Monday, May 23, 2005

Hourly rate, retainer or fixed fee? Could they be the key to innovation in PR?

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.

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