November 20, 2009
The need for the PR profession to deliver value and drive positive return-on-investment has never been greater. While the current environment presents challenges to all forms of business activity, it underscores public relations’ most ubiquitous challenges: proving PR value and connecting PR performance with business outcomes. To find solutions, practitioners must take initiative and build understanding using proven results, replicable methods and a reliable body of knowledge.
Understanding PR value and PR ROI
By defining and exploring the concepts of value and return-on-investment in public relations, we can understand the value systems that govern many PR programs. Recognizing these concepts allows us to propose straightforward strategies and tactics to deliver on our promise to develop professionally, to give tangible benefit to our employers or clients and to elevate the PR profession.
While frequently used interchangeably, value and ROI are different. By confusing the two terms, we make it difficult to argue the business case for public relations. Consider the following definitions:
Value: PR value represents PR performance in relation to the investment that the client is willing to expend. Strictly speaking, value represents no other intrinsic power or fact: It is simply what one gives and then gains within the context of expectations. As such, “value” is entirely subjective and more inclusive since it can factor in almost anything that is considered valuable.
Return on investment: For a given budget in an organization, the return on investment, or ROI, indicates how much profit or cost-saving is realized.
While profits are not the goal of every PR program, organizations apply an ROI calculation along with other approaches to develop a business case for a given proposition. This includes the pursuit of memberships, donations or contributions, votes or loyalty. In cases where the immediate objectives include gaining market share, building infrastructure or positioning oneself for a public offering, for example, ROI might be measured in terms of meeting these objectives rather than the immediate bottom line. However, ROI is objective and quantifiable in terms of revenues generated, savings achieved or costs avoided — in other words, ROI relates strictly to monetization.
Two truths emerge from these definitions:
• Value is not solely derived from a positive ROI.
• ROI does not necessarily equate with value.
While the client — internal or external — may be happy to learn that your corporate philanthropy campaign delivered positive ROI, an alternative reaction might be that the resulting profits and sales increases clash with the organization’s reputation for charity.
Uncovering the value system in your organization
The difficulty in proving PR value lies in the subjectivity of values: They change not only from organization to organization, but also from person to person. The key to adapting organizational priorities for PR planning can be determined by a simple value audit among your executives. This allows you to learn, assess and align organizational objectives with their PR expectations and priorities, as well as their preferences for tracking success. Just like the organization’s accountants conduct an annual audit, PR practitioners should conduct an annual executive audit to ensure clarity and understanding while minimizing risk.
The PR department or agency or an outside research consultant conducts the audit as an online or telephone survey among a select group of key executives whose authority impacts PR funding, objectives setting and performance evaluation. While many people prefer working with an outside research provider, the audit can be done inexpensively, and in-house, using free online survey tools and by following these steps:
• Encourage openness and honesty by assuring executives of anonymity and confidentiality.
• Initiate and formalize one-on-one discussions for aligning executives’ preferences with PR objectives.
• Negotiate to ensure that the executives’ preferences for setting PR objectives and measuring PR success meet your criteria for reasonable, meaningful and measurable.
• Set standards, achieve mutual understanding and, once identified, meet or exceed executives’ expectations.
• Gain final authorization from your executives.
• Report results in terms governed by and in the language of the negotiated consensus.
Following these steps ensures understanding, reduces risk and increases the communicability of “value.”
Demonstrating — and generating — a positive return on your PR investment
There are three factors linking PR performance to ROI:
1. Public relations’ proven ability to drive revenue or attract investment
2. Public relations’ proven ability to drive greater efficiency by doing more with less
3. Public relations’ proven ability to circumvent catastrophic cost through crisis avoidance
Making the public relations-to-sales connection
The easiest way to make a connection between public relations and sales, investment or behavior, is by assessing the contribution of public relations when used in isolation. In the absence of any other factors, it may be safe to claim that public relations is driving incremental gains. Also, some Web-based PR campaigns enable customers to connect directly from publicity to purchase.
However, since most organizations use public relations concurrently with other sales-driving activities, simple approaches to measurement cannot isolate public relations’ impact. But the recent convergence of new technology, advanced PR measurement and superior statistical analytics makes it possible to quantify and contextualize public relations’ ability to drive sales, investment and behavior. The statistical analysis, known as marketing-mix modeling when applied to sales, assesses the financial impact of any particular agent or combination of agents within the broader scope of marketing, communication and even external factors such as the weather.
Applying what they learn through the modeling, marketing investment decision-makers devote their dollars to the areas with the highest estimated sales potential.
Even if marketing-mix modeling isn’t right for your organization — because it doesn’t work as well outside of consumer categories, or because it’s complicated and it may extend beyond your resources — every PR professional needs to know that public relations makes a consistently positive, quantifiable and efficient contribution to sales.
Impacting savings, cost recovery and efficiency
The most common way that public relations contributes to the ROI equation is by helping the organization do more with less in ways that are both direct and indirect. In terms of direct savings, PR practitioners regularly save money by targeting their outreach, focusing on what works and negotiating better terms with their agencies and outside service providers. In terms of indirect savings, public relations can help engage the work force, which fosters higher productivity and loyalty, generating greater yields.
However, direct savings through improved efficiency communicates real PR ROI achievements clearly and demonstrably. Consider these sample efficiency statements:
“The cost per key message delivered dropped by 20 percent in the past year.”
“Third-quarter special event attendance improved by 15 percent while costs were lowered by 7 percent.”
When it comes to positive results, who doesn’t prefer more for less?
Avoiding catastrophic cost
One of the most elusive measures of public relations is the impact of quality counsel and crisis avoidance. And yet, there are simple, concrete approaches to determine how an organization benefits from this key ROI component.
For example, when assessing the “headline risk” of negative publicity, look at the outcomes of other organizations that confronted similar crises in the past. In one case, a Fortune 100 company faced environmental litigation from the state’s attorney general over a clean-up site.
Before taking a position to fight or submit, the company studied peer organizations to see how they handled similar challenges and what happened as a result. After examining the market capitalization of 10 companies in similar circumstances, they found that the five companies that resolved environmental issues swiftly saw short-term stock price declines before generating an average stock price gain of 8 percent in the ensuing 12 months. On the other hand, those companies that chose to either not respond or fight saw an average stock price decline of 10 percent, and some never recovered.
Public relations may not have been the sole determining factor, but the CEO decided that the “headline risk” was too great based on this information and chose to negotiate before settling. The stock price declined for a week following news of the settlement but rebounded to finish the year with a 12 percent net gain.
Proving value with a sensible path
While research, measurement and evaluation are critical elements when determining ROI and value, practitioners waste time and energy arguing about what to measure and how to measure it.
Many professionals assume, for example, that ad value equivalency is a poor measure and that behavioral outcomes are the better indicator of PR performance. Few would argue that “raising awareness” is more meaningful to most organizations than ad values, but we cannot presume to know the values of the executives in a given organization, nor can we presume that sufficient resources are available.
Instead, the executive audit assesses expectations and preferences, providing a comfortable and understandable approach to demonstrating PR value to their specifications. Over time, the introduction of more evolved measures can help the client develop contentedly, continually and consistently. Soon, clients are weaned from weaker measures and find value in more advanced approaches.