Business

Tuesday 17 October 2017

Mad men shake off the downturn and discreetly pursue new clients

PR firms have a reputation for fat expense accounts and leisurely lunches but now the 'spinners' have slashed their costs and are vying harder for new business. Peter Flanagan reports

IMAGINE for a second you are the chief executive of a large, high-profile, public company. For argument's sake, your company is involved in the food industry. Your brand is very well known among the public, and they trust your company.

But then something goes wrong. People who use your product are getting sick, and neither you, nor anyone else in the company, knows why. Nevertheless, the public and the media are accusing the company and yourself of selling tainted products to the public.

While you are working feverishly to trace and fix the problem, the company is getting pummelled in the press. You now have two problems. The immediate issue of the tainted product and the reputational damage the crisis is causing.

Fixing one of these takes time, hard work, and research. For the other, more than likely you will need to employ a public relations firm.

PR, as it's known, is in many ways the invisible hand of the business world. Whether public relations is managed in-house by a company employee, or contracted out to an external agency, it has become essential to the smooth running of business.

The above example is an extreme case of "crisis management" but there are myriad ways companies employ the so- called "spin doctors" to get their message out.

From product launches, to company results to boardroom rows, PRs are used to get companies into the news or, more often, keep them out of the news.

Since the downturn, however, the industry itself may be in need of some crisis management. Hit by clients cutting back on their media and advertising expenditure, PR firms have been dealing with falling revenues and falling employment.

With barely enough business to go around the industry, agencies are now aggressively cutting their costs and fighting for new clients. What was a dog-eat-dog industry during the good times has become a sector where only the fittest can survive.

To the outsider, the process, and cost, of hiring a PR firm is something of a black box.

Generally, however, it is quite straightforward. Most companies will put out their contract for public relations services to tender.

The initial glut of applicants will be reduced to about three firms, who will then make a pitch to the company, outlining the services it will provide, and the cost involved.

The pitching process has always been cut-throat. Even if the names of the companies in the final round are not publicised, word tends to get out in a sector that thrives on information, and the bad mouthing by competitors of each other has become standard practice.

How much an agency charges a client depends on a number of factors. Consumer PR, such as a bank launching a new credit card or a dairy company launching a new yoghurt, costs significantly less than guiding the bank or dairy company through an acquisition or the crisis management example above.

The rate also depends on who will be servicing the account. Does the company want a seasoned account director looking after them? Or will they be happy with a junior account executive?

Contracts are usually of at least six months except for certain ad hoc work and are paid a month or quarter in advance.

Consumer PR can cost as little as €60 an hour in some cases, but day-to-day corporate work ranges from about €150 an hour if a junior account executive is running the account; to as much as €300 if the managing director of the agency is looking after the client; and up to €350 or even €400 per hour for serious crisis management.

The most common rate is in the region of €210 for a senior account manager or account director.

Those sorts of rates may seem exorbitant to the outsider, but for a big company it is a price worth paying if it maintains its reputation.

Margins

Inevitably cost has become a bigger consideration than ever before, and that has forced prices and margins lower and lower -- close to the point where the rates are unsustainable for the industry.

Industry professionals have repeatedly claimed that certain agencies are using below-cost selling to secure clients, sacrificing short-term gains in the hope they can reap the benefit once the good times return.

Anecdotal evidence shows some agencies charging as little as €110 an hour for an account director.

"We've gone in for pitches at what we regard as rock-bottom rates only to be told another agency is charging less," says one top PR professional.

"In other cases we've run the numbers after a pitch and there is no way the winning agency can be making a profit. The numbers don't add up," they add.

The numbers may not add up but ostensibly at least there are few signs of trouble in the industry. Business is down by 30-40pc but a quick glance at the major firms' accounts shows that while profits have fallen they are still making money.

Hill & Knowlton merged into Wilson Hartnell Public Relations earlier this year, while Grayling has quietly withdrawn from Ireland, but there have been no mass failures, as there have been in other sectors.

The Public Relations Consultants Association (PRCA) is the industry's main trade body. At 29 members, it has the majority of major firms on its books.

Chief executive Gerry Davis admits that times have been tough since the downturn began, but doesn't buy the idea that agencies haven't cut back.

"If you had asked me in 2008 if all the firms here will still be standing by 2012, I would have said no. We haven't seen that [collapse] though," he says.

Business is a lot tighter than four or five years ago, there's no getting around that. Back in July 2007, the then Minister for Finance Brian Lenihan announced that the government was cutting its PR and advertising budget by 50pc -- it was one of the first things to go and that was reflected across the wider business landscape.

"The industry went through a few a years of scaling back on staff and salary, while bonuses became a thing of the past," he says.

Another old hand in the industry puts it more bluntly.

"After the crash a lot of firms took out a level of middle management and tightened things up considerably.

"We are paid to be discreet. Unlike other industries, if there is a clearout in a firm we tend to be very good at keeping it quiet."

Despite the upheaval in the industry, and in business generally, few flagship accounts have changed hands in recent years. Apart from Edelman taking on Ryanair in 2010 after the airline and its long-time PR adviser Murray Consultants ended their relationship, there have been few truly eye-catching moves.

At the time it was reported that Ryanair was looking to pay a lot less than it had been paying Murrays, but that didn't stop some 30 firms here and the UK pitching for the account.

That reflects another change in the industry, with clients looking for the same high level of service they had had during the boom, but at a significantly lower cost.

That brings a pressure in itself, but added to that is the pressure several of the biggest agencies endure as part of a much bigger parent company.

In many cases, firms are required to pay a dividend to the parent company so the pressure will be on them to produce no matter what the conditions are on the ground.

To name a few, Drury Communications is wholly owned by the American giant Omnicom. WHPR's ultimate parent is WPP, the world biggest media company by revenue. Edelman is part of a global firm of the same name, as is Fleishman Hillard.

So PR has seen its fair share of blood on the carpet in the past few years, but more pertinently at this stage, what does the future hold?

Mr Davis takes an understandably optimistic view of the sector's future.

If anything, he believes the sector is beginning to come back from the depths of 2009-2010.

"We seem to be starting to come out the other side. There are still relatively few pitches being carried out though and for a lot of firms it is about getting more business out of their existing clients than securing new accounts.

"Nevertheless, a lot of our member firm managing directors have said they will hire this year and next year, which we hadn't seen for sometime.

"During the bust, firms tended to cut their junior staff first and that has left them short- staffed now that business is starting to come back," he adds.

Mr Davis' mention of fewer pitches is instructive. Several managing directors said their firm had made a conscious decision to pull back from the pitch process, as they believed it was no longer the most efficient way to gain business.

"Pitching for an account costs a lot of money. If you make it to the last three, there will be a lot of pressure to produce the goods and that means spending money. If you don't get the account, there is no compensation other than a firm handshake and 'thanks for your time'," says one.

For many now, it is more efficient to keep their ear to the ground, and work on building relationships with potential clients.

That may take as long as a year or two, but if it puts them in the box seat for the account when it finally comes up, it will have been worth it.

Public relations has seen huge changes in recent years, and that has led to upheaval on a scale that was unimaginable six years ago. What was a Darwinian industry already has become even more unforgiving and it shows no sign of letting up.

Perhaps that's not surprising though for a sector which is paid to defend a company or person's name at all times. By its nature PR has to react quickly, decisively, and at times aggressively if the client is under threat.

It's not surprising therefore, that the same qualities are on show when the industry itself threatened.

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