In the last few years, PR people have rightly stopped talking about stories and started talking about conversations. The idea being that brands can start or join conversations that their customers are interested in, or are already having. They can do this by contributing news, perspective, insight and raw content. This shift is both important to the way PR is carried out and to the role it plays in the marketing process. It opens new doors and new budgets for an industry that has long believed it deserves a bigger slice of the marketing pie. But I’d like to remind PR people about something advertisers have known for a long time. Getting our attention doesn’t necessarily mean engaging in a conversation with us. My daughter’s laptop can often get her attention without any information being exchanged. She simply enjoys watching entertaining content, or playing some mindless game. She is no different from any of us in this respect. We all have parts to our day when we simply want someone to take over our brains and let us escape. Advertisers have figured this out to the extent that during some computer games, such as a car racing game, you will see billboards advertising products. They recognize that the brands that ‘sponsor’ escapism are as important as the brands that sponsor educating us about the important issues of the day or the decisions we have to make.
Now the idea of creating content that helps people escape isn’t something you hear a lot in PR meetings. PR meetings tend to be all about getting the message across in an increasingly noisy market. But what if you created content such as a game or a video that was just so darned entertaining that people WANTED to watch it AND they knew your brand had sponsored this little mental vacation? Wouldn’t that be just as powerful as that major news item you were hoping to get someone to blog about? I’m not for a minute suggesting that we all ditch conversation management and move to entertainment. I’m simply suggesting that digital channels open the doors for PR to much more than just conversations. Try this on for size in your next PR brainstorm. Oh and happy 2011.
I was asked by someone this week how much they should spend on PR in the US for 2011 (yes it’s that time of year again). They’re a small business with a small budget and they feel they’ve not been getting the results they want. My answer was that they were spending too little with the wrong agency. Now you’d expect me to say that given Next Fifteen is parent to a bunch of PR agencies. But this common question got me thinking and so in order to help prospective marketing heads, here’s a simple scorecard that you could use to try and figure out what you need to spend:
1. Are you:
A. A start-up
B. A mid sized
C. A very large company that has an atrium at its head office big enough to house five startups
2. Is your business:
A. Doing really well
B. Making it but not flying
C. Struggling. I know my friends wonder why I stay at the company.
3. Is your senior management:
A. Really engaged in PR
B. Does it when asked
C. Too busy talking to customers/playing golf
4. Is your management:
A. Good at talking to the media and always gives great perspective and quotes
B. OK at talking to the media but sometimes over complicates things
C. They’re too busy playing golf – they don’t give interviews
5. Is your company:
A. The market leader in a recognized space
B. The business that is trying to catch the market leader
C. A business trying to create a new category so that it doesn’t have to compare itself with the market leader
6. If someone reviewed your product would they give it:
A. 5 stars (out of five)
B. 3.5 stars
C. We definitely wouldn’t let them review it but we’d direct them to a real cool demo on our web site
7. Does your CEO:
A. Have a really great blog that everyone reads
B. Have a blog but they are poor about maintaining it
C. Think blogging is just a fad and that newspapers will rise again to push them out of existence
8. Does your business have something genuinely interesting to say/announce:
A. Every few days
B. Every month
C. Interesting to say? Can you give me a bit more detail on what you mean by interesting?
9. Does your company:
A. Put out news, links etc on Twitter every day
B. Put out news and links etc on Twitter every week
C. What’s Twitter?
Now, for every question you answered A to give yourself 10 points. For B’s score zero and C’s score -10. When you have the answer you are then ready to calculate your spend. So, if you answered all As, then you would have scored 80. In this instance you would be a startup and should spend $15,000 per month plus 90%. In other words you should spend $28,500 a month. If you answered A to question one and Cs for the rest, then you’d have a score of -70. This means you should spend $4.5k a month. Given this is a stupidly small amount to spend with an agency you shouldn’t bother. If you answered B to everything you would be a mid sized business that turns the handle. In this instance your PR spend should be around 5% of revenues. If you answered C to the first question and all the rest, then you are about become a B company. You are probably looking for a new job so I suspect PR spend is pretty low on your list of priorities. If, by some miracle, you are interested in PR spend, you should be aware that your company doesn’t care about PR and it seems highly likely PR isn’t going to solve the issues it faces (note your CEO is too busy playing golf to worry about PR, so you should be too busy interviewing to worry about the PR budget).
