Monthly Archives: June 2009

The Value of PR Measurement – Part 3

This post follows on from Part 2 and assumes the reader is familiar with it. Also a warning this post is a little longer than the rest but I hope it is worth it :-)

When measuring PR IMHO too much emphasis seems to be placed on proving *absolute* causality. A piece of PR, results in coverage, which provokes a demonstrable response, which leads to a required outcome. At each stage proof is required. The reality as I mentioned in Part 1 is that this is often unlikely to be possible to do and as I covered in Part 2 lack of proof hasn’t stopped accountants making predictions.

What is achievable though is demonstrating that causality was likely. Econometric modelling (or Regression analysis) can tell you whether outcomes are likely to be correlated with particular observable activities and they can also tell you the likelihood that these correlations didn’t occur by chance.

So how do we go about building models that demonstrate value? I will cover one here and more in the final part of this series.

Share Price based

Quoted companies should, in theory, be the easiest organisations to build a value based approach around as there is a constant real time assessment being made of the value of these organisations – their share price.

First we track the impact of PR as we would normally, but we do so in as close to real time as we can. Online this can be done as we often know the exact time when something is published, whereas offline this is much more problematic. We then qualify the activities that occur, seeking to focus in on those that are most likely to have been influential. Finally we look for evidence of indicators of influence arising from or within these activities e.g. positive sentiment in coverage about the company.

Next we use econometric modelling to estimate how much of the movement in the company’s share price over a period of time is explained by these indicators of PR activity and how much is explained by other factors.

Sounds a bit tricky? Likely to be very expensive? Well perhaps not.  I recently had a demo of a new piece of software called Fin-Buzz that seeks to help PR/IR professionals do this for UK FTSE 100 companies (Note this was a complete coincidence I only found out about it when researching for these posts and neither I nor RealWire have any link to the company that produces it).

In my opinion the software could be improved through looking at additional sources of coverage, it currently tracks around 100 I believe that they view as key. I would also suggest including the ability to actually build and run your own econometric models that then produce actual values – to save me the time doing the analysis below! At the moment the software only provides evidence that causality may exist, an example of which I have used as the basis of my analysis below.

But it is still a good start and I will be interested to see how it develops.

Practical example

(Note: There is no particular rationale behind choosing this example other than I was tracking Centrica at the time as we had expected to meet them at the Communications Directors Forum).

Acquisition of 20% stake in British Energy by Centrica plc

Timeline:

10th May 2009 – Rumours broke in the evening that the acquisition of a stake, thought to be 25% at the time, was going to be announced. http://news.bbc.co.uk/1/hi/business/8042544.stm

11th May 2009 – Announcement made in the morning that stake would actually be 20% http://www.centrica.com/index.asp?pageid=29&newsid=1783 http://news.bbc.co.uk/1/hi/business/8043191.stm

A graph of the change in share price from the day before announcement until two days after looks like this:

From ft.com

From ft.com

The graph shows that the share price of Centrica rose approximately 6% on the day of the announcement representing a change in valuation of approximately£700m.

In order to model how much of the change in share price was potentially explained by PR, and in particular the reaction to the announcement of the deal, the model needs to include detailed data on factors that could explain movements in the share price. For the purpose of this example I have looked at:

– market data  FTSE100 used (did companies in general experience similar changes in prices)
– comparable company (same sector) data weighted value of the three FT comparables above used (did companies in this sector experience similar changes in prices)
– sentiment measured in media coverage by Fin Buzz

I have then run regression analysis based on the movements in these variables during the month of May. It should be noted that it is a while since I studied Econometrics at University so the experts out there might pick holes in my analysis :-)

Two models have been produced. One that models all three variables and one that just looks at the extent to which the movements in the share price can be predicted by sentiment alone.

The graph below shows the movement in the actual share price and the share prices that would have been predicted by each of these models (you might need to load the page itself to see clearly): 

You can see that both predictions are highly correlated to the actual share price. In fact the statistical analysis says that the vast majority of the explanation for the movements in the price relates to the sentiment (R²s of 79% and 84% respectively for those who know about these things).

In addition further statistical analysis (t tests and F tests for the statistical experts) shows that there is a greater than 95% chance that movements in sentiment are important in explaining the movement in the share price and that there is only a tiny chance that this relationship is only by chance.

N.B If anyone would like to see the statistical details then just let me know.

Conclusions

The sentiment measured by Fin Buzz across their sources explains the vast majority of the fluctuations in the Centrica share price over this period and hence the change in market value of £700m.

The value of good PR to Centrica in this situation was therefore potentially worth millions. We now enter chicken and egg territory. Was there positive sentiment towards the deal because of how it was communicated or because of the deal itself? The answer is probably both.

Some of the value is likely to be in the deal, but only to the extent that the reasoning, the strategy and the implications were communicated well. One person could have heard the announcement and thought “well its a decent deal but not really convinced” whereas another who had been better communicated with and therefore understood the thinking better might respond “this is a great deal actually”. The impact on value in each case could be very different.

Finally even if PR only influenced/resulted in say 10% of the positive sentiment this would still have apparently resulted in the creation of an extra £70m of value.

