November 20, 2009
Turmoil and opportunity tend to go hand-in-hand. As businesses grapple with the challenges of today’s economic environment, the PR profession is presented with a unique opportunity. Companies are losing control of their dialogue with customers. Sources — often online — are increasingly shaping the opinions of consumers. And the sudden failure of U.S. banks and financial institutions has eroded trust among consumers further — destroying valuable brands nearly overnight. As the effects of these failures ripple through the rest of the economy, there is more pressure on marketers to translate their actions into bottom-line growth.
This presents an ideal scenario for the PR profession to rise to the challenge. Public relations should deliver the authenticity and distinctiveness that can elevate a brand, bridging the trust gap in ways that advertising cannot. Text 100 Global Public Relations released a study earlier this year suggesting that public relations often may be more important to brand value than advertising, especially for purchasing decisions related to complex products.
New challenges for marketers
Marketing professionals are naturally opportunistic during recessions. An oft-cited 2005 research article in the International Journal of Research in Marketing titled “Turning Adversity Into Advantage: Does Proactive Marketing During a Recession Pay Off?” confirmed that companies that engage in proactive marketing campaigns, such as the one for Procter & Gamble’s Ivory soap in the 1930s and the “Intel Inside” campaign in 1990, are often more successful during and after a recession as compared with companies that don’t. In fact, many well-known brands were built during recessions through large, aggressive marketing campaigns. As long as the brand has financial resources and a good marketing strategy, then it should be able to take a great deal of market share away from its competitors.
The current recession presents a new challenge for marketing, because one of the notable characteristics of this economic downturn is a focus on transparency. Consumers are demanding greater transparency in nearly all aspects of public life: transactions in the financial industry, executive compensation, government spending — even transparency for social networking Web sites such as Facebook. Consequently, the most effective messages will be those that are transmitted through trusted third parties or by word-of-mouth.
As third-party validation is becoming more important, public relations also matters more in regard to building and maintaining brand value. A recent Nielsen report called “Advertising Builds Confidence for Financial Brands in Crisis” illustrates this point. Although the title suggests that companies should focus their marketing spending on ads, the results actually suggest that public relations is more likely to be effective in building consumer confidence in financial institutions.
When researchers asked consumers what factors would increase confidence in the safety and soundness of their financial institutions, only 21 to 25 percent reported that consistently seeing Internet and regular advertising would boost their confidence. The most frequently cited factor that boosted confidence was clearly public relations: 44 percent of consumers reported that reading positive news stories would increase confidence in their financial institution. But the question remains: What specific proportion of a company’s marketing mix should be composed of public relations during a recession?
Examining the relationship between brand value and media prominence
In late 2008, Text 100 and its research arm, Context Analytics, sought to answer that question. In their report “Media Prominence: A Leading Indicator of Brand Value,” Context Analytics assessed how both unpaid media and advertising spend contribute to brand value. The study found that for some industries and products, public relations might have more of an impact on the bottom line during a recession than any other marketing communications activity.
To arrive at this conclusion, Context Analytics studied the relationship between brand value (as determined by Interbrand’s 2008 Global Brands report) and media prominence (a weighted composite of headline, lead paragraph and text mentions in independent media coverage that was not paid for by the brand owner). It found that media prominence accounts for 27 percent of the variation in a brand’s value compared to only 2.3 percent for advertising. To put this in perspective, research using similar methodology has demonstrated that high SAT scores account for only 10-20 percent of the variation in whether or not a first-year college student will attain a high GPA. Since Interbrand’s valuation is based on financial metrics, the results of this study demonstrate that media coverage relates to not just a company’s reputation but the actual financial value of the brand.
Also, the relative contributions of media prominence and advertising expenditures to brand value depended on the complexity and cost (“involvement”) of the brand’s products. Among high-involvement brands — IT, automotive, consumer electronics and financial services — there is a strong connection between media prominence and brand value. As an example, media prominence accounted for nearly half of brand value (48 percent) among IT brands.
