I read this short piece from The Economist on PR this morning. The whole article is worth a read but the tag was definitely my favourite, it read “Other firms suffering has bolstered the public relations business.” Sounds like a parasite party is on.
The gist of the piece is that firms’ actions during the downturn have led to an increase in the perceived value of PR. In essence, bad moves by corporate titans have necessitated shit cleaners. Compounding this are the changing media game and the need to reduce advertising budgets. Enter Team Flak stage right. The result is that myriad PR agencies have had banner bottom line years in recent times.
So, is PR really an attractive industry? I wanted to unpack this a bit more and thus thought there might be some value in performing a Five Forces analysis of my own on the PR game. Thanks Professor Porter, though I thought about jumping out of a window towards the end of my business degree because of your damn model it has finally come in handy.
Here goes nothing:
1) The threat of substitute products or services: HIGH
- High threat of substitutes is bad says Porter. PR is filled with a gazillion agencies large and small all purporting to be bomb ass (note – many are just asses). So, yes, buyers can find substitutes easily.
- Yes, there are buyer switching costs. It takes awhile for most PR people to understand and do well at repping the brands they look after. That said, the ease of substitution does not have to be difficult if a buyer finds the right PR rep or agency. This requires homework.
2) Threat of new entrants: HIGH
- Porter holds that profitable markets entice new entrants. Rocket science, I know. Ease of entry makes an industry unattractive.
- PR is not a capital intensive business, so entry is relatively easy by Porter’s definition. This merits explanation: If I decided to enter the awesome game of cement tomorrow there’d be a bunch of big tough guys ready and willing to crush me like a fly. Moreover, I would need a pile of cash the size of Kilimanjaro just to get one cement plant up and running. While there are big agencies in PR, the prevalence of smaller players – many successful – is a part of life and they can thrive alongside the big boys due to the existence of niches and the explicit desire of some clients to work small players in some instances.
- PR requires no accreditation (I know there is APR and the ABC distinctions but you don’t HAVE to have these to operate or get really rich practicing the craft) so any charlatan or snake oil salesman can enter. Witness the social media industry.
3) Bargaining power of customers: MODERATE
- Porter sees this as the ability of clients to put a firm under pressure. This is a tough variable to apply to an industry like PR, where there are myriad players of varying size. I thus categorize this as moderate – which means the variable does not detract from the sexiness of the industry.
- Some firms are heavily reliant on some clients, and some don’t care about their clients. So, bargaining power of customers is really an “it depends” scenario.
4) Bargaining power of suppliers: MODERATE-LOW
- PR is a knowledge game where human beings are the key to success. It is not capital intensive and does not rely a steady supply of lumber, potash, etc to deliver value to the buyer. When humans are you’re raw material and the key ingredient in your service delivery you are in for some fun and games.
- Good PR people are hard to find – many in the industry suck at it and it is bereft with charlatans. This means those who are genuinely good have agencies/firms/clients over a barrel. LARGE.
- Thus, good “suppliers” have considerable power. But, because they are few and far between I’ve given this category a lower rating – meaning that the attractiveness of the industry is in fact relatively high.
5) Competitive rivalry – MODERATE
- The fragmented nature of the industry and presence of so many sizes and shapes of players makes it hard to not be reductive here. However, and again I will use cement as an example because I know a bit about it, one could not argue that the rivalry amongst big firms in PR is remotely like the cutthroat world of cement or beer where the guillotine is working overtime on execs heads if market share drops even by 1-2% in a year.
- While nobody likes to lose a client or screwup a pitch, the industry cannot be said to possess an “intensely competitive nature” when compared to the shitkicker games that are concomitantly transpiring.
On the whole then, the PR industry looks unattractive on two variable and moderately attractive on three. However, macro economic and societal developments are currently mitigating the impact of the two unattractive variables. So what if potential clients have more choice and if there are low barriers to entry into the biz, because at the end of the day there is MORE BIZ to be had.
This scenario will not last forever. There is a ‘land grab’ going on, as Joe Jaffe might say. During this phase we can expect a whole whack of shitty players coming and going from the game. The dust will eventually settle.
What is great is that firms are now starting to realize that the VP of Comms (or whatever the senior person is called) deserves to be paid some attention and listened to. This is an excellent situation for everyone who is good at PR.