Ad Spend Growth Dims as CMOs Try to Keep the Lights On

Soaring energy bills, squeezed interest rates, a cost of living crisis and global geopolitical uncertainty are having a significant impact on the money chief marketing officers have at their disposal. According to the U.K’s Institute of Practitioners in Advertising (IPA) quarterly Bellwether ad spend report, marketing budgets grew at their slowest rate since 2021 in the three months to October. In Q3 of 2022, a net balance of 2.1% of the U.K.’s top 1,000 companies increased their ad spend. For context, in Q2 this same balance stood at 10.8%, and it's never been so low since the start of 2021, before pandemic-imposed restrictions were lifted in the market. Over the last three months, event marketing was one category that saw increased investment, reflecting a continued appetite for face-to-face meetings and experiences. Digital display advertising increased by 9.3%, too, as did video with an 8.7% bump. Elsewhere, main media budgets (which include TV) fell by 3.1% and out of home (OOH) dipped 7.6%. PR budgets decreased for the first time in a year, with investment declining to the tune of 4.8%. What People Really Want From Brands Amid a Cost of Living Crisis Joe Hayes, senior economist at S&P Global Market Intelligence and author of the Bellwether Report, said companies were just about clinging to positive territory. "Bellwether survey data suggests that U.K. companies were able to squeeze out another round of marketing budget growth in the third quarter, although momentum has faded quite significantly since the first half of 2022 as the broader economic picture has darkened," he explained. "Budget cuts are being seen across the majority of the monitored segments of marketing spend as companies move into retrenchment mode due to soaring costs and slowing demand." A tough winter ahead Earlier this week, U.K. inflation climbed back up to 10.1% on back of soaring food prices. This was a number bookended by three weeks of political and economic chaos in the country following a mini-budget from the government under the leadership of new Prime Minister Liz Truss, the knock-on effect of which ballooned mortgage costs and led to a rise in interest rates set by the Bank of England. Though the government has since reversed most of the cuts outlined in the blueprint, Hayes cautioned that the cost of living crisis will continue to weigh on household earnings throughout the winter. This means "discretionary spending cutbacks are inevitable for the U.K.'s low-to-middle income groups that are at the heart of the economy." With some businesses and consumers struggling to keep the lights on, the U.K. government outlined an energy price guarantee to cap tariffs for consumers for two years. As a result of this, the IPA revised its ad spend forecast for 2022 from 1.6% up to a more optimistic 3.7%. This week, however, the length of this initiative was sliced to six months, leaving questions about whether this buoyant forecast will need to be readjusted once more. For Patrick Mazzotta, managing director of data, analytics and insight at marketing consultancy What's Possible Group, U.K. ad clients are struggling to keep up with the daily u-turns on policy. "[This will bring] a lot of volatility into Q4," he added. "Big corporations could be slowed down by bureaucratic budget planning processes while the more dynamic brands can be nimbler, take advantage and find opportunities for more growth." These Global Brands Have One Thing in Common When It Comes to Recession Planning A global outlook It's not just the U.K. where growth is stalling. At the start of 2022, Dentsu predicted global ad spend would grow by 9.2% annually to reach a record $745 billion in 2022. In July, it wrote down this prediction to a more modest 8.4%, or $738.5 billion. This brought Dentsu’s estimates more in line with Zenith and GroupM’s forecasts, which took into account the economic climate as well as the geopolitical impact of Russia’s war on Ukraine. U.K. marketers are feeling negative about the prosperity of the entire industry. A net balance of 44.3% were downbeat about their financial prospects—the most pessimistic assessment of industry-wide financial prospects since the height of the Covid-19 outbreak in Q2 2020. "The latest IPA Bellwether report is a salutary reminder of just how difficult the current economic climate is," asserted Emma Ellis, managing director of Omnicom agency Interbrand UK. She said the slowing of growth combined with the "depressed" financial outlook showed which way the wind was blowing and advised businesses shouldn't retrench even amid increased energy bills, dipping consumer spend and high inflation. "To remain strong, the brand needs to be focused on deeper connections with consumers and a higher focus on the customer experience. Now more than ever brands need to lead with empathy and deliver greater affinity if they want to increase the feel of a positive connection with the brand," she concluded.