ad exchanges can provide an answer. Not only do the reduced fees on these emerging exchanges free up more spend, but the transparency enabled by the use of blockchain technology allows supply paths to be better optimized to ensure spend isn’t wasted.’’

We’re all in this together

Surviving what’s ahead will mean the industry needs to work together on effective solutions that tackle not only budget waste, but the impending loss of third-party cookies, says Chris Hogg, Chief Revenue Officer at Lotame:

“We are still treating a UK recession as a mere possibility; the discussion is still “how likely?” but the only relevant questions should be “how long?” and “how deep?”. We have seen softness in media for Q1 via signals from our global data marketplace, followed by some stability in Q2, and we’ll choose to read that as a positive sign. However, as consumers are hunkering down, demand is starting to weaken, and manufacturing indices are beginning to decline, so marketers will need to treat budgets with caution for the foreseeable future.

“On top of this, the industry is still grappling with ways to ensure audience addressability in the new age of privacy. It’s crucial that identity vendors and publishers collaborate to help marketers spend smarter, rather than squabbling over the effectiveness of their respective platforms. To truly deliver privacy-first data solutions for campaign and budget optimization, industry players must work together; the future profitability of our industry depends on it.”

TL;DR: With economic prospects for 2023 through to 2025 being downgraded, and ad spend growth in turn decelerating, it is clear that tough times may be ahead for the ad industry.

More industry comments

On IPA Bellwether week, WNIP is flooded with comments from the industry, and here are a few we’ve noted over the last few days:

Charlie Brookes, Director of Revenue of Octave Audio comments:

“While the latest IPA Bellwether suggests a drop in audio ad spend in Q2, the latest IAB UK figures show that digital audio is booming across areas such as streaming and podcasting. With marketing budgets reduced, advertisers need to ensure they are tailoring messages and targeting with more precision. This means first-party data strategies need to be strengthened to ensure the right audiences are being reached in the right environments. As the digital audio industry continues to evolve, marketing budgets need to work smarter, not harder to be effective.”

Isabella Jenkins, Agency Partner at Permutive comments:

“With reducing media budgets, advertisers need to work with partners that can provide consented first-party data and an opportunity to build one-to-many relationships with publishers. Brands have a truly powerful opportunity to create and scale meaningful ad experiences with consumers, while protecting their privacy.”

Dominic Woolfe, UK CEO, Azerion comments:

“The industry is really starting to feel the effects of the cost of living crisis as advertisers will be under immense pressure to deliver to the demands of their brands in an overcrowded marketplace. However, we remain confident that advertisers can bounce back from this. Ultimately, those that continue to adapt to ever-changing consumer behavior by prioritizing creativity and brand performance will achieve the most success in the coming months.”

Vihan Sharma, Executive Vice President Global Sales and MD of Europe, LiveRamp comments:  

“Despite the difficult economic climate, the resilience of online advertising budgets indicated by this quarter’s IPA Bellwether is encouraging….the privacy-centric, first-party future is here, and already publishers and marketers are utilizing new addressable solutions to achieve more accurate measurement and audience reach far beyond the capabilities of third-party cookies. 

“Delivering true people-based marketing will not only restore the value exchange between brands and their audiences, it promises greater return-on-spend and the chance for publishers, platforms and advertisers to take back control of their revenues.”

Russell Pedrick, Director of Digital at Wireless comments:

“Whilst the latest IPA Bellwether revealed that audio spend has been somewhat reduced in Q2, we know that digital audio is the fastest growing medium in digital advertising, as evidenced in the latest IAB figures

“This growth is a result of a seismic shift in consumer behaviour, accelerated even faster over the pandemic, with digital consumption increasing across multiple platforms. Podcasts, for example, have become the fastest growing advertising medium, enabling brands to reach young and affluent audiences listening on their own, therefore allowing direct integrated 1-2-1 interactions. 

“In the coming months, we expect that digital audio and video will continue to boom, especially with key events such as the World Cup starting in the run-up to Christmas. And with budgets potentially tightening, brands are likely to be placing more emphasis on quality and trusted environments for their ad placements.”

Matt White, VP EMEA at Quantcast, says:

“We find ourselves in the midst of a perfect storm. After the rollercoaster of the last couple of years, I believe the industry will have the tools to navigate through this uncertain economic climate. The UK is experiencing a huge rise in the cost of living, but the buffer provided by the lack of spending in the previous two years could prove favorable for retailers and advertisers alike, especially savings on experiential items. 

“September is a big time for our industry. New tech releases including the new iPhone, and new cars are released, pumping a huge amount of revenue into advertising. Industries such as travel are still seeing an enormous boost, riding the wave of pandemic cabin fever and I don’t see this fading. We’re cautiously optimistic about the next quarter, but it would be foolish to be unaware of how this turbulent economy can touch every industry.”

Nick Reid, SVP & Managing Director EMEA, DoubleVerify states:

“It’s positive to see that UK marketing budgets have been revised up for Q2. However, with IPA Bellwether forecasting a drop in ad spend and a dramatic fall in financial prospects, the industry must build resilience and protect its investments in the face of strong economic headwinds. 

“The need to manage and drive media quality, as well as ensure that every penny invested reaches the right audience, in a fraud-free, brand suitable and viewable environment, is more important than ever. Measuring media quality is critical, but using such data in pre-bid environments, across all channels, to drive better business outcomes is where brands and agencies must focus. It’s crucial that investments are not only secure, but bought on the baseline of an authentic ad and deliver meaningful and productive business outcomes.”

Anastasia Leng, CEO and Founder of CreativeX, says:

“The latest IPA Bellwether report contains some encouraging news thanks to sustained budget growth, but that only highlights half the picture: in real terms, today’s marketing budget has about 80% of the spending power it did when it was first agreed upon late last year – leaving marketers grappling with pressures to do more with less.

“Budget increases are indeed positive news, but they can mask the problem, which is not the size of the budget, but its ability to deliver our desired results. Brands like Nestle are already reaping the rewards from making their budget go further, with the food and beverage giant reporting a 66% boost on its Return On Ad Spend (ROAS) through unlocking creative data. Recessions are undoubtedly painful, but they’re moments of opportunity to make our processes and ways of working more resilient, and those changes will yield ROI for years to come.”

Andrew Stephenson, Director of Marketing EMEA at Treasure Data:

“Efficiency will be the name of the game for marketers digesting yesterday’s IPA Bellwether report, while staring down budget cuts, rising costs and an increasingly likely recession. A robust data management strategy will be critical to this; unlocking deeper connections with consumers, while delivering the efficiencies needed to insulate against budget cuts.”

Philippa Snare, SVP EMEA at The Trade Desk, said:

“It’s important that marketers recognize this apparent resilience in budgets for what it is – a red herring against the backdrop of the cost of living crisis. With budgets set to tighten for the rest of the year, it’s imperative that marketers look beyond short-termism and ensure that spend is invested smartly – and that means on the open internet over the walled gardens. Not only is this where investment can be best understood and optimised, it’s also where advertisers’ existing and prospective customers are spending the majority of their time.”