IPA: Businesses must maintain marketing budgets during the 2022 downturn

Alex Sword


The Financial Services Forum

The Institute of Practitioners in Advertising (IPA) recently took out an ad in the FT to encourage business leaders to maintain their marketing spend during the expected downturn throughout the rest of this year. In this interview, Director of Marketing Strategy Janet Hull OBE explains how marketers can persuade their C-suite not to make sweeping cuts.

FSF: Can you explain the background to this – do you think the marketing industry is in danger of seeing cuts?

Janet Hull: We have been alarmed by newspaper reporting which suggests that the Cost of Living Business Tsar working for Government has been recommending that businesses divert their marketing activities and reallocate the savings to price cuts. We are concerned that, while this guidance may appear socially relevant in the current moment, it is not founded on sound marketing principles. For many years we have been compiling an evidence base from real world business cases put forward for the IPA Effectiveness Awards and the IPA Effectiveness Databank, to help decision-makers make the right choices. This ad campaign is designed to bring this to the market’s attention.

The new ad mentions 40 years of evidence that cutting budgets is a bad idea – what are the main arguments for retaining marketing spend during downturns?

Our evidence base, developed with our industry partners, spans more than 40 years but of particular relevance to the issue at hand are those cases which relate to previous periods of recession or economic volatility. We can show how budgetary decisions made in previous downturns (e.g. 2001, 2007/2008) subsequently impacted on companies’ financial performance.

The IPA Effectiveness Databank demonstrates that:

– Brands and businesses which cut their marketing and advertising budgets in a downturn performed worse coming out of recession.

– Whereas companies that increased their marketing budgets, during tough markets, created a competitive advantage that helped them report higher average profit and better market share growth when the economy recovered.

– This is in large part because they achieved extra share of voice (ESOV) during the downturn while competitive brands went dark.

– Brands and business are in constant competition for what we call ‘mental availability’. Through relevant messaging advertising builds memory structures which promote brand recognition and engagement. Take advertising away, and these memory structures are weakened, brands are forgotten, and recovery is more costly and takes longer.

– Those brands that cut spend now and wait for evidence of a stronger economy before restoring it are in real danger of missing out. The risk is that the longer the recession, the greater the damage from not advertising.

In an economic recession, total advertising spend tends to fall and media rates get cheaper. If brands cut their advertising spend, competitors have greater opportunities to grow their relative Extra Share of Voice (ESOV), often just by maintaining or only trimming budgets.

Another temptation for marketers during a downturn is to shift advertising spend into price promotions. This is particularly tempting during a cost of living crisis.

Our evidence shows that price promotions damage the profitability of brands and businesses, and are financially unsustainable over the long-term.

Regarding pricing, it’s worth noting that if you want to make people less price sensitive, you need to engage them emotionally. People pay more for the brands they love. (See Effectiveness in Context, Binet and Field). And effective brand building advertising is one of the proven ways to make people like your brand.

This FT ad series has been going on for several years. What is the overall goal of the series and why do you see this audience as so important?

Our campaign is designed to bring to the attention of C-Suite Executives that we have a robust evidence base which can help them make sound marketing investment decisions which deliver profitable growth for brands and businesses both in the short and long term.

The foundation research conducted with the FT readership prompted the campaign. It showed that while 52% of C-suite Executive claimed to believe in the importance of brand-building, less than one third felt confident in how to go about it. Our aim is to address this gap in understanding.

You ran a similar ad during 2020 – do you think that the understanding of the importance of marketing has moved on amongst C-suites since then?

We would like to think that the understanding of marketing has moved on amongst C-suites since the start of our campaign. It is certainly the case that we are being approached by more corporates than ever for our publications and case studies. Diageo, in particular, stands out as a blue chip company which has drawn on our data to develop their successful marketing investment strategy. Nonetheless, we recognise that personnel in companies are changing all the time, and there is a long-term need for continuous reinforcement of our key messages.

What is the IPA’s outlook for marketing budgets in terms of the next few years?

Since the Q1 2022 IPA Bellwether Report, the IPA Bellwether author, S&P Global Market Intelligence, has downgraded its assessment for UK economic growth prospects in 2023 through to 2025, which in turn has seen it downgrade its adspend growth forecasts over this period too. It has also cut its adspend growth forecast for 2022 to reflect the strengthening economic headwinds that have built up through the year.

Elevated inflation throughout 2022 points to a bigger hit on consumer confidence and disposable incomes. High costs for businesses will also weigh on the economy, while rising interest rates act to deter investment. The risk of a recession has intensified, and as such, it has cut its adspend forecast for this year to 1.6% (from 3.5% previously).

Much of the economic challenges seen at present are likely to spill over into 2023. With interest rates also set to rise further and households and businesses likely to remain in cost-containment mode until inflation comes down, S&P’s GDP forecast for 2023 has been cut from 1.2% to 0.5%, bringing down its adspend growth forecast from 1.8% to 0.8%.

With the growth path beyond 2023 now looking more uncertain amid the potential for these strong downside risks to persist, 2024, 2025 and 2026 adspend growth forecasts have also been trimmed to 1.4% (from 1.7%), 2.0% (from 2.2%) and 2.3% (from 2.4%) respectively.

What advice would you give to marketers potentially facing cuts?

Our recommendation is that they use our evidence base to develop scenario plans to illustrate the potential mid to long terms consequences of cutting spend now to share with the C-suite and win the case for continued investment.

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