The digital and social media disruptions of the past decade created unparalleled strategic opportunities for marcomms agencies from PR firms to traditional ad agencies. At the same time, they created enormous threats, since digital and social media required new skills and marketing approaches that did not fit comfortably in existing agency cultures.
This two-headed characteristic is typical of technological change, which thrusts itself on the scene, but does not provide a roadmap for existing players who have to figure things out for themselves. Some see opportunities and challenges; others become paralyzed.
For PR firms especially, social and digital disruption created opportunities to develop content that could reach consumers or influencers and affect brand or corporate performance in a positive way.
Middlemen – journalists – could be by-passed. PR content marketing created a direct route to consumers. This improved the odds for comms firms that their work would generate positive results and be aligned with clients’ obsession with increased shareholder value, which means larger growth and profitability through effective messaging. PR was certainly good at creating stories, and content marketing was storytelling at its best.
But for many comms pros, story placement had been PR’s real value-add, and the direct-to-market approach of content marketing was perceived as a loss rather than a plus.
This is unfortunate. The PR firm that commits to generating improved results through superior content marketing will pull away from competitors and build in protections from the fee erosion plaguing the industry.
Although an agency’s profit data is generally not available to the public, Kingston Smith’s Marketing Monitor for UK PR firms is probably a bellwether for the global industry. The news from the UK is not good. The most recent data showed profit margins at the lowest level in a decade, averaging only 10.9% for the top 40 comms firms.
Shareholder value has been the corporate mantra since the mid-80s, and along with this came huge salaries meant to motivate execs to achieve higher growth and lower costs.
The management consulting industry was the first service industry to recognize the benefits of being aligned with shareholder value. "We generate results," said Bain & Co., McKinsey, and The Boston Consulting Group from the 1980s onward. They didn’t say "We’re exceptionally analytical." Instead, they focused on the outcome: Improved results for clients.
This helped fuel spectacular growth for the consulting industry and permitted consulting firms to charge clients fees five times the direct costs of the consultants. As long as the results were a substantial multiple of the fees, who was going to complain?
The marcomms industry though, largely ignored the obsession with shareholder value and positioned itself around concepts of creativity and capability: "We’re creative. We win awards." This continues, even though it can be argued clients don’t care about creativity and capability unless it can be shown to generate results. The marcomms industry today earns fees between two and two-and-a-half times direct costs, less than half the rate of consulting firms.
Digital and social disruption provides opportunities for PR firms to refocus, like consulting firms, on creating work that works. Let’s not minimize the challenge of transforming PR agencies into results-focused organizations. First, they must define the problem and have a sense about what will work. This requires smart people who share expertise throughout the firm – and are willing to experiment for and with clients.
Individual clients can no longer be managed in private ways by senior practitioners within the PR firm. Instead, all PR practitioners within a firm will be judged by the collective success of the firm at achieving improved results for clients.
The PR industry still hasn’t mastered content marketing and there are plenty of competitors, including clients’ own marketing people. Content marketing will become the key tool in a marketer’s arsenal so the prize is worth the effort. PR firms need to redefine their efforts. A start would be to instead think of PR as "public results." Comms agency CEOs need to reshape a new future for their agencies – it’s the only route to enhanced success.
Michael Farmer is chairman and CEO of Farmer & Company.