Charting the future of public relations
Seven Reasons to Have Faith in the Resilience of the PR Business
Paul Holmes
Holmes Report

Seven Reasons to Have Faith in the Resilience of the PR Business

It would be foolish to suggest that the industry will come through a prolonged downturn unscathed. But there are several good reasons to believe that the industry is better placed to withstand this downturn than previous ones, and that in the long-term, at least, the industry outlook is positive.

Paul Holmes

This article was originally published in The Holmes Report's PR World.  To subscribe please contact Celeste Picco at [email protected]


Looking at the data compiled for this month’s issue of The Holmes Report’s PR World, it is clear—even allowing for the difficulty of coming up with precise numbers—that the public relations consultancy business around the world enjoyed another year of robust growth in 2007. What is perhaps surprising is that the business has continued to thrive through the first half of 2008, despite the unease about the broader economic picture that has now spread from the U.S. to most of the rest of the world.


Whether the U.S. economy is in an actual, dictionary-definition recession remains open to debate, but there can be no question that ordinary Americans are feeling the negative effects of a downturn that comes at the end of a “boom” that did little to improve their economic condition. With house prices plummeting and gas prices rising (and driving up the price of essential commodities such as food) and financial services companies on the brink of collapse, there’s no question that the economy is in trouble.


Given the circumstances, the public relations business has so far in 2008 proven surprisingly resilient—more resilient, certainly, that the advertising industry, after Citigroup last month cut its U.S. advertising growth forecast to just 0.2 percent for the year.


It would be foolish to suggest that the industry will come through a prolonged downturn unscathed; there is no evidence that public relations is, as some have argued, counter-cyclical. And indeed, there are already indications that clients are prolonging the new business decision-making process and delaying the start of some programming, which many observers see as a precursor to budget cuts.


But there are several good reasons to believe that the industry is better placed to withstand this downturn than previous ones, and that in the long-term, at least, the industry outlook is positive.


1. The Growth of Digital and Social Media


There has been a dramatic shift in the way major corporations spend their marketing budgets over the past couple of years as companies seek a more cost-effective alternative to traditional advertising, driven by declining audiences and by the growing realization that advertising is the least credible, least engaging way to connect with consumers. Digital and social media have been the biggest beneficiaries. And according to a recent survey of marketers by Manning Selvage & Lee, 75 percent expect their digital spending to increase over the next 12 months. Moreover, there is still a significant gap between the time people spend online as a fraction of their media consumption (about a fifth) and the percentage of marketing budgets spent on the internet (about 7.5 percent). Most experts expect to see that gap narrow over the next few years.


Public relations agencies won’t see all of that new money, perhaps not even most of it, but they will continue to see a significant share, because of all the established marketing and communications disciplines, public relations is best equipped to help clients deal with the challenges presented by social and digital media, for reasons we have outlined on these pages in the past. In short, digital and social media are about authenticity, engagement, and conversation, and these are all essential elements of traditional public relations programming. The skill-set required to engage with and converse with mainstream media is not markedly different from the skill-set required to engage with and converse with bloggers or indeed ordinary consumers, online and off.


Many large PR firms say digital and social media already accounts for about 10 percent of their overall revenue stream. There’s no reason that number should not double over the next couple of years.


2. A Central Role in Branding


Public relations firms are finally taking a more central role in brand strategy, positioning and messaging, a development that is long overdue.


Several years ago, I moderated a round table discussion in New York between chief marketing officers from various industry sectors at which we discussed the role of public relations in their marketing strategies. The participants all agree on two things: first, that they were willing to accept brand-building ideas—ideas upon which they could build the entire brand strategy—from any source, not just from advertising agencies; and second, that public relations agencies invariably brought them public relations ideas, not broader brand ideas.


 But the past decade has seen a significant shift. Ten years ago, it was fair to say that most public relations firms understood the media; they could come up with ideas that generated publicity. Five years ago, most public relations firms understood brands; they could come up with ideas that built those brands. Today, more and more public relations firms understand consumers; they can come up with ideas and insights that connect with those consumers.


To a certain extent, this trend has been driven by bigger budgets; the more money a client spends on PR (and more important, the more money a client spends with a specific agency) the more resources that agency can devote to research into the client’s relationship with its customers (and other key stakeholders). To a certain extent, it is driven by the fact that public relations firms, if they are doing their jobs properly, are naturally closer to the consumer, more engaged with the consumer, than any other marketing service provider—because they have to earn the attention of the consumer; they can’t simply buy it.


3. A Stronger Case for ROI


Historically, public relations agencies have suffered from the perception that their impact on marketing (and corporate) performance is more difficult to measure than that of advertising. I have never fully accepted that perception. I think marketers have been less inclined to measure public relations, because the cost was often seen as disproportionate to the benefit. And I think PR people have been focused on measuring the wrong thing (volume of media coverage, in particular). And I accept that isolating the impact of public relations activities on sales, or on corporate reputation, is a challenge—though no more so for PR than for advertising. But ultimately, there’s no theoretical reason why it is more difficult to calculate the return on investment in public relations than in any other communications vehicle.


In any event, clients, analytics companies and public relations agencies themselves have made impressive progress on the ROI issue over the past few years, and the results have been entirely beneficial.