As I hope you can tell, the point I’m trying to make here (somewhat lightheartedly), is that there are some normal amounts that companies should spend on PR and that they relate to their revenues AND their ability to fully leverage what PR is capable of doing for them. Spokespeople that aren’t willing to commit the time, crappy products and a business that is struggling don’t make for a great PR campaign. Struggling companies can make a great story IF the management is seen to be engaged and has a plan etc. but they also need to believe that PR is a key part of the plan to get the business going and invest in it properly both with time and money. Some of you might feel that you need to spend more if you have an average company with average products etc. You can but in this instance, you need to demonstrate PR’s potential and get management to embrace it before asking for more money. If they believe, you’ll get every dollar you need. You may also question, why companies that believe in PR and use it well, need to spend more. I’d argue that when a company makes full use of PR and is getting good results, it should spend all it can and then some.
Good luck with the budget games for 2011!
PR people tend to be glass is half full people. This means that when the recession started they tended to put a very brave face on it and were almost in a north African river (denial). Indeed it was only when things had hit the bottom that many PR heads would really talk about how bad it had been. But has the industry really started a recovery? Here are some arguments for and against:
1. Clients have released project dollars that had otherwise been held on to
2. Budgets cuts are no longer taking place and in some cases clients are modestly increasing their spend
3. Staff are starting to get recruited as agencies feel more confident of their revenue streams
4. Staff who are moving are starting to look at agency work rather than in-house. In-house is often considered the safe place to be in a recession (relatively)
5. New business opportunities have improved for agencies and the process has become more normal (number of agencies involved and budgets are back to normal)
1. The release of project dollars is potentially just a year end phenomena. Many clients have calendar fiscal years and so they are now starting to think about their budgets for 2010. If they don’t spend their ’09 budgets they will have a challenge getting $$ in 2010.
2. PR budgets are generally linked to the sales of companies. Given sales are still sluggish, across the board rises in PR spend are unlikely for quite some time.
3. While the new business environment is much improved it is still very tough relative to a non-recessionary environment. Procurement departments have used the recession to sharpen their teeth and get better deals. It will be some time before agencies can get back the concessions made during the recession – if ever
The above would suggest that as an industry we are still in the early stages of the recovery (assuming you are still a glass is half full person). But what it really says to me is that we should not be looking at the recovery as a chance to get back to where we were but rather as a reminder that we need to innovate and come out of the recession offering a better solution to the one we did going in. This is easier said than done and I suspect that many agencies will look at progress in social media and feel that they can tick the box called innovation. I’d urge them to think again. The shift towards digital is important but every part of the industry has embarked on that mission. Real innovation is spotting the less obvious challenges and embracing them along with the obvious. Good luck in that challenge. Oh, and if you figure it out, do let me know!
NPR stations have been doing their pledge drive lately. One of their appeals for members said that roughly $45 Billion is spent each year on TV and radio adverts. This equates to $208 per viewer/listener per year they say. They rather neatly point out that this money comes from the viewers and listeners as they buy the products that get advertised and some of that money is then spent on that advertising. They then go on to point out that some of your $208 is spent with radio stations you hate. Good point. Indeed I hate commercial radio for the most part because of the ads, which is why I listen to NPR most of the time. This got me thinking though. If the average listener/viewer has $208 spent on them each year for TV and radio adverts, then I’d assume they get about the same again from all the other paid advertising approaches such as print ads, online ads, billboard ads and sponsorships. That means that each of us is spending roughly $400 a year to persuade ourselves to buy things.
