IPA Bellwether: Industry reaction

The looming shadow of Brexit is undoubtedly casting some economic uncertainty across many industries in the UK, and the latest IPA Bellwether Report indicates the advertising industry is also adjusting and assessing the impact this will have on businesses as well as consumer confidence.

Since the end of 2012 marketing budgets have continued to grow and this is something we saw again in Q4, with the report showing that 23.9% of marketing executives have raised their budgets. This should be viewed as a cause for optimism, despite the uncertainty hanging over the industry, as it is evidence that we continue to offer value to brands, by helping them reach the right customers at the right time with effective messages that support their business objectives.

Search has become a pillar of modern marketing strategy and it’s reassuring to see that the internet remains a place where marketers feel confident spending their money, with investment in SEO and search increasing by 12.4%.

At Google we realise that we cannot take this trust for granted, and throughout 2018 we will continue to work with our industry partners on evolving internet advertising so that it meets marketer and agency needs.

After the challenges of 2017, it is heartening to see that advertising budgets remain buoyant. But while overall marketing budget growth continues – albeit at a more modest pace – Brexit, economic uncertainty and GDPR concerns have meant that advertisers are treading water until we have a more certain outlook. We have seen this effect client budgets across a range of sectors, particularly multi-market businesses where currency fluctuations have increased the overall cost of doing business.

Pure play digital remains the winner as lower costs of entry and the ability to instantaneously measure ROI are more attractive when there is downward pressure on budgets. Digital has however also seen its lowest increase this quarter and it will be interesting to see how the many market forces will play out this year with continuing concerns around transparency and accountability, as well as the impact of the new cookie policy.

Finally with media such as out of home and TV starting to make significant steps into the digital ecosystem, brands will have further opportunities to deliver more customised experiences, suited to the environment. With the addition of more dynamic pricing, we may see further expansion to channels which have seen less formidable growth in recent years.

Marketing investment has come into renewed focus recently as the turbulence following the UK’s decision to leave the EU continues to unfold. If there’s one thing Brexit means, it’s uncertainty – which makes investment planning for all businesses difficult.

The slowdown in adspend growth seen in 2017 may well grind to a complete halt later this year as some advertisers adopt a ‘wait and see approach’. In uncertain times the temptation is always to increase investment in short-term activation channels so it’s no surprise that the internet sub-category outperforms other channels.

Unstable times require dynamic, responsive decision making and an examination of the evidence available. The received wisdom of how to respond in a volatile market is to maintain advertising budgets and avoid over-spending in activation channels because:

– Consistency of spend and message is crucial to avoid adstock depletion and maintain positive brand perception

– It takes a long time to recover sales levels after a communications break

– The effects on profitability in the mid-term are potentially more serious than those on cash flow in the short term.

As 2018 progresses, we’d recommend maintaining SOV/SOM ratios as a minimum and reviewing the short-term market for value if the market softens.

It is not surprising to see continued increases in digital and mobile investment, despite uncertainties in consumer confidence, brand safety or the unfolding implications of GDPR. Investment in these areas continues to follow both consumer behaviour and commercial growth, as shoppers increasingly use digital touchpoints to make decisions about purchases or increase the amount they spend online.

Digital marketing is increasingly a ‘bedrock’ activity for many brands – an area likely to be protected or strengthened when they might be budget pressure in other areas of the marketing mix.

The growth in mobile expenditure is notable, which in my view reflects a maturing of the understanding of the importance of mobile as a device to drive both influence and transaction.

Mobile advertising has matured significantly in the last few years, playing a number of key roles across the customer journey, from complementing demand generating media through to driving persuasion in proximity to key purchase moments.

Most brands have recognised the need for mobile-specific strategies, destinations and assets – investing to ensure their marketing effectively matches consumer behaviour and expectation.

Despite a slower growth rate for media budgets, we have seen a continued move from clients to focus on outcome and performance media.

With a sharper focus on more granular analytics each channel is under pressure to prove the incremental value it adds. While digital channels lead performance, TV still holds its own as the driver of volume and brand metrics.

Clients call for faster optimisation and the management of live data is becoming the backbone of media agency operations.

We have seen a significant uplift in ecommerce spend and whilst established brands might have a downturn in budgets new money is coming in from digital first businesses.