Should marketers be worried about Brexit?
With the EU Summit (the most likely place where the Brexit deal will be agreed) less than 2 weeks away, Brexit is clearly playing on marketers’ mind, but is this worry justified? In this article, we investigate:
- Various potential Brexit deals and their effects on the economy
- Current impact of a looming Brexit on business
- Expected impact of Brexit on marketing specifically
1. Brexit Deals and Effects
First, let’s get some clarity from the confusion. Figure 1 summaries the deals on the negotiation table and the impact this will have on import tariffs, red tape and labour.
There seems to be evidence that regardless of the Brexit deal agreed the economy would be hurt. A report from Oliver Wyman (Figure 2) shows that in all likely deals operating cash flow is expected to drop, with no-deal being the most disruptive of all.
But Brexit is also likely to affect volume; if a company is to make pre-Brexit profit firms will have to increase prices and so reduce the amount of trade. While all industries are expected to experience an adverse effect on profits, the industry which is most likely to be affected is Food retail due to supply chain disruption and labour costs (Figure 3), and so marketers in those industries are more likely to be exposed to Brexit effect. A key task for marketers is deciding how to brand expected price increases, and price increases of competitors.
2. Current Impact on Business
But is there any evidence that Brexit is affecting the economy and marketers now? News coverage of several large retailers like House of Fraser and Maplin folding suggests that Brexit is to blame to for companies defaulting. Figure 4 shows that since Brexit there hasn’t been a marked increase in the number of companies failing, though the data suggests that the companies which do fail are larger, so affecting more people.
3. Expected Impact on Marketing
For marketers, is there any evidence that this has translated to slashed marketing budgets? The IPA’s Bellwether report states that while marketing budgets aren’t expected to fall, the growth rate has slowed. This, they say is partly due to Brexit. In Q1 2018, they report a net balance of +5% growth in marketing budgets; however, this is the weakest quarterly increase since 2016.
More negatively, a survey by the Advertising Association argues that 22% of agencies have already lost contracts, and 62% believe that Brexit has negatively impacted their business expectations.
Overall, for marketers, the evidence suggests that a soft Brexit would be least disruptive; it’s minimal red tape, zero EU import tariffs and neutral effect on labour means profits will be less affected compared to other deals. A soft Brexit will likely translate to softening of the decline in marketing budget growth rate.
Figure 4: http://www.retailresearch.org/whosegonebust.php