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January 16 2019Bellwether ReportIPA 44 Belgrave Square London SW1X 8QSTel: 020 7235 7020 Email: infoipa.co.uk Web: ipa.co.uk Tw: The_IPA LI: bit.ly/IPALinkedInThe Bellwether Report is researched and published by IHS Markit on behalf of the Institute of Practitioners in Advertising.The report features original data drawn from a panel of around 300 UK marketing professionals and provides a key indicator of the health of the economy.The survey panel has been carefully selected to represent all key business sectors, drawn primarily from the nations top 1000 companies.The Bellwether Report is available via annual subscription, please contact economicsmarkit.To download an individual pdf go to ipa.co.ukThe next Bellwether Report will be released on:April 17 2019IHS Markit BracknellBerkshire RG12 8FZ, UKTel: +44 1491 461000Fax: +44 1491 461001email: economicsihsmarkitMarketing budgets and business confidenceMarketing budget growth flatlines amid heightened business uncertainty Key findings from the Q4 2018 survey:nSix years of total marketing budget growth ends as uncertainty bitesnNoticeable moderation in spending gains for internet-based marketingnSales promotions budgets strongest growing categorynCompany-level financial prospects turn negative for first time since Q3 2012nAdspend growth forecast for 2018 reduced, but bounceback anticipated for 2019Commenting on the latest survey results, Paul Bainsfair, IPA Director General, says:“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. Weve 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.”Commenting on the latest survey results, Joe Hayes, Economist at IHS Markit, says:“The slowdown in marketing budget growth seen in recent quarters culminated in Q4, as the six-year bull-run came to an end. Company-wide indecisiveness restricted the allocation of resources to marketers, as the wait-and-see approach to how the Brexit process will transpire appears to be the current strategy in place for many UK businesses.”“The neutral stance on marketing budgets came in tandem with a first pessimistic outlook by businesses towards their own companies financial prospects for the first time since 2012, suggesting that top-level belt-tightening and plans to protect margins has seen marketing executives be given less discretion. Indeed, provisional data for budgets for the coming 2019/20 financial year indicate that downbeat stance seems likely to persist.” -60-50-40-30-20-100102030Budget revisions, % net balance2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018Financial prospects for your companyTotal marketing budget revisions-80-60-40-200204060Financial prospects, % net balanceIPA Bellwether Report January 16 20192 Total marketing According to the latest Bellwether survey, a six-year run of continuous overall marketing budget growth came to an end in Q4 2018. Marketing executives pointed to neutrality, with the proportion reporting budget growth (16.4%) equalling the proportion observing cuts (16.4%). This yielded a net balance of +0.0%, signalling no change in budgets during the fourth quarter. Roughly two-thirds of panel members (67.3%) reported no revision to their total marketing budgets.Nonetheless, evidence from panellists highlighted some optimism for the coming year, with new product launches, expansion into overseas markets, digital transformation and technological development all expected to bring growth opportunities. However, political and economic uncertainty caused by the ongoing Brexit negotiation process has dampened both business and consumer confidence, driving belt-tightening and restricting resources available to marketing executives.The shift towards digital modes of advertising remained apparent during Q4, although growth moderated noticeably, as signalled by the net balance for internet falling to +2.1%, from +13.6% in the third quarter. However, it was budgets for sales promotions that marketing executives enjoyed the greatest upward revisions for, with the net balance increasing to +3.8% from +0.6%. Budgets for events marketing also received a boost (net balance of +2.6%, from -1.1% in Q3). However, panellists observed cuts to the remaining categories monitored by the Bellwether survey. The first downward revision for two quarters was seen for main media advertising, which includes large scale campaigns on TV and in newspapers. The net balance fell to -6.5% from +4.8%. Direct marketing (-5.6% from -7.4%), market research (-4.7% from -3.7%), and PR budgets (-4.1% from +4.2%) were also areas of marketing that companies experienced a squeeze on spending.Budget Plans 2019/2020Looking towards the 2019/20 