WPP warns industry risks 'losing the plot' over client renewal incentives, as PR excels in Q1

WPP's PR and public affairs arm was the group's strongest performing division in Q1 2017, it announced this morning - as WPP warned that the industry risks "losing the plot" over incentives offered to clients to renew contracts.

Revenue in WPP’s PR and public affairs arm - which includes Hill+Knowlton Strategies, Burson-Marsteller, Finsbury, Cohn & Wolfe and Ogilvy - rose 4.4 per cent on a like-for-like basis in the first quarter of the year.

Total revenue in the division, excluding the impact of currency fluctuations, rose 6.8 per cent to £291m ($375.2m) in the period.

PR and public affairs was "the strongest performing sector" in the group, WPP stated - just as it had been in Q3 2016, before a significant dip in Q4. Across the division, "all regions and sub-regions were up", with "particularly strong growth" in the US, UK, Western Continental Europe and the Middle East.

WPP again highlighted Cohn & Wolfe, a standout performer through 2016, as having "performed strongly", especially in the US where growth was "driven by consumer and healthcare spending".

Cohn & Wolfe CEO Donna Imperato said: "Cohn & Wolfe had a great start to the year, growing revenue by 10 percent over first quarter last year. Our double-digit growth over the past few years follows a multi-year transformation of our business into integrated communications."

WPP also pointed to Hill+Knowlton’s performance in Europe, Africa and the Middle East; Ogilvy Public Relations’ performance in North America, Europe, Africa and the Middle East; and the performance of its specialist PR and public affairs businesses, Glover Park, Hering Schuppener, Ogilvy Government Relations and Buchanan.

Across WPP, revenue in Q1 was £3.6bn ($4.6bn), up 3.6 per cent on a constant currency basis, and 0.2 per cent up on a like-for-like basis.

Account wins 'at any cost'

In the results statement, WPP pointed to the trend of "major groups" in the sector going to great lengths to renew contracts, given the "highly competitive ground game" being played by clients.

It said: "Competition is fierce and as image in trade magazines, in particular, is crucial to many, account wins at any cost are paramount.

"There have been several examples recently of major groups being prepared to offer clients up-front discounts as an inducement to renew contracts, heavily reduced creative and media fees, extended payment terms, unlimited indirect liability for intellectual property liability and cash or pricing guarantees for media purchasing commitments, even though the latter are difficult for procurement departments to measure and monitor."

"As some say, you are only as strong as your weakest competitor."

"These practices cannot last and will only result eventually in poor financial performance and further consolidation, the premium being on long-term profitable growth. Our industry may be in danger of losing the plot."

This attack on the wider industry concludes: "Once you accept benchmarking as a means of evaluation you become a cost and are viewed as a source of funding or insurance, rather than an investment or value-added, and recent industry results have reflected this increased pressure and inconsistencies. Some are storing up problems for the next generation of management."

This article was updated on Thursday afternoon with a quotation from Cohn & Wolfe CEO Donna Imperato.

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