New Business Development in Tough Times
Charting the future of public relations
Holmes Report

New Business Development in Tough Times

While the economy appears to be inching into the green, public relations agencies are being squeezed harder than ever in their quest for new business. Agency new business development costs have increased an average of 20 percent over the last two years, a

Paul Holmes

By Al Croft APR
While the economy appears to be inching into the green, public relations agencies are being squeezed harder than ever in their quest for new business.
Agency new business development costs have increased an average of 20 percent over the last two years, according to a recent survey of independent agency presidents. (Technology firms, on the other hand, are coping with skyrocketing costs; as much as 50 percent higher than two years ago when new business still poured over the threshold like the Colorado River in snow-melt flood and the simplest way to win new business was to answer the telephone.)
The presidents complained of increased competition, the need to make a 150 percent effort in every new business pitch in order to distinguish themselves from all the other agencies and the fact that clients have become less knowledgeable but more demanding and have complicated and increased the time that the process takes. Here are several comments:

        “The competition for new business is becoming more fierce. We see every agency pulling out all stops to win new business.” (Dale Bornstein, director New York office, Ketchum)

        “So many more clients are issuing RFPs than ever before, sending them to more firms and demanding more front-end work before awarding contacts.” (President, Southeast mid-size agency)

        “The selection process can take much longer. There are more formal requests for proposals for smaller pieces of business; there are more stages to the process.” (CEO, large Midwest agency.)
Example: Dallas Fort Worth International Airport issued an RFP to 139 agencies; 43 firms responded; 19 stood in line to present credentials; and six made final oral presentations. The winner of the two-year $500,000 contract was the Dallas office of Knoxville, TN-headquartered Ackermann Public Relations, which offered extensive aviation experience and partnered with two local minority-owned firms.
Clients appear to have a tougher new attitude toward the entire agency selection process. They not only recognize the powerful impact that a strong public relations program will have on achievement of their organization’s goals, but they are quite aware that they sit in the “cat bird seat” when it comes to dictating terms to the PR firm they select to help realize those goals. Clients now seemingly need only bark, “Jump,” and agencies must meekly ask, “How high?”
So how can an agency compete and win in this new order of affairs? There’s no need to reinvent the wheel. Apply professional capabilities, experienced judgment, in-depth knowledge of the prospect and basic tactics that have persevered in good times and bad. Beyond all the creative gyrations and electronic high jinx, the agency that is the smartest about the prospect’s needs; best demonstrates its experience in solving problems similar to the prospect’s; has the best ideas; and significantly differentiates itself from other agencies (especially as clients try to sort out capabilities and proposals from multiple agencies) will win the day—every day.
Here’s how several independent agency presidents described: the biggest single problem they encounter when pitching new business; the way they overcome that problem; the type of speculative work that prospects require; the most important reason they won their most recent piece of new business; and the way they differentiate their firm from other agencies in a competition.
What’s the single biggest problem you encounter when pitching new business?

        “Getting clients to make a decision.” (Small NJ firm)

        “Lack of prospect respect for the investment of time and materials necessary to produce an effective pitch.” (Midsize integrated Midwest firm)

        “(Gaining) credibility with billion dollar companies that we’re as good or better than the brand name (agencies).” (Mid-size West Coast technology firm)

        “Properly identifying prospects’ expectations and selection and evaluation criteria. Not having a clear ‘score card’ identified in advance, in the case of competitive pitches – or the ‘score card’ changes after the fact. Puts the agency in the position of mind reading to anticipate what we think the prospect is looking for.” (Midsize upper Midwest firm.)

        ”(Prospect) budgets that don’t match expectations.” (Midsize southeast firm)

        “Client contacts who are either misinformed or have a greater sense of their authority when it comes to knowing vital information such as objectives, budgets, who will be involved in making decisions, etc.” (Small Western firm)

        “Potential clients not knowing or understanding PR or the difference between PR, advertising and marketing. They don’t really know what they’re looking for. Often, they are looking for information, not a partner.” (Midsize Texas firm)
How do you overcome the problem?

        “Call a lot”

        “Negotiate with the prospect to establish reasonable time frames and expectations.”

        “No specific way; half the time we can’t.”

        “Lots of research. Creative presentations that bring new insights to the party; chemistry.”

        “We try to overcome by talking about money earlier in the courting process, as the work scope first becomes identified/defined.”

        “Try to be as assertive as possible in asking the right questions at the beginning of the sales process; arranging to meet the highest level people in the organization and probing as early as possible in the sales process.”

        “Position our experience and expertise to help them develop a program that’s going to meet their needs for the long-term; that encompasses all components. Share case studies of relevant experience.”
What type of speculative up-front work do prospects require?

        “Full program recommendations and budgets for most major assignments.”

        “Fifty page or longer RFP responses are common now; we wouldn’t do them 18 months ago. Though they have a lot of canned material, they also contain a lot of program thinking done on spec.”

        “Enough to show you know and understand the problem and market.”

        “We are pretty resistant to spec work, but all these RFPs lately demand more of it. We still don’t do very much (spec work) for ‘non-RFP’ prospects. The most we typically do is a lot of great ideas in the proposal.”