financial year, preliminary data from the Bellwether panel indicated a near-neutral stance on overall marketing spend for the coming budget period. The proportion Evolution of total marketing budgets-50-40-30-20-10010203040502000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19% net balance (% companies reporting an increase minus % companies reporting a decrease)Initial budget setting for the whole year v. prior yearQuarterly revisions to initial budgetFinal outcome of spend for the year v prior yearBreakdown of revisions to current budgets% of all companies reporting an upward revision to current budgets minus % reporting a downward revision. Breakdown of 2019/20 budget plans% of all companies reporting an increase in spend for 2018/19 minus % reporting a decrease. -9.6-6.5-5.6-4.7-4.12.12.63.80.0OtherMain media advertisingDirect marketingMarket researchPRInternetEventsSales promotionsTotalUpward revisionDownward revision-19.5-9.3-7.9-5.8-4.5-0.90.90.8OtherPRMarket researchSales promotionDirect marketingEventsMain media advertisingTotalUpward revisionDownward revisionIPA Bellwether Report January 16 20192 3 Industry Opportunities and ThreatsOpportunitiesPanellists were asked to comment on the main opportunities for their industries over the coming 12 months. A selection of responses are summarised below: “Opportunities in the Far East and USA.” Industrial/Utilities “Environmentally benign packaging.” FMCG“Organisations moving to cloud-based applications.” IT/Computing“New product launches and international growth.” Retail“Low interest rates make car finance more appealing option, so it should encourage people to increase car buying budgets.” Automotive“Brexit creating volatility in FX markets.” Financial Services“Removal of Brexit uncertainty which is impacting consumer confidence.” Consumer Durables“Opportunities will be mostly driven by new regulations.” Industrial/Utilities“Technology development means that we are ahead of the curve in our industry.” Travel/Entertainment“People holidaying at home due to Brexit uncertainty.” Public/Charities“Digital media remains the main driver, especially content development.” Media/Marketing“Move into Digital marketing - greater global reach to our audience.” Industrial/Utilities“Growing market for smart technology and automation.” Consumer Durables“Upcoming threats in our industry are likely to see many competitors close down giving us the opportunity to pick up extra business.” OtherThreatsPanellists were also asked to comment on the main threats to their industries over the coming 12 months. A selection of responses are summarised below: “Uncertainty of Brexit causing consumers to take a cautious approach for purchasing high value items.” Automotive“Amazon, failure of major retailers, economic climate due to Brexit and the USD exchange rate.” Retail“Brexit - volatile market causing investor insecurity.” Financial Services“Uncertainty over Brexit and the freedom of movement could lead to a labour shortage which will threaten the sustainability of many smaller businesses.” Travel/Entertainment“Competing products manufactured in Korea and China.” Consumer Durables“Downside of Brexit - imported raw materials likely to rise in price. Challenges of exporting to European markets should a no-deal be the outcome.” Industrial/Utilities“Loss of consumer & investor confidence arising from Brexit uncertainties.” Consumer Durables“Reduction of budgets in the public sector.” IT/Computing“There is a level of uncertainty in discussions with clients because of forecasts from the government and banks about increased prices and the possible difficulties in obtaining and delivering materials and goods.” Media/Marketing“Increased taxation on landlords leading to fewer buying into property as an investment.” Other“General slowing in customer demand.” Industrials/Utilities“Brexit is hampering spend by the consumer and also organisational spend on marketing.” Media/Marketingof panellists anticipating increased marketing expenditure (27%) was only marginally higher than that for those predicting cuts (26%), thus yielding a net balance of just +0.8%. However, drilling down into the individual budget plans for each Bellwether category revealed a fairly negative outlook. A number of panellists expressed concern towards the adverse impact of Brexit-driven economic and political uncertainty on both consumer and business confidence. In some cases, there was evidence that the potential for a more challenging corporate environment was set to restrict financial resources available to marketing executives.Indeed, with the exception of main media advertising (+0.9%), where mild optimism towards budgeting