NEWS20 April 2023

Market research spending fell in Q1, says IPA

Cost of Living Media News Trends UK

UK – Market research spending fell by a net 3.2% in the first quarter of 2023, according to the latest Bellwether report by the Institute of Practitioners in Advertising (IPA).

Business data

The Bellwether report found 8.2% of companies increased market research spending, compared with 11.4% that cut research budgets, resulting in the fifth consecutive quarter of decline.

However, the report indicated that the latest data showed the softest reduction in spending over the past five quarters, an improvement on the net 8.8% fall in the previous Bellwether report.

Bill Doris, vice-president analytics, Europe, Middle East and Africa, at MediaCom and chair of the IPA Media Research Advisory Group, said: “The welcome green shoots of total marketing budget growth demonstrate the resilience of UK businesses and point to a cautiously optimistic outlook. 

“Within Market Research, despite a negative net balance of -0.7%, the softest reduction in budget contraction for five quarters hints at increasing confidence in the sector.”

Across the wider industry, marketing budget growth hit a one-year high despite the cost-of-living crisis, according to the Bellwether report.

The data showed the net balance of firms registering upward revisions to their marketing budgets in the first three months of 2023 was 8.2%, considerably higher than the 2.2% recorded at the end of 2022.

While 21.1% of firms saw an expansion, 12.9% of firms registered budget cuts and two-thirds recorded no change in spending.

More than a third ( 36.6%) of respondents foresee greater total marketing spend in real terms in the year ahead, compared with 16.9% anticipating cuts, creating a net balance of 19.8%.

Main media marketing, which includes online advertising activity and budgets for big-ticket campaigns on TV, recorded its strongest expansion in spending since the beginning of 2022 (net balance of 5.8%, from 4.4%).

There were also marked expansions in other online ( 10.5%) and video ( 7.9%), audio ( 1.7%), although published brands (-1.9%) and out of home (-12.4%) performed poorly.

Sales promotions budgets returned to expansion in Q1 (net balance of 8.8%), rising at the strongest pace in nearly two decades, and events budgets also rose with a net balance of 6.3%.

Direct marketing spending also rose at the start of the year (net balance of 4.2 ).

The remaining categories all recorded budget cuts, led by other marketing activity not already accounted for (net balance of -5.8%) and PR ( 0.6%).

The Bellwether forecasts a small decline of -0.9% in advertising spend this year, a marginal improvement in adspend next year of 0.5%, before expected growth to 1.6%, 2.0% and 2.2% in 2025, 2026 and 2027 respectively. 

Paul Bainsfair, director general at the IPA, said: “This is a positive start to the financial year for marketing budgets, all things considered.

“The overall increase in confidence from UK companies regarding their financial prospects is being reflected in their marketing budget decision making.”

Industry comments

Dom Boyd, managing director for insights, Kantar UK
It’s heartening to see marketing spend growing – we know that brands which continue to invest in times of economic turbulence ultimately perform better in the long run, deliver stronger returns for shareholders and bounce back quicker after crises. 

But marketers should be wary of putting that extra cash towards short-term tactics, particularly promotional spending, at the expense of brand building.

Cutting prices damages brand equity and in fact our data shows that some businesses are undercharging based on the strength of their brand and the value it offers in consumers’ eyes. The emphasis should be on protecting and leveraging this pricing power not chipping away at profitability.

Julie Lock, marketing director UK and Ireland, Hubspot
Despite the ongoing cost-of-living crisis, companies have made the most of their resources, and, as a result, the future of marketing looks brighter than it has for some time.

As budgets expand, businesses should look to hone in on the benefits of social media marketing and online advertising, as platforms such as TikTok lead the race to success among innovative marketers. 

Michael Richards, chief executive officer, Alan.
Despite ongoing economic uncertainty, it’s positive to see increased budget plans and a much greater appetite for investing in marketing activity. Brands and businesses are finally waking up to one of history’s biggest lessons – recessions can offer incredible opportunities for business growth for brands that sustain their marketing activities and budgets.

From our perspective, we would hope to see an increase in market research spend in 2023. With more businesses resuming normal marketing activity, research will be critical in knowing if their messaging still works and is reaching the right audiences.

Marc Fischli, executive managing director, Europe, Middle East and Africa, Criteo
We’ve certainly noticed a trend among advertisers doubling down on performance in recent months. This is particularly true of the retail media space where commerce outcomes are easy to prove.

Looking ahead, it’s clear to see the importance of channels like connected television in directing advertisers towards full funnel, commerce led campaigns.

As the commerce media trend continues to gather momentum, it will be the brands and media owners that truly embrace this full funnel thinking that thrive.

Richard Kelly, chief solutions officer, Mindshare UK
It’s no surprise to see brands flex their approach to support customers during the cost-of-living crisis. Both advertisers and agencies have adapted well to operating in uncertain times and there’s growing evidence that brands are increasingly confident about their financial prospects and advertising and marketing expenditure.

With consumer behaviour changing and new technology continuing to bring both opportunities and disruption to the market, agencies need to re-double our efforts to deliver positive growth for our clients in the short-term while making sure we have the right technology, the right systems and the right skills in place to drive their future growth.

Niyi Duro- Emanuel, senior vice-president, UK strategy lead, Merkle Emea
Brands are still not only seeking to understand their audiences better with firms expanding their marketing budgets to support their clients through the downturn, but they are also trying to actively provide help to customers through tougher economic periods – with a spike in sales promotion activity this quarter.

Brands can take this opportunity to help restore customer confidence and instil loyalty at a time when it matters most. With budgets increasing – the most adaptive and therefore successful brands will be those investing in longer term brand building strategies such as customer experience as a way of driving them forwards.

John Davidson, chief operations officer, Kinetic Worldwide
Today’s IPA report doesn't chime with the reality of what out of home is seeing on the ground. The sector saw double-digit growth year-on-year and this momentum has continued into 2023. 

What’s really exciting about out of home at the moment is not just that we are experiencing growth, but the way advertisers are using the medium.

Steve Phillips, co-founder and chief executive, Zappi
While marketers continued to shrink their market research budgets, it’s the softest cut we've seen lately, which indicates that teams seem warier than ever about the risks of planning campaigns in the dark without agile consumer insights and sends an optimistic signal for our sector for the rest of the year.

It’s tempting (and even common) during the turbulent economic climate to put a bigger focus on short-term tactics to generate quick wins rather than sustained brand-building and innovation playbooks with consumers, but that’s a huge mistake. Businesses that invest during downturns and put their confidence in marketers are the ones that bounce back quicker and deliver stronger returns in the long term.