• by Vanessa Horwell , July 14, 2010

Happy days are here again. Or are they?

On June 29, WPP, the global behemoth marketing and communications firm reported a significant uptick in earnings and growth. WPP's Sir Martin Sorrell reported that "in the first quarter, branding and identity, healthcare and specialist communications (including direct, digital and interactive) continues to show relatively stronger growth at over 2.0%, followed by consumer insight at slightly over 2.0% and public relations and public affairs at 2.0%." Congrats, WPP -- that is great news for stakeholders, but what about the rest of the agency world?

Roughly six months ago, as the new decade broke, agencies started the year in a cautiously optimistic mindset. And they had reason to; the recession was over (almost), consumers were shaking out the cobwebs from their wallets, the White House promised to put some sort of chokehold on Wall Street, and firms were hiring again. We saw green shoots.

Today, however, that somewhat rosy picture has failed to materialize for a lot of the PR industry and its clients. It was like a mirage in the Gobi Desert. An illusion.

As PR agencies find themselves at the crossroads of sticking to old-school tactics versus the social-media-as-an-everything Goliath, reinventing their model -- and really, trying to stay relevant to their clients, another major hurdle is facing them -- companies say can no longer afford PR. Seriously.

Last year, as agencies battened down the hatches and prepared for the worst by shrinking fees (and costs), many assumed that when business improved, clients would go back to full billings and bigger retainers. In other words, a return to the glory days ...

Those, too, have failed to materialize for many of the smaller and mid-sized agencies I've spoken with during the past week. In fact, the exact opposite seems to be happening. Their clients have been slashing, or worse, eliminating PR budgets much more aggressively than, say, at the end of 2008 and throughout 2009. To me, this seems so at odds with the general thinking that the worst has already happened (at least in the U.S.) and that as the economy improves, so will our businesses.

So perhaps business hasn't really improved. And if that is the case, my question is this: If marketing and PR agencies have never been regarded as a litmus test for economic stability, should they start to be now?

What I have found -- and this has been echoed by the dozen or so agency owners I have spoken with recently -- is that for the companies trying to shore up their balance sheets and rebuild cash flow, PR is a totally expendable expense, not a business development tool, and an indicator of a still weak economic climate.

PR Agencies Are to Blame

This perception, of course, is a tragedy -- and worse, of our own doing (hello, PR agencies, I am talking to you). Any service that we provide to a client must deliver value and result, regardless of the cost. And the result that companies are looking for is increasingly boiling down to one thing -- a tangible return. This is how WPP's Sorrell describes it:

"You do not retain valued clients by trying to retain them; you retain them by doing outstanding work. You do not make more money by trying to make more money; you make more money by doing outstanding work. You do not win creative awards by trying to win creative awards; you win them by doing outstanding work."

I could not agree more. For PR agencies, generic talk about "creating awareness, brand-building and engagement is not enough. If we -- and I am talking to PR practitioners here -- don't listen to the marketplace and adapt our actions to its needs, the slippery slope that many agencies already find themselves on is going to get a whole lot scarier.

Please don't misunderstand the tone of this column. I am not a pessimist. I am, however, a realist, and the reality for PR agencies today is this: change or die.

It is as simple as that.

We need to make ourselves truly indispensable to our clients. We need to de-commoditize our offering. We need to understand what businesses need, not what PR can do. And we need to go above and beyond to deliver every single time. There is no room left for the status quo any more.

Are you an agency owner or do you work at a PR agency? I would love to hear your view about the current agency environment and "client climate." Have you seen an increase in billings and revenues like WPP? Have you been asked to work on very small retainers, or has your agency done away with retainer billing altogether? And finally, do you see the current climate improving for your agency or getting worse? What will your agency be doing differently to stay in business?