Let's pitch together - PR is growing faster than advertising - It can also open up profitable channels for ad disciplines. No wonder major advertising companies are acquiring PR firms like there's no tomorrow.
On October 7, Interpublic Group of Companies completed its acquisition of Shandwick, previously the world's largest independent PR organization.
Within three weeks, Shandwick and IPG's biggest ad agency, McCann-Erickson Worldwide, had won a joint pitch for the multimillion-dollar advertising and PR business of insurance company Aon Corp.
Such intra-holding company partnerships used to be more wishful thinking than reality. But with marketers in all kinds of industries embracing PR with ever-growing enthusiasm, collaboration is on its way to becoming 'business as usual'.
'It was a real advantage' to be able to pitch together, says Michael Petruzzello, CEO of Shandwick America. 'Both of us benefited from being able to work with the other.'
In a world where PR increasingly leads a marketer's charge, the four major advertising holding companies have embraced PR with new vigor. Once viewed as an unsexy sideline, PR has become one of the glittering jewels in these companies' portfolios. The main reason is the consistent double-digit growth achieved by top PR firms in the past five years, making them valuable fuel for the holding companies' aggressive overall expansion and diversification. But having acquired a number of PR properties, the holding companies are finding that PR can do more than open up a profitable new channel. PR is starting to look like the holy grail that has been talked of in marketing services for years: a stimulus for growth in its sister disciplines.
Big strides into PR
IPG rival Omnicom Group has taken the biggest strides into PR. Having acquired Fleishman-Hillard and Ketchum PR Worldwide in the past three years, it now owns three of the world's six largest PR firms. In fact, it will derive about 15% of its total revenue from PR in 1998. And IPG, which two years ago had practically zero presence in PR, is coming up fast. Acquisitions of Shandwick, Golin/Harris Communications and Weber PR Worldwide have made PR nearly 10% of IPG's revenue.
This heightened interest in PR has been largely client-driven, notes Salomon Smith Barney analyst Bill Bird. 'Advertisers are increasingly looking for alternative ways to communicate their message,' he says. Holding companies, watching PR grow at twice the rate of advertising, have had to strengthen that side of their portfolios.
'PR margins are generally slightly lower than advertising,' Bird says, explaining IPG's prior reluctance to embrace PR. 'However, its growth dynamics are very strong.'
Consistent with its business model for the past 20 years, IPG will look to grow its PR corridor aggressively by acquisition and by introducing PR properties to clients of its advertising and other agencies, says chief financial officer Gene Beard. And, as with other acquisitions, it will look to leverage interdisciplinary synergy.
What impresses Beard is that such synergy is already showing up - in dollar signs. 'There's a lot of complementary skills' between PR and advertising, Beard says, and there seems to be a bit less of a competitive framework than with other disciplines, where tangible synergies have often proved elusive. Again, this is largely client-driven: PR and advertising frequently come from different budgets or departments within a company, so partner agencies feel less of a need to defend their turf.
One case in point: Gateway 2000. The computer maker recently selected IPG's McCann to handle its advertising and IPG's Weber for its PR. The company didn't direct the agencies to pitch together; in fact, it was holding two separate pitches for PR and advertising, managed by different teams of executives within Gateway. Officials at McCann and Weber decided it would be better to pitch together, and approached Gateway with the idea.
Petruzzello says Shandwick's collaboration with McCann has been similarly rewarding. 'Advertising and PR are developing a mutual respect of each other's disciplines,' he says.
At Omnicom's Fleishman-Hillard, such mutual respect has quickly led to mutual revenue gain. Chairman and CEO John Graham says his firm has picked up new business worth $20 million (on an annualized basis) from joint pitches with, or referrals from, other Omnicom units in the 15 months since it joined the company. Examples include assignments from Georgia Natural Gas and Bali, that came from BBDO Worldwide and TBWA Chiat/Day, respectively. At the same time, Fleishman has been able to create opportunities among its own current and prospective clients for several Omnicom units.
The recent examples generally show PR firms gaining more from their ad-agency siblings than the other way around. In IPG's pursuit of Gateway, Beard guesses the pitch partnership probably gave a bigger boost to Weber than to McCann. But in the long run, he says, McCann may have more to gain.
'PR firms move in at very high levels of the (client) company,' Beard points out. Ad agencies don't always receive such lofty access. To the extent that a PR agency can open a CEO's door for its sister ad agency, it can create a great opportunity for the ad agency to deepen the nature of its work and its relationship with a client.
Larry Weber, CEO of Weber PR, agrees that one of the biggest assets a PR firm has - and can leverage for sister agencies - is its access to the 'C-level': that's CEOs and CFOs.
'PR is one of the most important tools that C-level executives have at their disposal,' Weber says. And top-level execs in hi-tech - Weber's strong suit - seem especially aware of PR's power.
'Technology companies will traditionally look to PR before advertising, and so you'll get bigger budgets for PR,' Graham agrees. 'It's generally the same with healthcare.' In these industries, marketing typically begins long before a product is launched, making PR more viable and efficient.
Technology companies abound that have gone from an idea in a garage to a rocket-fueled stock offering, with minimal advertising, minimal revenue - and lots of PR.
Graham notes that the technology and healthcare companies successfully using PR to grow today will eventually develop large advertising budgets.
Omnicom had that in mind, he says, when it purchased Ketchum, his own agency and others.
Young & Rubicam has been another leader in the search of such stepping-stone growth. With Burson-Marsteller accounting for 20% of Y&R's total revenue, and direct-marketing agency Wunderman Cato Johnson accounting for another huge chunk, Y&R has identified 40 or so 'key corporate accounts' on which it tries to grow business globally and across disciplines. As a potent sign of the important role it believes PR will play in that pursuit, Y&R earlier this year made B-M chief Tom Bell chairman and CEO of its flagship unit, Y&R Advertising.
One area where ad agencies can gain from their PR brethren's experience is in global communications. Ad folks have been talking for a decade or more about global advertising, but in relatively few cases have brands really been able to craft global ad campaigns. On the other hand, PR practitioners have had little choice. With the explosion of the Internet and global media outlets like CNN, PR went global overnight. 'If a crisis hits, it instantly becomes a global story,' Petruzzello says. 'You've got to be able to execute a strategy instantaneously, too.'
Agencies like B-M and Shandwick have built broad and deep physical networks like the McCann-Ericksons and J Walter Thompsons of the world, with offices in more than 100 countries. And global expansion will certainly continue for them and others, including Ketchum, Fleishman-Hillard and Weber. But Beard is cautionary about this trend.
'You want to make sure you don't have too much overlap with offices,' he says. 'That's where you can get into trouble with margins.'
Another area where the nature of PR can help advertising is in working with more diffuse and complicated media. With the Internet and other media developments creating more and more filters, or layers, between marketers and their customers, PR professionals trained in communicating through the voices of others will become increasingly valuable to other parts of the marketing mix.
In Weber's model for the future, PR and advertising will gradually become much closer cousins. As the Internet evolves and data mining and management techniques become ever more sophisticated, he expects an advanced form of relationship marketing to become the mantra of marketers in dozens of industries.
'It's morphing into a different kind of communications influence,' Weber says - one that both advances the potential influence of PR and makes it more dependent on other disciplines at the same time. 'Don't think advertising people won't be important,' he says. 'We're moving more to visual-based PR, because the media is becoming more visual. And we're all writers in PR. We don't have that visual experience.'
Weber also predicts that a much greater level of specialization will make marketing and PR more like modern medicine, with 'primary care' providers on the front lines and an army of specialists beyond them.