Agency reviews in the last several years have often led to clients consolidating their PR firms, but today's deepening recession has accelerated this trend as clients seek to cut budgets and economize.
In recent months, a number of major corporations have conducted agency reviews whereby they consolidated the number of agencies with whom they work. That has led some in the industry to attribute many ongoing reviews to a search for efficiency or integration.
Whirlpool went from working with two PR firms to one in December 2008. Monica Teague, senior manager of mass brands at Whirlpool, echoed similar sentiments when the company consolidated with Peppercom, saying in December, “We were looking for synergies in the last quarter of 2008,” but adding that although it experienced some brand budget cuts in 2008, those cutbacks were “not the driver of the consolidation.”
The search for efficiencies goes beyond PR. Coke CEO Muhtar Kent, for example, said during its fourth-quarter earnings call on February 12 that it has “consolidated our [marcomms] agencies” to achieve “more efficiencies” in recent months, slashing the number of its agencies by more than half. Coke did not return calls seeking comment.
Companies like Pfizer, eBay, and Philips are also reviewing their multiple-agency relationships, but have denied that consolidation was a factor. The failing economy has given clients the opportunity to simplify, as well as integrate, their external agencies to build a more streamlined marketing communications function. David Wolf, director of corporate communications at Philips, told PRWeek its review isn't motivated by consolidation, but for its firms to fit future needs.
“[The eBay review] is about integrating communications as much as it is about creating economies of scales,” says one source familiar with the review. “This is a chance for them to get some consistent messaging out there.” EBay confirmed the review recently, but declined to comment further.
But the economy points to a future in which budgets will be tighter across all sectors. One agency CEO says that the trend does transcend beyond paring down PR firms. It also involves integrating agencies across marketing disciplines, the source notes. The recession has acted as a catalyst, pushing clients to stretch their agencies across more disciplines.
“Integrated communications has always been considered something noble to strive for,” the source adds. “But I don't think people felt the urgency to really make it happen until today because of the economy.”
Jerry Swerling, director of PR studies and the USC Annenberg Strategic PR Center and management consultant, says agencies are diversifying to meet these demands, but not by cozying up to the advertising industry.
“Traditional advertising isn't a particularly healthy field, so that's not a good place to broaden services,” Swerling says. “But digital is still up for grabs.”
Susan Isenberg, MD of US health for Edelman, concurs with the trend toward integration and consolidation. “We have a more broad spectrum of capabilities that we're doing now,” she adds. “It's more than just marketing communications, it's consulting, corporate communications, employee engagement, and digital.”
A senior level source at a procurement firm says as clients grapple with their bottom lines, even long-standing client-agency relationships have been jeopardized as part of the recent slew of reviews.
“I'm seeing clients saying they don't feel like they're getting as much bang for their buck,” the source notes.
But it's creating a vicious cycle that can lead to an inevitable review. Clients cut back their budgets, then the agency conducts layoffs and is left with a smaller staff to handle even more stringent client demands. Additionally, as PRWeek has previously reported, some clients are responding by eliminating AOR agencies and working with firms on a project basis, nearly the opposite of consolidation.
“But the responsibility for the client still ultimately falls on the agency,” the procurement firm executive notes.