Clients, led by consumer products giant Procter & Gamble, have invested in sophisticated marketing mix modeling tools, most of which appear to show that while mainstream advertising spending has reached—and in many cases long since passed—the point of diminishing returns, public relations is among the most cost-effective tools in a marketer’s arsenal. Analytics companies have developed ever more sophisticated ways of tracking both brand and corporate relationships: the Net Promoter Score developed by Bain & Company holds particular promise for the PR industry. And agencies are developing their own tools: Fleishman-Hillard’s Corporate Consulting Group has developed an approach that provides not only a compelling evaluation methodology but also a predictive capability.


4. Heightened Societal Expectations


We are living in an Age of Transparency, an age in which companies can expect to see every aspect of their behavior, every word they utter, scrutinized as never before. The mainstream media are paying more attention to business than ever, and focusing on a wide range of issues from environmental impact to diversity to marketing practices. There are single-issue advocacy groups dedicated to identifying and publicizing corporate missteps in all of these areas and more, and many of those advocacy groups have conflicting agendas: recognize gay rights in the workplace, and religious organizations are likely to call for a boycott; refuse to recognize them, and expect an avalanche of criticism from human rights groups.


All of this information has empowered ordinary citizens. Those who are so inclined can learn all they care to know about corporate environmental and social responsibility practices, and factor that knowledge into their purchasing decisions (whether those decisions involve company stock or products) and into employment decisions. They can use the Internet to spread information—and disinformation—about their experiences with a company around the world.


In this environment, companies need to monitor what is being said about them constantly, and be prepared to respond in real-time, and that is creating work for public relations agencies that have the resources to help with the former and the consulting capability to help with the latter.


And there is absolutely no reason to believe that heightened public expectations will decline in the event of an economic downturn. On the contrary, there is a case to be made that the economic slump will feed the lack of trust that underlies heightened demands for better corporate behavior and improved communication, especially if consumers decide that lack of regulatory oversight or corporate irresponsibility—in the financial services sector—for example, was a significant contributor to the downturn.


5. Emerging Democracies, Emerging Economies


Even if growth in the developed markets of the United States and western Europe slows to a crawl, there will still be plenty of opportunity for public relations agencies that either have offices in emerging markets or are equipped to serve clients—corporations, governments and other organizations—with their roots in those markets. Regardless of any global economic slowdown, China and India and the Middle East and the rest are likely to see continued growth, even if it does slow somewhat.


The growth is fueled in part by the increasing democratization of once totalitarian nations. Public relations is both driving and benefiting from that increased democratization. It drives the process, because a world in which information and credibility are critical to competitive success makes it untenable for any country that wishes to flourish to restrict access to them. It benefits, because once people have choices—where to work, what to buy, who to vote for—then organizations need public relations in order to influence those choices.


In this environment, multinational corporations are spending more and more money to reach consumers, attract employees, and communicate with regulators in emerging markets. And companies from those markets are becoming enthusiastic—and in some cases quite sophisticated—users of public relations to establish their credibility with the capital markets, demonstrate their legitimacy to politicians, and overcome the skepticism of consumers. (The importance of these efforts was underscored last month with the collapse of Chinese technology giant Huawei’s bid for 3Com—a collapse that was widely attributed to skepticism related to the company’s country of origin.)


6. Better Management


In addition to all of these external factors, there is an internal factor that is worth point out: today’s public relations firms—the best of them, at least—are considerably better managed than they were even a decade ago.


The PR industry went into the last downturn—sparked by the collapse of the dot-com bubble—in the worst position imaginable. In the preceding years, salary and title inflation had spiraled out of control, as agencies cannibalized each other to acquire enough warm bodies to meet the demand of new clients, none of which were subjected to any kind of due diligence. Their payrolls bloated, agencies faced the significant expense of layoffs at a time when many clients were unable or unwilling to pay their bills in a timely manner.


The best agencies learned from that experience, and the past five years have seen significant investment in policies and processes designed to avoid a repetition. Today’s leading PR firms invest more in staff retention and development; client satisfaction; quality and financial controls. And today’s managers recognize that being a good manager is as important as being a good practitioner.


7. The Global Financial Crisis


The final reason for optimism is not such a long-term one, and may at first seem counter-intuitive, but the global financial crisis that is a major cause of the economic downturn is also creating work for the PR industry.


When the dot-com bubble burst, causing the last PR industry slowdown, many of the worst-affected companies simply stopped communicating—in some cases because they went out of business entirely—while others decided they had more important uses for their limited cash resources than paying their PR firms. But this time, the worst-affected companies—those in the financial services sector—do not have the same luxury.


Confidence—consumer confidence, regulator confidence, investor confidence—will be key to their survival, and to maintain that confidence they need to communicate, in some cases even more aggressively than before the crisis hit. That’s good news for corporate and financial communications specialists in particular, since it provides them with high-value, high-margin business to compensate for any decline in mergers and acquisition and IPO work.


Some of these long-term trends are likely to decelerate in the event of a prolonged downturn; none are likely to be thrown into reverse. And so while the growth of the public relations industry is likely to slow over the next 12 months—perhaps to the low single digits and perhaps to about the rate of inflation—there is no reason to believe that the industry will not continue to average double digit growth over the next five years, and continue to take a more central role in both brand-building and corporate reputation management.


Of course, the benefits of all these long-term trends will not be evenly distributed throughout the PR consultancy world. In fact, it seems clear that if these trends are real, the advantage is likely to accrue entirely to those firms that are providing more strategic, value-added services; a greater emphasis on accountability and business results; and a more progressive, cutting-edge range of products. Those firms focused on traditional mainstream media relations—or worse, competing based on price rather than value at the commodity end of the business—are likely to suffer disproportionately through the coming downturn and beyond it.

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