This number may seem high or low depending on how you look at it. To me the number looks very low when I think of how many products and services a year that I buy. I’d guess I buy products and services from over 100 brands a year. That means they each get roughly $4 a YEAR of my money to spend on advertising to me. Which means the adverts would need to be pretty darned amazing don’t you think? Put another way, it seems almost pointless to spend money on advertising…
Queen Elizabeth described 1992 as her “annus horribilis”. Put politely it had been a miserable year for the royals. For many in the financial world 2008 has been their annus horribilis. The collapse of major banks and the credit crunch have driven the world into a recession that is likely to last through most if not all of 2009. This leaves the PR industry with a challenge as it prepares for 2009. At this point most agencies I’ve talked to have seen little real impact on their current budgets. What is less clear is what will happen in ’09. In the next few weeks, clients with calendar financial years will be setting new budgets. Some will inevitably cut their spend, while others will look at ways of consolidating what they do spend with fewer agencies in a bid to gain some economies of scale. Indeed I think this will be a tough period for the small independent agency that derives more than 30% of its revenues from larger companies. In tough times there is a flight to the apparent safety of a larger agency and ironically a belief that the large agency can save them money by offering a more holistic set of services. I say ironically because smaller agencies typically have lower cost structures and big agencies don’t typically do a good job of integrating, so these savings are often mythical.
What I would urge agencies to do, if they haven’t already, is to provide their clients with reasons why PR budgets should be protected during a downturn. If you simply scour the web you will find work such as that done by P&G to measure PR against other disciplines. This work clearly shows the value of PR and why there is a strong link between the sales and brand value of a business AND the PR the company does. I guess my point here is that if we don’t proactively arm our clients with data that really does show why PR should continue to be a priority for businesses facing a downturn then we shouldn’t complain when the budget gets axed.
This seems like a crazy problem, but it seems Silicon Valley is again awash with money and wants to spend it on PR – sadly though it would seem there is a shortage of people who they can spend it with – this particularly the case for those companies that want to spend about $10,000 a month. Before all the relative newcomers to PR dash out to set up PRismybag.com and soak up all this demand they should understand the real problem. The real problem is that the people who want to spend all this money want ‘experienced’ PR pros. This is of course where the catch lies. So many good people left the industry when the bubble burst that there are not that many great people around who have more than 5 years of experience (which is in turn driving up salaries). In addition the problem with most of the start ups that want to spend this kind of money is that they want at least $15,000 worth of service. The last of the problems is these businesses want lots of media attention and sadly since the bubble burst the media they can reach has shrunk. In any other market than Silicon Valley this problem would seem … as silly as it sounds. Perhaps this might encourage some of the start ups to launch in another market where their $10,000 a month will go a lot further such as China or good old fashioned Europe.
If anyone was wondering, it should now be pretty clear from this week’s UK and US PR Week league tables that our industry is experiencing its best time since the dot com boom. Indeed if you look at the US top 40 companies the average growth was 13%, with only four companies either going backwards or standing still. The highest growth came from our own Bite Communications at 63%, but equally there were 18 of the top 40 (that’s almost half for the none mathematicians) that produced growth of over 20%. Of course these league tables don’t include the numbers from the real top 10 agencies such as Weber Shandwick, Fleishman Hillard et al due to their parent companies refusing to take part on SOX grounds a reason/excuse I still feel is rather feeble. Looking at the top 10 in the PR Week US table, the growth rates were less impressive. Only APCO and Schwartz beat the 20% growth rate and half the firms either standing still or growing less than 5%. This would suggest that the sweet spot for agencies right now is for agencies with around 60 people and revenues of around $10m.
The other piece of data that caught my eye in the US table was the revenue per employee. For the top 40 this averaged an impressive $188,000. There were several firms that blew past this such as Sloane & Company who averaged $309K, Levick Strategic Communications at $276K and Integrated Corporate Relations at $293K. I wonder how many of their clients are now checking their hourly rates. At the other end of the scale were firms such Schwartz that averaged a mere $126k. Interestingly again there is a big difference between the average for the top 10 and the top 40. For the top 40 as I’ve said it was $188K, whereas the top 10 was a less impressive $170k. To confuse matters more, out of the firms that grew 20% or more the average revenue per employee was just below the average for the top 40 at $184k, suggesting that growth has been achieved thanks to offering a slightly more competitive rate. However, if you look at the firms that grew 30% or more their average revenue per employee is slightly above the average at $191K. In other words, all this figure really tells you is which agencies charge the most to their clients and which agencies potentially pay the most or least to their staff.
I guess all of this goes to show that even if the really large agencies don’t take part there is still something to be gained by having these tables.
