Ukraine's advertising and public relations firms were among the hardest hit by this year's recession, with many of them getting wiped out, leaving those still afloat frightfully watching clients slash budgets .
Ukraine’s advertising and public relations firms were among the hardest hit by this year’s recession, with many of them getting wiped out, leaving those still afloat frightfully watching clients slash budgets by as much as 60 percent.
But on the flip side, both marketing and PR firms remain upbeat and hopeful about their future. They expect to be one of the first to recover. And some firms say that, while this year’s cutthroat presidential election campaign has been dreadful to watch in light of all the economic pains, it has provided some extra work, compensating a bit for this year’s nosedive.
“As the economy recovers, advertising will be one of the first to benefit,” said Martin Alles, general director of Ogilvy Group Ukraine.
Economists expect Ukraine’s economy to rebound from a whopping 15 percent plunge in gross domestic product this year, growing by 2-4 percent in 2010. But this rebound may not be felt until late next year. And it’s still very much uncertain when the upturn will spread, and when companies will replenish advertising and PR budgets.
So, with far fewer contracts available in the near term compared to previous years, competition is expected to remain fierce. And the still tough days ahead will continue to test the solvency of many marketing and PR firms. On a positive note, however, it has raised the standards for a business that some say was pampered with easy money during a decade of strong economic growth.
Citing market research, insiders said that for at least 30 percent of companies in the marketing and public relations businesses, accounts are down by more than 50 percent.
“It is becoming more difficult to earn a buck in the market with many contracts based more and more on post payment performance levels,” said David Payne, marketing and communications director at Pulse, a marketing agency founded by a group of United Kingdom businessmen.
Payne said clients have started paying for results only. “In other words, you invest in us and we’ll pay you if the project is a success,” he said.
“Because of this shake up, companies and people who just fell into doing PR by accident left the industry,” said Zhenya Pankratieva, CEO of Noblet Media, a PR agency. “The crisis sorted everything out. Those who stayed and survived gained priceless experience of working in ‘war conditions.’”
“Some companies that had earlier worked with agencies [through long term relationships] changed to project-by-project collaboration in order to save money,” said Pankratieva from Noblet.
Irina Filenko, director of PRT Communication Group, said that her firm’s clients now demand more than efficiency and hard work. They also want concrete results.
Irina Kharchenko, managing partner of New Concept Group, said that in such tough conditions, some communications experts are less confident in themselves and the work they are capable of providing.
The clients, on the other hand, know increasingly what they want, and their demands from PR and marketing service providers have drastically changed. Sources in the business said that in 95 percent of cases, clients expect communications and marketing firms to help boost their sales, while in previous years, they were spending top dollar for a far different top priority with longer term implications: improving brand recognition and reputation.
With budgets tight, clients are also turning to cheaper services, though not always effective. Rather than advertising in print, many are turning to Internet banners and mobile phone message advertising. And so services that have for years been popular in developed countries are now only gaining ground in Ukraine.
PR activity on the Internet has, for example, increased by some 30 percent this year, while campaigns to improve corporate responsibility and reputation plunged by 40 percent, according to PRT’s research.
But marketing and PR experts warn that if not implemented properly, such strategies could be downright ineffective. Spamming consumers via SMS messages invades “consumer privacy” and could simply backfire as a result, aggravating potential clients, Payne said.
Investor relations is still considered an “exotic” service in Ukraine that only a handfull of large business conglomerates invest into, and it has almost disappeared, said Elena Derevyanko, a partner at PR Service Agency.
The few firms that still have noticeable budgets for in-house investor relations departments, or outsourcing of such work, do so because they are publicly listed on a stock exchange.
Placing so-called advertorials, or paid-for news reports on television or print media, is down by 50 percent, experts said.
As social networking became an integral part of many people’s lives, promotions there surged, especially to the groups that are hard and expensive to reach.
With the help of social networks, “advertisers can cover a young audience for a few thousand [dollars], rather than pumping hundreds of thousands [of dollars] into TV ads,” said Konstantin Nikov, director of Media Direction Ukraine agency.
Little by little, companies are awakening to the conclusion that more targeted communications and marketing strategies are needed, rather than mass campaigns.
“The future will move more in this direction,” Payne said.
Myron Wasylyk, managing director for The PBN Company in Ukraine, said businesses would be wise to avoid cutting costs by completely drying out their marketing and PR budgets.
“Obviously, the most challenging remains convincing business and clients that they need to communicate with their target audiences and stakeholder groups even in times of trouble and economic downturns. A partner research company measured consumer attitudes to companies during the crisis and found that those that stopped communicating actually lost market share and sales, while those who continued to reach out survived the crisis,” Wasylyk said.
Quality, not quantity, will be the focus of the future, according to Ogilvy’s Alles. “Consumers are bored with ads and zap away, or turn the page, or browse to find interesting content. Advertising in Ukraine has to become more exciting. It must become more emotional to touch people and connect with brands,” Alles added.
“Now is the best time for good Ukrainian companies to begin building their profiles and telling their stories abroad. Today, the global financial markets are beginning a rebound and will be looking for good investment opportunities. Sound Ukrainian companies with good management teams that need investment to grow should be talking to investment bankers, private equity houses and other intermediaries,” Wasylyk added. “Of course, Ukraine’s political risk will continue to be an issue for any company looking for international finance. But good opportunities always need to be marketed, and Ukraine remains an important natural resource, consumer, banking, trade and transportation economy.”
Selling politicians
In the meantime, however, some marketing and public relations firms are compensating for losses by marketing politicians and spinning their PR ahead of the January presidential contest.
A majority of citizens seem to have long tuned out of Ukrainian politics. Politicians are locked in bitter rivalries and seem far from the interests of average citizens, who are painfully battered by recession and desperately awaiting higher living standards. But the ruthless fight came in handy for the cash-hungry advertisers and PR specialists, each desperate for work.
“The cost of running a campaign message, in many advertising channels, is over 300 percent inflated over a commercial brand campaign, and so that can mean short, sweet work, and lots of money,” said Pulse’s Payne.
The budgets of candidates also look alluring: $3-$5 million per month is the estimated cost of promoting some minor candidates.
Meanwhile, leading candidates, such as Prime Minister Yulia Tymoshenko and Victor Yanukovych, can spend as much as $500 million for their entire campaigns, said Derevyanko, whose PR Service Agency conducted two successful political campaigns for Kyiv’s eccentric mayor, Leonid Chernovetsky. “However, the political PR segment is still rather narrow, so the chances of getting ‘the real meal’ are not big for everyone,” she added.
Wasylyk, who has consulted President Victor Yushchenko and his Our Ukraine grouping in recent years, said the transition from servicing business clients to political ones is not easy.
“The scope of work in business is more long term and stable while in political PR it’s all about crisis management and response,” Wasylyk said. “It’s still a very underground PR activity that is mostly financed from large campaign contributors such as business owners or from campaign slush funds. Ukraine has a long way to go in campaign finance legislation and regulations.”
