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PR companies feel the downturn pinch

Tuesday, 2 December 2008 - 3:22am IST

Cutting budgets for advertising and sponsorships done, companies pinched by the downturn are now tweaking their budgets allocated for public relations

Companies with a greater exposure to capital markets have trimmed their public relations budgets

MUMBAI: Cutting budgets for advertising and sponsorships done, companies pinched by the downturn are now tweaking their budgets allocated for public relations (PR), some even going to the extent of sacking their PR firms.

INX Media, which runs channels like 9X, 9XM, has ended its relationship with Hanmer MS&L, a PR firm that is part of the Publicis Group. Instead, the company has hired more executives in its corporate communication team. It’s a move that the industry observers said was but natural, considering the financial situation of the company.

Consumer durables company TCL has also called off its PR tie-up with Percept Profile. “It ended amicably. TCL met us, told us that they liked our work, but they wanted to take a break for some months,” a source said.

Real estate and infrastructure companies such as Indiabulls, Sriram Infrastructure and Ansal Plaza have also terminated their PR relationships.

A wealth management company ended it Rs 25 lakh worth annual contract with WPP group’s PR firm Ipan.

According to Madan Bahal, managing director, Adfactors PR, companies in the financial services, especially those with a greater exposure to capital markets, have been hit the most. “Marginal players have reduced their PR budgets by at least about 25%.

Some private equity funds, brokerages, mutual fund companies have decided to take a break,” he said.

Sources in the PR industry said that FMCG, consumer durables, insurance companies, healthcare and pharma firms have not yet shown any withdrawal symptoms. But renewal of existing contracts is getting postponed in several cases, leaving PR firm owners on the tenterhooks. Senior PR professionals said companies now want to work on a project-based model, instead of the popular retainership model.

Under the retainership model, a client pays the PR firm a certain fixed amount every month in return of an image and perception building exercise achieved largely through coverage in the media, said industry players. The PR firm does this by issuing regular announcements from the company about new initiatives and scheduling interviews with the press for corporate profiling. For bigger announcements, lavish press conferences are also arranged, often at 5-star locations, the cost of which usually runs into more than Rs 1 lakh.

All this has now taken a beating. A senior official at Ipan said, “Six months back, we hosted about 20 press conferences in a month. Now, we do only about 4-5, and that too after much thought. Clients don’t want to do things elaborately or lavishly. They insist that interactions with media are scheduled over the phone, whereas earlier they wouldn’t have minded meeting them over a meal or a drink.”

The circumstances have, therefore, affected the functioning of PR firms.

Jaideep Shergill, partner, Hanmer MS&L, said if the budgets are reduced by say 50%, then services of PR firms also go down by 50%. “If earlier two people would be allotted to a particular client, now it is just one. Appraisals will have to wait. Our performance bonuses are going to take a hit,” he said.

This cost cutting measure, going by a marketer’s textbook logic, is rather strange as PR activities still are the most cost-effective image building tools for corporates. But PR firms said image building has taken a backseat owing to the slowdown and companies are now focussing on generating more sales to keep their cash registers ringing.

A senior PR executive pointed out that the PR industry crisis was its own doing. “Public relations often cannot be directly linked to increase in sales, because currently the PR firms are mostly bothered about relations with the media. They just don’t have consumer-focused initiatives.”

(With inputs from Pooja Sarkar)


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