In the last few months I’ve heard a number of people suggest we may be experiencing dot com bubble 2.0. Certainly in the PR space, we’ve seen a rush of new start up clients all keen to make their mark before they need to raise their next round of funding. We’ve also witnessed the VC firms raising money with relative ease. Put another way, money is not in short supply which is perhaps why so many have said it feels ‘bubble-ish’. While I too am slightly concerned I see some signs that this time around things will be different. Firstly, last time around many of the so called startups were little more than a set of PowerPoint slides, albeit slides about a really cool idea. This time around they have real technology and they have real customers. Second, last time rents were skyrocketing along with stock option grants. This time around, the economics seem to be in control. For example, all the startups I’ve seen this time actually feel like startups – there are very few Aeron chairs these days. Third, last time around you simply had to get some customers to get on track for an IPO. This time things are different. Indeed the data from 2005 shows Initial U.S. public offerings fell by 39 percent, to 41 during the year from 67 in 2004, according to VentureOne. And of the companies that went public, they collected $2.2 billion from their offerings, down a massive 56 percent from the $4.98 billion raised in 2004. And let’s remember 2004 was hardly a good year. So IPOs are few and far between which is good and bad news. The good news here is that this means people are much more focused on building real businesses. The bad news is that if these real businesses need serious capital injections to take them to the next stage, then they don’t have the public markets to go to. So while I may be guilty of not wanting to believe there’s another bubble on the way any time soon, from where I sit I don’t see the same pressures building, which may of course simply mean the bubble will be a different shape…
The economics of the PR industry have undergone a great deal of scrutiny in the last few years. The downturn in the economy brought on price wars for key accounts and the reintroduction in some markets of the dreaded “Payment by Results” model. At the same time we’ve seen procurement specialists start to cast an eye on the PR market as a place to look for savings for their bosses.
Of course the problem most procurement departments face when looking at PR is that it’s not like buying paper clips where the products are all the same. Instead they are being asked to evaluate very different commodities that all share the same product name. This is of course part of the reason why they are looking at PR in the first place. Not only do people in procurement want a better price for the consulting fees, they also want service level agreements. Put another way they want value for money. This has long been a tough one for the PR industry to deliver on. For example, a client not being seen in print or on TV can be as valuable at times as the opposite. So how do you measure the value of nothing being said about a client?
Undeterred procurements departments have pressed on. Models such as reverse auctions have started to appear. These in effect are designed to drive down the hourly rates agencies charge their clients. Good clients, if they use such a system, don’t pick the lowest price, instead they pick the best value (some argue that good clients don’t use this system at all but that’s another debate). This means they chose the agency they liked the most in the presentation phase of their selection process provided they also have a competitive price structure. Of course some may argue that this process is increasing the pace of commoditization of PR. That may be true but all we are talking about there is the pace at which we arrive at a destination. It’s like saying make cheap jets accelerated the rate at which the rail industry died in the US. The rail industry, in its current form, was always going to get killed by air travel. I would argue that PR is of course going to get commoditized over time, so whining about the pace at which that happens is frankly… pointless.
So if people are not to whine what should they be do? In my view they should be embracing this change and looking instead at how to offer different services that are not going to get commoditized anytime soon and also at different pricing models. The PR industry has been stuck in a rut on services and pricing for too long. Innovation in this area will open some doors and offer PR a new lease of life in the marketing mix.
Potential areas for innovation include a new look at fixed fee engagements. In this area agencies can focus more on the value of the problem they are solving for their clients and less on the ingredients they have to bring together to generate a solution. Fixed fees are now standard in the advertising world. It seems only logical that the PR world will end up following a similar path in time. Other areas for innovation are in the use of technology to deliver aspects of the service. Here PR firms can and should, take a leaf out of the professional services industries’ book and find ways of automating huge chunks of the process. They should also look at ways in which technology can improve both the client experience but also the quality and effectiveness of the service offered. A good, albeit low level, example here would be the industry starting to work together to make better use of technologies such as wikis for such items as media and analyst databases.
Of course such change will need to be careful introduced if it is to have the right effect. But if PR people can’t message this innovation then we have nobody to blame but ourselves. But I would caution the PR industry not to get defensive because procurement departments have started to get involved. Instead I’d welcome their involvement and get to work on some real innovation that the procurement people won’t be able to touch for many a year to come.