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PR firms must tackle below-cost selling

THE spectre of below-cost selling and loss leading has become a constant in nearly every business since the general collapse of the economy began four years ago, but the public relations and advertising industries have become the latest sectors to grapple with the practices.

Below-cost selling is exactly what you think it is. In PR and advertising, like every other sector, a client will put out its contract to tender. A competitive pitch process follows and the client will then make a decision.

A number of factors play into who the client chooses, but invariably price is a big part of the equation. Bigger, certainly, than during the boom.

Since the downturn, inevitably agencies have had to cut their rates, but some are perceived to have gone too far and accusations have been made about firms deliberately running "loss leaders" to beef up their account book at the expense of their rivals.

There is an element of sour grapes in this, of course. When company A loses a client to company B, it's perhaps understandable that company A will complain that B's prices were too low to be sustainable. Business is business though, and more often than not company A will have lost out fair and square.

Gerry Davis is chief executive of the Public Relations Institute of Ireland and the Public Relations Consultants Association. He believes that while below-cost selling was an issue in 2008 and 2009, much of it has been stamped out since then.

"If there is something like that going on, I would expect a complaint to be made to us, and we haven't received them," he says.

"The thing about below-cost selling is that it's not sustainable long term for either the company doing it or the industry.

"There is no way a PR firm can provide an adequate service to clients if the rate is too low to be economically viable, and what service does come will probably end up being provided by a low-level, inexperienced employee.

"Below-cost selling does not allow firms to deploy senior management and experienced professionals -- the numbers just do not add up."

Nevertheless, accusations of the practice have returned to the industry.

Anecdotal evidence suggests it is still going on in certain sectors, with some professionals telling this column that they have run the numbers after a tender and cannot see a way to profitability for the company that won the contract.

Others have been told repeatedly by clients that they need to cut their prices to be able to compete with rival offers, with some pulling out because the terms of a deal would not be viable for the agency.

Public relations is a cut-throat business, there's no getting around that, but like most industries, only the industry itself can sort out problems in the sector, especially if they can be as damaging as below-cost selling apparently is.

Indo Business