Market research budgets enjoy strongest boost in nine years as marketing spend slows

UK marketing budgets enjoyed their third successive quarter of expansion at the end of last year, but economic pressures have slowed their rate of growth.

A net balance of 6.1% of companies revised their marketing budgets upwards in the fourth quarter of 2021, according to the latest IPA Bellwether report. Growth in the third quarter was almost double the rate at 12.8%, before the emergence of the Omicron strain of Covid-19, strong inflationary pressures and heavy supply-chain disruption.

Nevertheless, the report has still branded the increase “robust” in comparison to recent years, signalling the second-strongest improvement since the first quarter of 2019.

However, while overall budget growth might have slowed, the number of businesses increasing their investment into market research has grown rapidly, from a net balance of 0.7% in the third quarter of 2021 to 7% in the fourth.

In fact, market research was the top performing category in the latest survey period, enjoying its strongest performance since the Bellwether began tracking its budget growth over nine years ago. According to the report, this reflects companies’ efforts to “better understand the impact the Covid-19 pandemic has had on their existing clients and target audiences”.

Before its third quarter marginal growth, market research budgets had been suffering from long-term decline. The proportion of businesses planning to increase spend in market research had only been greater than the proportion planning to decrease it four times in the previous seven years, most recently in the second quarter of 2015, when a net balance of just 0.6% said they would increase investment.Market research budgets return to growth as marketing spend rises rapidly

In 2020, Marketing Week discovered market research had been on a resolutely downward trend ever since, with that decline accelerating over the course of Covid-19. The net balance of marketers saying they planned to cut spend plummeted to a nadir of 42.2% in the second quarter of 2020.

By the first quarter of 2021, a net balance of 17.8% of marketers were still planning cuts, though that dropped to 9.6% by Q2.

Looking at other categories tracked by the Bellwether report, direct marketing registered the next strongest budget growth with a net balance of 3.8%.

Main media advertising followed with a balance of 3.1% of companies revising their budgets upwards, with video experiencing the strongest growth within that category at a balance of 7.3%. However, budget cuts were noted in published brands (-5.9%), audio (-6.3%) and out of home (-8.3%).

Optimism lessens, but spend to continue growth

Meanwhile, several months of “strong” optimism eased significantly at the end of 2021, the Bellwether’s data reveals.

The net balance of panellists that felt more optimistic about the financial prospects of their own company fell from 37.5% in Q3 to just 7.6%. According to the report, this marks the least confident outlook since the end of 2020.

At an industry-wide level, firms were also more pessimistic about the financial outlook than before, with close to 28% of respondents feeling less confident compared to 24% feeling more confident.

“As we can see, Omicron has heightened uncertainty, altered consumer behaviour and subsequently impacted UK companies’ marketing budget decision making,” explains the IPA’s director general, Paul Bainsfair.

“Going forward, new variants – alongside supply chain issues and heightened inflation – may indeed induce further wobbles.”

The key for businesses to “weather these fluctuations” will be to invest in the longer-term and brand building media where possible, Bainsfair adds. “As the evidence proves, brands that continue to invest in their marketing throughout the toughest of times come out on top.”

Indeed, the Bellwether’s preliminary data for spending over the upcoming year suggests marketing budgets will continue to experience “considerable growth”. A net balance of 34.5% of surveyed firms are planning to increase their total marketing spend this year, as almost half (45.7%) anticipate budget growth. Just 11.2% are expecting to see cuts.

A net balance of 17.4% of firms are expecting to increase investment in main media marketing, including ‘big-ticket’ advertising campaigns spanning TV and radio.

And while all marketing categories are expected to grow spend, events was the strongest with a net balance of 19% of companies expecting to increase budgets. Sales promotions budgets are also set for solid growth, with a net balance of 17.9%.

However, with economic pressures building already this year, the Bellwether has lowered its annual adspend growth forecast to 5.2% this year, down from 6.2%. Growth in 2023 is forecast at 2.5% compared to 2.4%, dropping to 1.3% in 2024, 2.3% in 2025, and 2.5% in 2026.