The IPA Bellwether Report Q2 2023 is once again an intriguing mixed bag of statistics on UK marketing budgets. Firstly, the good news: following a sharp increase in the previous quarter, spend continues to climb, having risen 6.4%. This has been driven by record increase in allocation towards sales promotions.

However, this is tempered by declines across audio and OOH, as well as deepening pessimism surrounding the state of the economy. Here, we take a closer look at the findings, and hear from industry experts for their views on how advertising budgets are set to evolve over the coming months.

Sales promotions: A necessary evil or indicative of market change?

UK marketers have clearly turned the volume up to eleven when listening to the opening lyrics of Orinco Flow, with sales promotions soaring to 13.4% growth, the highest recorded over the 23-year history of the IPA Bellwether. While inflation is still high within the UK, and interest rates climbing to combat this, it is perhaps no surprise to see marketers looking to foster loyalty by helping customers through these turbulent times.

However, while this drive towards sales promotions is fuelling marketing budget growth, there are concerns that this is building a house of cards for brands by muting profitability in a time of economic uncertainty. The IPA’s verdict on this is clear, with director general Paul Bainsfair commenting, “Our comprehensive bank of evidence shows that price promotions damage brands because they lower consumer price references and do not build brand loyalty. While, understandably, brands may think this is the right thing to do for their customers during the current cost-of-living crisis, it is a counter-productive exercise that may generate short-term spikes in sales volumes but will almost never change how consumers think or feel about their brand because they are only interested in the lowest price point. What happens next is the eventual erosion of a company’s long-term brand health and profitability.”

So should this be bog off to BOGOF? Well, not quite. Customers have been irked by the double-edged sword of inflation and shrinkflation when embarking on their weekly shop, only to return home to watch their favourite TV programme on one of an ever-increasing number of streaming services, each bumping up their prices. Advertisers need a way of ensuring customer loyalty does not go into freefall at a time when pursestrings are tightening, thus rewarding it via price promotions is one key step marketers can take. It is no coincidence that much of the interest surrounding retail media is derived from consumers actively engaging with the channel as a result of a greater understanding of the value exchange here. Here, customers are willing to exchange their shopping data via loyalty schemes, which are often associated with, you guessed it, price promotions. 

Eyes shift to video, ears away from audio

Video continues its impressive rise, backing up multiple successive quarters of growth with an increase of 3.2% in Q2, however this is markedly less than the 7.9% recorded from January-March. On the flip side, OOH budgets continue to fall, having not recorded a single quarterly increase since 2020. Much of this is of course due to the coronavirus pandemic, however its continued stint in the budgetary doldrums is certainly curious, given that it doesn’t rely on identifiers such as the third-party cookie. 

According to the report, there has also been an ostensibly sharp turnaround in audio budgets. Over the previous quarter, these fell by 8%, having seen a modest 1.7% increase in Q1. This is likely as a result of recent layoffs and studio consolidation within podcasting, most notably Spotify merging its acquired Parcast and Gimlet Media units, along with the economic uncertainty driving marketers towards more established channels.

Cost remains key

It’s really promising to see continued growth in the UK market during a challenging year. Unsurprisingly cost remains a key element, as shown by the increase in sales promotion budgets, and it’s great to see brands looking to help their consumers as much as possible during this time of crisis. Their positioning and focus now will be a point of differentiation to leverage when the economy hopefully starts to stabilise and they look to reinvest in the areas that have had to take a backseat.

Julia Hitchman, CCO, GoodLoop

Weathering the drizzle

Despite downward revisions to main media spend and upward revisions in promotions, a net positive percentage of brands have growing budgets, which is certainly positive. However, It's worth noting that the majority (70%) of brands expect no change in ad spend. Although it feels like a short-term measure to weather the drizzle, if the shift in emphasis to promotions becomes embedded, the outlook will remain gloomy for a longer period of time.

Alex Wright, global insights director, Blis

Positive signs for H2

The IPA’s report, along with Tuesday’s welcome news that consumer inflation is starting to reduce, are encouraging signs for the second half of the year. After a Q1 where consumers and brands alike have been working on unsure footing, we’re starting to see positive signs for the economy that businesses can plan for. It should give advertisers increasing confidence to start making hay and leaning into new capabilities to connect with customers, building towards a successful Q4.

Justin Taylor, MD, Teads UK

Investigate technologies that maximise ROI

It is encouraging to hear that marketing budgets grew solidly in Q2, particularly given the ongoing economic downturn. But with interest rates set to impact marketing going into 2024, brands need to investigate the technologies that will maximise ROI, to ensure budgets work as hard as possible. There are still untapped opportunities within artificial intelligence that can support this, including deep learning.

Julia Bielecka-Dąbrowska, head of sales development and efficiency, RTB House 

AI a key focus for marketers

Even in the face of deflated consumer spending, the fact that online marketing budgets have continued to grow reflects the confidence of digital teams to maintain and drive business outcomes. This cautious optimism can be partly explained by the uptake of AI, which the report highlights as a key focus for marketers. Indeed, this is analogous with that of our own survey, which found 87% of UK brand marketers consider AI as an important part of their media plans in 2023. 

With a plethora of use cases, from SEO optimisation to creative design, teams who are focusing investment on customisable AI will unlock particular value and scale. With the need to drive transparent ROI and maximise efficiency across programmatically-bought media at an all-time high, customisable AI offers a powerful tool. Media buying teams who explore AI now will find it serves them well through this downturn and into the future

Matt Nash, UK MD, Scibids

Invest in personalised promotions

From a grocery retail perspective, the cost-of-living crisis and recessionary behaviours have made it challenging for CPG brands to protect their position in customer baskets, meaning a growing number of customers are switching from national brand products to private, ‘own-brand’ items. As we can see in the latest IPA Bellwether report, this leads to brands increasing their investment in sales promotions, enabling them to offer the cheaper alternatives that shoppers are looking for.

Although we’re seeing greater investment in sales promotions, running these en masse can be expensive for both the retailer and CPGs, as well as eroding brand perception. Over USD$500bn (£386bn) is spent on mass sales promotions every year and two thirds of these don’t break even. This is where we see personalised promotions, a retail media tactic often forgotten, coming in. Rather than just hoping that they stay loyal, personalised retail media provides brands with the opportunity to engage those shoppers with a promotion or offer – maximising the likelihood that they’ll remain a customer.

The IPA Bellwether report shows that while we’ve seen sustained marketing budget growth in Q2, it’s never been more important to invest that budget into the right retail media channels. It’s only by doing this that brands can reduce the risk of losing loyal shoppers in a tougher economy.

Julie Jeancolas, global head of product, strategy and partnerships - retail media and personalisation, dunnhumby

Navigating the challenging economic climate

The IPA Bellwether highlights the challenging economic climate. Businesses need to keep investing in technological advancements. Those embracing the challenge of long-term tactics, utilising customer data to personalise advertising efforts and enhancing overall campaign effectiveness are already reaping the benefits from using advanced AI-based and data-driven marketing tools. Success awaits those who bravely navigate this dynamic landscape!

Kike Rodríguez, Managing Director, VideoHeroes

Shining a light on evolving needs

We find resonance with these trends, particularly the call for more efficient, waste-free advertising strategies. Amid economic uncertainty, it underscores the necessity to sustain brand growth while maintaining sustainable and impactful brand-consumer relationships. These insights will continue to shape our efforts in addressing the challenges and opportunities the industry presents.

Mateusz Jędrocha, VP branding solutions, Adlook