Market research net spend drops in Q2, finds IPA Bellwether

The Bellwether report found that while the majority of companies ( 71.4%) reported no change in market research budgets in April, May and June 2023, 15.7% revised down their spending in this area.

The report also found that 12.9% of respondents recorded growth in market research spending – covering qualitative, quantitative, brand tracking and product development research – albeit leaving a net reduction of 2.9%.

The quarterly performance was little changed from the first quarter of 2023, when there was a -3.2% change in net market research spending, and in line with 2023/24 budget setting predictions of a 0.7% fall.

The drop in market research budgets comes as marketing budgets continued recent growth, with a positive net balance of 6.4%, compared with 8.2% in the first quarter of the year.

However, three of the seven marketing categories recorded positive budget growth, with sales promotions rising 13.4%, up from 8.8% growth in the first quarter of 2023.

A solid budget expansion was also registered for events, with a positive net balance of 9.8% from 6.3% the previous quarter, and direct marketing, where the expansion was the sharpest since the third quarter of 2006 at a net balance of 7.3%.

However, public relations saw a -1.9% net balance, other marketing activity not accounted for registered a net balance of -6.8%, and main media fell for the first time since the third quarter of 2022.

Within the main media category, other online (net balance of 8.3%, from 10.5%), and video ( 3.2%, from 7.9%) remained in growth territory, although this was offset by audio (-8%, from 1.7%), out of home (-7.1%, from -12.4%) and published brands (-5%, from -1.9%).

Industry-wide financial prospects were perceived to have moved deeper into negative territory, with 28.8% of survey respondents pessimistic about the outlook for their industry in the coming 12 months compared with 16.2% who registered optimism.

Meanwhile, sentiment towards own-company financial prospects was broadly split between optimists ( 27.1%) and pessimists ( 24.5%).

Looking to 2024, Bellwether forecasts advertising spending to be 0.1% higher as the effect of higher interest rates starts to weigh on household and business budgets. 

Paul Bainsfair, director general at the IPA, said: “It is welcome news that total UK marketing budgets remain in positive territory, despite the latest figures from the ONS which reveal a ‘listless’ UK economy.

“We continue to advocate the well-tested rule of thumb that a 60:40 ratio of brand building to sales activation is the best way to grow business through marketing activity.”

Laura Denman, economist at S&P Global Market Intelligence and author of the IPA Bellwether Report, added: “Bellwether survey data highlights the resilience of UK businesses, who appear to have weathered a challenging economic landscape over the past six months a lot better than many had anticipated.

“We’re seeing evidence that UK companies are proactive in their decision making and are adapting to the competitive business environment and challenging economic landscape in a robust manner.”

Industry reaction

Jane Frost, chief executive, Market Research Society
There is no doubt that it’s a difficult economic landscape for organisations – as well as for consumers – and though the decrease has slowed, spending on market research is still softening. Research can often be one of the first on the chopping block as budgets get tightened, but this is a false economy. Good decision making is grounded in evidence and, for that, businesses need quality data and insights.

Investing in research is exactly that – an investment. It means that precious funds and resources can be spent in the right places to deliver commercial returns and avoid the trappings of assumptions and bias. Times are hard for many but, as evidenced during the pandemic, ensuring market research remains a priority will be critical for businesses to weather the storm and make the right, evidence-based strategic decisions for the future.

Barrie Brien, chief executive, Strat7
In a challenging market it’s inevitable many MR budgets will be squeezed, but it would be short-sighted to see insight as a ‘nice-to-have’ right now. Consumers’ needs and behaviours are changing faster than ever before in line with the big picture socio-economic landscape, driven by inflation, climate, technology and so-on.

‘Traditional research’ methods alone will not suffice in a world that continues to accelerate. This sector needs to invest in next generation data collection and analytics services that can only be provisioned through artificial intelligence (AI) but supported by human consultancy.

This makes it a challenging time for our industry. Although market research excels at human insight, it is less practised in following through with business consultancy. Equally, baking in AI across multiple departments within a business is no small undertaking, and not inexpensive. However, it is absolutely necessary if this sector is to future-proof itself.

Lucy Davison, founder and chief executive, Keen as Mustard Marketing
The data coming out of the Insights Association, MRS and Esomar, never mind the quantity of cash flowing into the industry more broadly, show a much more positive view.

In addition, marketing directors, who generally have a tenure of about 1.5 years in a role, increasingly use research in a tactical short-term way to test, check and evaluate (campaign testing, product and user experience work, brand and pack), a lot of this work is digital or to test digital assets. So, it is quick, and cheap.

As we have seen, over the past 10 years there has been a big swing in favour of short-term tactical marketing over long term brand building (see Mark Ritson, or Binet and Field, etc). Of course, many marketing directors do work in a broader and more strategic way (and I’d like to know how many of the Bellwether 300 they constitute), but I think only working or reporting to marketing when the director is looking for short-term wins is not a great position for insights to be in – as the long-term, foresight-focused research does not get done (or not by them).

Jane Ostler, executive vice-president, global thought leadership, Kantar
Understandably, marketers are cautious during the continued economic crisis, but it’s not wise to focus too much on the short term. The most concerning thing about this report is the increase in sales promotion activity (+13.4%). Defending margin should be part of the chief marketing officer’s growth remit – and sales promotions are often a folly for all parties concerned.

That’s because price promotions are often a magnet for existing customers – half of them would have bought your product anyway (at full price). Secondly, your competitors will follow suit with a similar sales promotion act. The temptation to repeat it to hit your sales targets will likely land you in a price war or a ‘spiral of doom’ cycle and decimate your profits.

Our analysis shows that sales promotions can damage a category. A brand’s greatest strength is its ability to justify its price – its pricing power – and should be seen as the first defence against rising prices and inflation. By being meaningful and different relative to others in their category, brands can charge the right price that consumers are prepared to pay.

Dr Nick Baker, chief research officer, Savanta
The marketing sector is in the midst of a continuing period of turmoil. The much sought after ‘new normal’ is surely now established as ‘not normal’ or ‘be agile, embrace change and adapt, or die’. On the client and agency side, the pressures of the cost-of-living crisis, potential market deflation and the benefits and challenges that come with AI all create turbulence – or as we see it opportunity.

A clear trend in the insight sector is the fragmentation of commissioning sources beyond the core marketing heritage. This isn’t new, but it is accelerating significantly – operations, service delivery, product or innovation and strategy hubs are all presenting opportunities for commissioning, but also demanding different ways of working, in terms of approaches and deliverables.

Steve Phillips, chief executive and co-founder, Zappi
During turbulent times, it’s natural for those in charge of marketing budgets to go into protectionist mode and prioritise short-term sales over long-term brand building to shore up revenue and sales pipelines. But a reliance on promotion-driven marketing shifts consumer loyalty from brands to costs and hinders long-term brand equity.

In the cost-of-living crisis, it’s critical that brands invest resources into really understanding what their customers want and expect from them. This is the key to reducing the failure rates of campaigns and ensuring that the budgets are going towards the marketing that will deliver genuine impact both in the short- and long-term.

While the decline in market research budgets has continued, it’s further softened compared to the harsh cuts we saw last year. This promising shift indicates that more businesses are embracing forward-thinking strategies and realising that marketing campaigns are nothing without a stable foundation of consumer insights.