was signalled, all other categories indicated a downbeat outlook on budgeting prospects. Direct marketing budgets are expected to be reduced (-4.5%), while panellists were downbeat on funding for sales promotions (-5.8%) as margins are expected to be tested from intensified cost pressures over the coming 12 months. Elsewhere, expenditure reserved for market research (-7.9%), PR (-9.3%) and events (-0.9%) are all predicted to be scaled down.Opportunities and ThreatsIn line with the Brexit-dominant news flow during the final quarter of 2018, Bellwether panellists reported a wide-ranging spectrum of threats and opportunities relating to the UKs planned departure from the EU this year. Many companies expectations are skewed to the downside due to the current uncertainty over the UKs future relationship with Europe. As a result of this ambiguity, concerns were raised regarding both consumer and business confidence, while others forecast challenging economic conditions to be a knock-on effect. Labour supply issues due to the end of free movement is also set to threaten various industries over the coming 12 months. Aside from the economic consequences, worries that Brexit could threaten the political landscape in the UK were also mentioned.Nonetheless, some foresee short-run opportunities from the uncertainty, with stockpiling efforts helping drive business in manufacturing industries. Any weakness in the sterling exchange rate is also projected to support UK businesses as goods and services exported into the UK become less competitive. That said, the prospect of domestic currency depreciation is viewed as a negative in other instances, leading to higher prices for imported materials.Against the Brexit backdrop, there were unrelated reasons for businesses to be upbeat heading into 2019. Technological development and innovation is expected to improve prospects by providing a competitive advantage and assist with penetration into new markets. Firms also indicate a willingness to automate and drive efficiency gains. Technological progress is also pushing companies to explore digital transformation and the better-use of data. New revenue streams are projected to arise from digital marketing campaigns IPA Bellwether Report January 16 20194 Business prospectsTaking all things into consideration, do you feel more or less optimistic about the financial prospects for (a) your company, and (b) your industry as a whole, than you did three months ago?Bellwether and the Business cycleThe above chart plots the Bellwether survey results on revisions to total marketing budgets against the IHS Markit/CIPS PMI (Purchasing Managers Index) . The PMI is a monthly survey of business conditions that is closely watched by policymakers as it is considered an accurate and timely guide to what is actually happening in the economy and, unlike official data, does not get revised after first publication. Source: IHS MarkitThe forecasts are based on the historical relationships between asspend and its key drivers, in this instance economic output (GDP) and two important constituents: consumer spending and investment. The forecasts for GDP, consumption and investment are taken from the OBR. Sources: Office for Budget Responsibility, IHS MarkitFinancial Prospects and Economic Outlook and the migration to digital platforms. Furthermore, new product launches and greater diversification of current client offerings are expected to bear fruit over the course of 2019.Similarly, there were other avenues identified by panellists which could present additional headwinds. The risk of slowing economic growth momentum came amid concerns of a general slowdown in demand and stronger competitive pressures. Financial ProspectsFor the first time since the third quarter of 2012, Bellwether panellists cast a downbeat outlook on financial prospects for their own companies.This brought a six-year bull-run to a close, where firms had been optimistic that their businesses would fare well financially in each quarter across this period. A net balance of -0.9%, which was down from +5.7% in Q3, signalled a mildly pessimistic assessment towards their own companys outlook, compared to three months ago. Meanwhile, industry-wide prospects remained negative, as has been the case since the fourth quarter of 2015. In fact, gloomy own-company projections occurred in tandem with the most pessimistic view at the industry level for seven years. The respective net balance reading fell to -28.6% during Q4, from -21.0% previously.Economic Forecasts*With the Office for Budget Responsibility (OBR) lowering their forecasts for consumer spend
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