Exclusive: Ad shops salivate for PR profits

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Advertising agencies, increasingly striving to be discipline-neutral marketing shops, are finding public relations to be profitable business territory. But their standalone PR-agency siblings insist that the ad shops won't eat their lunch.

According to a survey released exclusively to Advertising Age last week by the American Association of Advertising Agencies' Client/Public Relations Committee, PR is offered by as many as 77% of the 168 advertising agencies that responded. The growth of in-house units at ad agencies may impact PR-centric agencies such as Omnicom Group's Ketchum or Interpublic Group of Cos.' Weber Shandwick.

higher profit margins

A relatively large number of respondents, 68%, agreed that PR has higher profit margins than advertising since it has fewer overhead costs and requires less support staff. Others said it helped them control the brand message and weather economic downturns.

"Ad agencies [without PR units] are missing out," said Linda Sawyer, managing partner-chief operating officer, Interpublic's Deutsch, New York. "If they're positioning themselves as brand stewards then they can't have the control. PR is not an afterthought." Deutsch provides both PR and advertising services to clients including Novartis, Starwoods' Westin Hotels and Resorts, Revlon and Carlson Restaurants' T.G.I. Friday's.

But Gerry Olszewski, senior partner, Ketchum, said efforts by ad agencies to bolt-on PR capabilities were often seen by clients as opportunistic landgrabs. The best PR people want to work at PR agencies where they can learn from their peers. "Holding companies have made serious investments in PR. The idea is for us to work with each other to serve the clients' needs. Why would you go anywhere else when you have the best in the business sitting across the street?"

Harris Diamond, CEO at Interpublic's Weber Shandwick agreed, saying his agency works with many ad agencies and that major clients prefer to work with specialists that have the best understanding of the media.

When asked to identify the biggest challenges to ad shops' PR groups, 31% of respondents cited winning new business. Another 23% said it was the difficulty in measuring results, a perennial problem and obsession in the PR industry; 13% said it was the fact that PR in the ad business is considered "a poor stepchild"; and 13% said the problem lies in integrating PR into overall marketing plans.

hard to calculate

Ad agencies also responded that calculating a client's return on investment was difficult. As one PR agency chief said: "PR at an ad agency is never going to get the respect if you're not the frontline of the business."

For those that have avoided offering PR, respondents said that they do not want to invest in a new practice area, or expand the focus of the agency. "In some cases PR is the foot in the door, in other cases it's another arrow in the quiver," said one PR executive working at an ad agency. "The old dyed-in-the-wool ad guys still think anything my client spends on PR will be taken out of my ad budget." Indeed, the survey revealed that fees are still miniscule when compared with advertising budgets (61% of respondents said that clients spent under $100,000, while only 29% said clients' PR budgets were between $100,000 and $250,000).

Patricia Courtois, chair of the 4As committee and VP-public relations, Clarke Advertising, Sarasota, Fla., said 30% of her agency's revenues are from PR. It has $20 million in billings and works for clients such as Rubbermaid. She said many small to mid-size agencies are grappling with the extent to which they should diversify into public relations. Conducted in December, the 4A's survey was sent to 264 agencies.

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