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We’ve all done it. We’ve been lured by the lowest price and ended up with sub-optimal performance.
Maybe you bought the bargain pliers at the discount store, and the third time you used them, they broke and sliced your hand open — costing you a visit to the Emergency Room and six stitches.
When you got back home, you were left with a mess to clean up, and you had to waste more time and trouble to go buy another, better pair of pliers, so that you could do the job … ALL. OVER. AGAIN.
Turns out the “cheapest” option was much more costly – in money, aggravation, time and pain – than the “more expensive” pair of pliers.
We all understand the problems with the lowest cost product or service.
So, why are some Purchasing and Procurement buyers still making decisions based on the lowest PR agency rates?
It’s usually because they’re focused on price, or in Purchasing commodity terms, piece price rather than total value.
And why is that?
Often, it’s because they are rewarded for simply reducing initial cost (piece price), rather than the total system cost downstream and the total value created.
It’s no secret that people do what’s measured and rewarded. So, if buyers are rewarded solely based on the initial cost-savings of their ”commodity,” then lowest price or rate seems to be a no-brainer.
If a buyer picks the agency with the lowest rate, they think they can get more hours from the budget, and therefore, more or better results.
Therein lies the fallacy – the false assumption that all PR firms are equally experienced or competent.
An Automotive Analogy
We saw similar price-focused approaches for years in the auto industry:
A buyer, who was rewarded for simply reducing piece price, bought the lower cost engine seals that met the specifications – and saved 5 cents per seal. Those savings applied to thousands of vehicles over a three-year run meant that the automaker saved hundreds of thousands of dollars … initially.
The problem arose a year or two after the cars made with those engine seals were sold.
That’s when those cheap seals failed and leaked oil all over the owners’ garage floors and driveways. The disappointed owners took their cars back to the dealer to get them repaired.
Bottom line: The automaker saved a nickel per vehicle on initial cost … but spent $1,000 per vehicle on warranty costs.
Adding insult to financial injury, the automaker also lost valuable customer loyalty, goodwill and even potential sales, as owners shared their bad experience with friends and neighbors.
That kind of cost-savings can drive a company into bankruptcy.
Thankfully, these days, most automaker buyers now look downstream at the impact their decision has on the entire system.
Therefore, they see the wisdom in spending a nickel more to buy a better seal from the “high-priced” seal supplier if it prevents the leak, avoids the high warranty liability and maintains customer loyalty.
Smart companies are starting to do the same when procuring marketing services like PR.
But changing that paradigm is still difficult.
Some of the blame falls upon the PR agency industry itself.
Because the PR industry has not always done a great job educating buyers about the key considerations in evaluating, comparing, and selecting agencies. And we have not done a good job in explaining how those factors impact total value.
Let’s face it. To start with, most corporate clients – marketing directors and procurement executives alike – don’t know many PR agencies … if any.
And frankly, they don’t care about PR agencies.
That is, until the moment they need one.
Then, in their scramble to conduct their search, they are faced with a lack of real differentiation. A sea of sameness.
Corporate buyers tell us all the time: “PR agencies all look the same. They all say the same things: We’re full service. Integrated. Strategic. Creative. Global. Responsive. Client-centric … blah blah blah.”
Given that sameness, the lowest common denominator and the easiest differentiator from a Procurement perspective among PR agencies defaults to hourly rate.
In most requests for information (RFIs) or request for proposals (RFPs) these days, buyers require a rate card, even if an agency doesn’t actually operate on an hourly basis.
It’s a fast and easy way to make a comparison. It’s objective, and the numbers are easy to plug into an Excel chart or vendor scorecard.
In practice, the hourly rate is probably the worst way to make a purchasing decision when selecting a PR agency.
Like the nickel-cheaper seal in the earlier anecdote, the low-cost PR agency can actually cost you a lot more. Often, a low-cost PR agency has these characteristics:
So what can happen with the low-cost, less experienced PR firm?
1. The client (marketing or PR director) becomes frustrated because they’re spending too much time directing and educating the agency team and correcting mistakes
2. It takes the low-cost agency longer to get up to speed, delaying your program’s progress and in many cases hurting any chance of a successful scoring of quick hits in terms of media interviews, speaking slots, etc.
3. There is more trial and error with the less-focused firm, as they don’t come into the relationship knowing what will and won’t work
4. And in the most severe cases, the lack of progress frustrates the marketing/PR director so much that they split for another company, leaving your company high and dry. All work stops, more time is wasted, while your company conducts an expensive and time-consuming process to try to replace them. Your PR program is stopped dead in its tracks.
So the total cost to your company in terms of damage can be a lot like that bad engine seal mentioned earlier.
Statesman Benjamin Franklin once said: The only thing more expensive that an education is ignorance.
Similarly, when choosing a PR agency partner, the only thing more expensive than a great PR agency is a cheap one.
(Watch for the next posts in this series, where we’ll get into the factors that help determine the value a PR agency can bring, and what to look for.)
Author: Jim Bianchi
Jim is president at Bianchi PR with 40+ years of B2B PR experience in corporate and agency settings across multiple industries.
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