Wednesday, July 07, 2004

The Pushpin Fallacy

The economic downturn hit high-flying PR firms hard. The intergalactic PR conglomerates that used to insist on $50K+ monthly retainers as a point-of-entry now vie against mid-market PR firms, waging war for accounts in the $10 - 20K per month range.

The mid-market client companies, formerly regarded as "chump change" by the conglomerates Back In The Day, have been understandably delighted to be in the catbird seat; they think, "Thanks to the dot-com crash, I can get the same PR firm as IBM, at a price I can afford, with global coverage from a single organization!"

In theory it sounds like a no-brainer, but if you look at the economics behind the courtship it can be a costly misstep for mid-market companies to award their business to the "prestige" agency.

Face facts: these large PR conglomerates are structured to service large organizations. Period. Why do you think the PR giants' "areas of presence" pushpins started dotting the map in the first place? It wasn't because they hoped to capture a bigger share of mid-market client business.

It is expensive to open and maintain offices in Chicago, San Francisco, New York, London, Singapore, Brazil, etc. Very expensive. The infrastructure begs to be leveraged by very expensive programs (read: Fortune 1000 companies) in order to remain profitable.

Alas, even though business development efforts are finally regaining traction for PR firms of all sizes, a return to the fat-cat days of the mid-late 90's won't happen soon. So harking back to Economics 101, when a company can no longer rely on large contracts to make its numbers, the #1 way to make up for the shortfall is to increase overall sales volume – with smaller, less important wins. Put another way, yesterday’s "chump" becomes today's "valued client."

Indeed, large PR firms are courting mid-market VPs of marketing like never before. But the tickled-pink marcomm chiefs need to know that they are buying into a publicly held firm that is more keen on hitting short-term revenue targets for Wall Street than building the company's brand. The client honcho hears all of the magic words; signs the paperwork with a flourish; and then grimaces to find their account serviced by a low-paid, fresh-out-of-college PR team.

Essentially the PR conglomerates use these mid-market, middling-budget companies as training pens for young PR professionals -- a chance to cut their teeth before moving on to handle those big-time accounts. (Of course, a seasoned VP – who is likely also responsible for one of those big-time, big-bucks accounts – is committed to manage this greenhorn team. But ask yourself which client will get more of the agency VP's attention?)

And as for the promise of "seamless global coordination"? Doesn't exist.

Liquor up any PR pro from these big firms and they'll admit that the success of any PR program depends on the 3 - 5 exceptionally bright people who work the account day-in, day-out. Thousands of miles' worth of physical distance, inter-office politics, cultural misunderstandings and resentments, etc. can make the coordination within a big firm more difficult than the alternative PR method – in which a client manages a mid-sized U.S. PR firm along with a small number of local Euro and/or Asian PR shops. When the client takes responsibility for global coordination, there's far less ego and competitiveness involved: every firm plays in its own sandbox, with nary a hope of expanding beyond their country's (or the program's) borders.

(This approach often has the added benefit of being more cost-effective overall, since the client's marketing exec can competitively price geography-specific firms against their regional peers.)

Link to a big firm and you're not just helping to pay for the real estate leases in the 2 - 3 geographies that affect your own business, but also for that satellite branch in Kuala Lumpur. True, the budget is not much different (these days) as what you'd pay at a mid-sized PR firm, but, just think about how much more valuable your budget is to this mid-market PR firm than it is to the intergalactic PR entity.

Trust me, when that big firm's big clients sneeze, everyone in the agency will be running to the rescue with a box of tissues. Even your account team.

When it comes to PR, pay for service, not for real estate. Pay for genuine results, not the promise of the pushpins. If you are still smitten with the propositions of a PR conglomerate, at least insist on seeing a list of comparably sized clients: you’ll likely note that despite the whiz-bang credentials of the agency, there are still plenty of unknown mid-sized companies on their roster. Be sure to talk to those similarly sized clients about their programs, and happiness.

Or, trust in the factual simplicity of Economics and close the door on the desperate Johnny-come-lately lobbying of the big firms. For your hard-won budget dollars, you deserve to work with firms that not only feel financially motivated to get you to the next level, but also see the success of your account as a means to augment their own reputation.

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