For lower-involvement brands such as personal care and apparel, media prominence was still important, but it played a less-significant role. Among personal care brands like Gillette, L’Oreal and Avon, media prominence only accounted for about 4 percent of brand value. Yet, where the results show that media coverage becomes more important to building brand value for high-involvement products, the opposite is true for low-involvement brands such as Coca-Cola, Nike and McDonald’s. For these brands, advertising garnered nearly 25 percent of the variation in brand value.
The key takeaway from Context Analytics’ research is that when it comes to products that are expensive, replaced relatively infrequently and differentiated by nascent technologies, customers are going to rely on trusted third parties for advice. These third parties vary widely, from mainstream media to blogs, to forums, to friends.
And when it comes to researching whether it’s better to purchase an iPhone or a BlackBerry, consumers are far more likely to rely on comparative reviews on sites such as TechCrunch and CNET than ads that they find online or in magazines. Consequently, for high-involvement brands such as General Electric, Cisco Systems, Ford and Goldman Sachs, a fairly large proportion of marketing budgets should be devoted to PR activity. For brands that rely more on split-second decisions at the point of purchase (e.g., deciding which brand of toothpaste to purchase), advertising should be most heavily weighted in the marketing mix.
This study is among the first to compare the impact of media coverage on brand value across different industries and product types. While this may seem self-serving for the PR profession, internal marketing teams have conducted numerous case studies that make the same essential point: Public relations is just as effective, and often far more cost-efficient, than advertising for building long-term brand value.
Some well-documented cases that serve as proof of this include:
In 2006, Procter & Gamble shared some of its marketing-mix modeling results for seven of its beauty, health care and family brands, and found that for three of those brands, public relations had the highest ROI of all marketing activities (it came in second for the remaining brands). Overall, P&G found that PR spending provided a 275 percent ROI.
The December 2003 issue of Television Week stated that Miller Brewing Co. had shifted much of its marketing budget from TV advertising to public relations, largely based on a marketing-mix model study that it had commissioned. The model indicated that PR campaigns generated about 1.2 percent of base product sales, while TV advertising contributed 5.3 percent. Although Miller’s marketing department didn’t disclose its PR budget-to-advertising spending ratio, it noted that the industry average is 61 to 1 in favor of advertising spending. This means that public relations might be as much as 14 times more efficient in generating sales than TV advertising for Miller.
In his book “Unleashing the Power of PR,” Mark Weiner reported on AT&T’s marketing-mix model. In the model, he compared public relations to outbound telemarketing, direct marketing and advertising. The model revealed that positive media coverage of AT&T increased the success of other marketing efforts, but the effects were not reciprocal. Furthermore, an analysis of the cost per acquisition by channel revealed that public relations was the most efficient marketing channel — with a cost per acquisition of $15. This is 24 percent of the cost of outbound marketing at $63 per acquisition, and just 16 percent of the $95 cost per customer for advertising.
These cases demonstrate the ROI of public relations for relatively low-involvement brands. The results of the media prominence and advertising study demonstrated that high-involvement brands benefit significantly more than low-involvement brands from media prominence as perpetuated through a sound PR strategy.
Consequently, it seems that if the same marketing-mix modeling was applied to a high-involvement brand like an IT manufacturer, as was applied in any of these case studies, then the significance of public relations would be amplified — clearly demonstrating the ROI of public relations compared with other forms of marketing.
The more complex a purchasing decision a product requires, the more likely it is that the buyer will research the category and seek information that he or she can trust. Much has been said about the increasing power of word-of-mouth referrals and the growing distrust of advertising over the past few years.
The current economy only serves to amplify the importance of marketing via third-party influencers and neutral venues. Since unpaid media placement is more credible to buyers, it should play a key role in building brand value for high-involvement brands — especially during the recession. Brands that invest in building their reputations this way will come out of this economic downturn stronger, while competitors who don’t will likely suffer.
Learn more about the Business Case for Public Relations right here.