        “Mostly they want strategically creative thinking that demonstrates you understand their business and competitive environment better than your competitors. If you want the business, you have to give it 150 percent to win. That means you must be very selective about who you go after.”

        “Varies from very little to wanting (us) to work for free.”
What was the most important reason you won your most recent piece of new business?

       “Creativity; (background in) cause marketing.”

       “Client satisfaction with the quality of our thinking and capabilities and the fact they were already working with another part of our integrated firm.”

       “We beat seven other agencies because of connections at multiple levels in the prospect’s company. Time before, we beat 11 other firms because we had better experience and a better team. No consistent reason or sales (work) wouldn’t be nearly as interesting. (Note number of firms involved in final presentations.)

       “Knowledge of the problem/market.”

       “We write really good proposals; they are meaty, on target and show that we listen and think on our feet quickly. Also, we’re good in the actual pitches. We establish relationships and read people well.”

       “We had a positive relationship and were a proven entity from other work with decision makers within the company who referred us to the decision maker on this business.”

       “Three different people, when asked (by the prospect) to recommend a good firm all recommended (our firm). In another case, timing and credibility were on our side. We called when the client was reevaluating what they were getting from another PR source. We proved that we could deliver what they were looking for. They signed on with us within a week.”
How do you differentiate your firm from other agencies in a competition?

       “Our corporate personality; attempting to develop a relationship.”

       “Typically by providing integrated rather than public relations-only solutions.”

       “Thinking and people.”

       “Knowledge of the problem/market.”

       “Sometimes we don’t. We just get them to like us better. Actually, we are a chameleon when it comes to differentiation. When we pitch against the mega agencies, we talk one way. And when we pitch against little guys, we go the opposite way. That’s one of the advantages of being ‘mid-size;’ we can look big or little.”

       “We focus on bottom-line marketing; (programs) that will generate business (for the prospect). We provide access to senior counsel; we are flexible and respond to the client’s and the market’s changing needs. We are proactive, strategic and aggressive.”
And, finally, as prospects now increasingly insist on indecision, misdirection, multiple meetings, a drawn-out selection process, up-front planning/creative proposals and, even, dishonest requests for ideas with no intention of awarding business, agencies need to make sure they recoup as much as possible of their new business costs. 65 percent of agencies responding to a recent survey said they are able to recoup some or most of the cost of winning a piece of new business in the first year.
Is it legitimate to recover your new business development investment? Certainly. Within practical limits and assuming it doesn’t make you go over budget. In most cases, you will be recovering the costs of “spec” research and planning that you had to do to win the business in the first place. And that gives you a head start on achieving results for the client, which they won’t object to. Here’s the way several agency presidents described how they recoup new business costs:

        “This relates mostly to recovering some research and creative costs. Depending on the potential account, we will conduct preliminary competitive research, a media and analyst audit and develop some initial creative recommendations on positioning plus major media opportunities. We include these in our recommended budget for the new client. Then, on a case by case basis, we build on what’s already been done and recoup some of our investment in research. Same for creative and media relations. You can’t just bill previous time. A key question must be: has the work added value to the client program and is it something they wouldn’t have had otherwise?” (West Coast technology firm.)

        “Many ideas become billable as we employ them.” (Large Midwest firm)

        “We bill for research and planning in the first couple months.” (Small East Coast firm.)

        “We capture all development costs associated with a pitch in an account (that’s tied to the new client). On every client billing sheet that goes to an AE each month, our controller suggests an amount of development time to be recovered or notes the amount of development costs and asks, ‘Did we recover anything?’. For example, if we come in under budget on a project, such as an annual report, we’ll recover part of the development costs. The client is satisfied because we hit the budget. If the client is exceedingly pleased and we’re going to ‘value bill’ him/her, we might capture some of the development costs under ‘value bill. We make a value judgment on how much we recover.” (Large Midwest firm)

        On the other hand, the CEO of another large Midwest agency said, “Many of our larger clients are working with corporate ‘transparency’ guidelines that make it difficult to do this unless we negotiate it up front, and that can factor unfavorably in a decision to hire us in these budget-conscious times.”
The guideline to recouping new business costs should be, as was noted above, “Has the work added value to the client program and is it something they wouldn’t have had otherwise?”
It’s anyone’s guess as to the genesis of this new client squeeze on agencies. Is it increased corporate emphasis on cost control? Is it simply that it’s become a buyer’s market after a decade of a seller’s market? Are clients getting tougher with agencies because they’re well aware of the economic disaster that hit the industry last year? Have clients suddenly become more sophisticated and even a little mean-spirited because of new-found recognition of the power they wield and are even a bit smug as they watch agencies crash into each other in a frantic search for new business? Or all of the above? Who knows?             However, one thing is worth betting on: good agencies will adapt to the recent swings in corporate approaches to agency selection and will find fresh ways to prevail. I suspect that most agencies’ income and profit this year will be up or even with last year. And the foolish or bad agencies will fall by the wayside.
A.C.(Al) Croft is a management consultant specializing in training, analysis, evaluation and critical and conceptual thinking for public relations firms. He provides planning, evaluation and counseling services to small, mid-size and national firms. Formerly, he was senior vice president and Midwest general manager of Bozell Public Relations, one of this country’s largest PR firms, responsible for the firm’s Chicago, Minneapolis and Atlanta offices.

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