But perhaps it isn’t necessary to reach a firm conclusion on this to demonstrate the likely value added by PR in this situation. Let’s face it if you had something worth £700m wouldn’t you want to entrust it to the experts?

The Value of PR Measurement – Part 2

This post follows on from Part 1 and assumes the reader is familiar with it

So how can the world of accountancy help with measuring the value of PR?

Accountants measure value all the time – giving an opinion on a set of accounts or valuing a potential acquisition for a purchaser, or disposal for a seller.

In order to value a company accountants use a variety of techniques. Examples include:

– Multiples of “profits”, where profits can be defined in an alphabet soup of different ways – PBT (Profit before tax), PAT (Profit after tax), EBIT (Earnings before Interest and Tax), EBITDA (Earnings before interest, tax, depreciation and amortisation- phew!)

– Discounted cash flow models otherwise known as NPVs (Net Present Value) using WACC (Weighted Average Cost of Capital), CAPM (Capital Asset Pricing Model) – yes even more letters! – and other tools to work out the discount factors used.

Despite the complexity involved in some of these techniques they all basically pose the question:

“How much money (in today’s terms) will owning this company, or a share of this company, entitle me to in the future?”

What they are all attempting to do therefore is predict the future.

Unless you are Mystic Meg this is clearly an impossible task. There is no way that anyone can predict the future with any certainty and hence any valuation is almost certain to be wrong. But that doesn’t stop accountants doing it everyday.

So when you try and predict the future earnings of a company what are the factors that you take account of?

Clearly there is the current level of profitability as a starting point. You can then go on to consider factors that demonstrate market potential, competitive advantage and barriers to entry such as:

– Market expectations in the future for that company’s products
– IP the company has or is developing
– Market share
– Potential to improve efficiency and hence profit margins
– Management team and their likelihood to deliver the company’s plans

Public/Investor relations plays a role in increasing the “value” placed on a company where these sorts of factors are concerned by communicating these areas effectively.

But in addition to this the key component of a company’s competitive advantage, and hence its ability to make future profits, is the reputation of its brand. If reputation changes then value can be created or destroyed. This is because the change in reputation will affect perception of the very factors that drive value, such as the likelihood of the company exploiting markets, launching new products and the confidence in the management team.

And PR is the custodian of reputation.

So accountants give opinions and value companies and yet, with the greatest respect to my former colleagues and fellow professionals, probably don’t understand reputation as well as PR professionals.

What does this all mean?

Perhaps we need to look at PR “measurement” in a different way. Perhaps we should be looking at how brand values change, share prices move and the changes in profitability of a company’s products and services. We could then try and demonstrate, through a framework, how reputation management and development through PR has contributed to improvements in these areas. This way PR claims the Value of what it has helped to achieve not the activities or even the actions that have occurred.

In Parts 3 and 4 I will try and suggest some practical ways we could perhaps seek to do this.

The Value of PR Measurement – Part 1

I intend this to be the first of a series of posts about the challenge of PR Measurement.

The transparency of the Online Media World has brought with it greater opportunities to observe and measure the impact of PR, and often at a much lower cost than the equivalent offline measurement.

At Measurement Camp last week (which was great by the way, just wish it wasn’t a 600 mile round trip!) I was struck by the fact that though there was some *very* good work presented there were no pound notes in any of the resulting measures.

In my experience (and for those real experts out there please correct me if I am wrong!) PR measurement often seems to focus on the following four areas: activities, qualification, indicators and actions.

Measure

Examples

Description

Activity

Relevant coverage on publications, tweets about your announcement/brand, YouTube views, downloads.

Indicate that PR activity has made an impact.

Qualification

Twitter followers, readership of publication, authority of blog, Page Rank. These can then be further distilled into overall measures.

Assess potential influence of these activities.

Indicator

Referrals to your website from a particular piece of coverage or Twitter activity; increased positive sentiment compared to the position prior to the PR campaign; relative impact compared to other campaigns.

Indicate the likelihood that the activities measured will result in a desired response of some kind either now or in the future

Action

Lead generation, sign ups, attendance at an event, sales.

Actual desired responses that resulted.

These are all important and useful measures of performance and they allow us to build models to further refine our evaluation, but the one thing they still don’t “measure” (or perhaps quantify is a better word?) is Value.

Value needs to be stated in pounds – or dollars, euros etc depending on your country of origin :-)  It is only in doing this that actual return on investment can be calculated and PR’s true worth to an organisation estimated.

Actions should in theory be relatively straightforward to value. Take the simple example of lead generation. If a campaign has resulted in X number of leads the client should (hopefully – tracking depending) be able to supply the PR professional (agency or inhouse) with relevant information about resulting conversion rates and sales values as well as the cost of generating equivalent sales from other means.

This would allow the PR professional to calculate both the sales return on investment generated as well as the relative cost of generating sales from this type of activity.

More sophisticated measurement can also use data from some of the first three sources to help to correlate the observed activities and indicators with resulting actions when the linkage is not as direct as say a website referral.

But what about the situation where the desired response is less tangible and is more about improving relationships and reputation rather than something as direct as lead generation? The first three measures can be used to assist with this but are harder to give a monetary value to.

People try/have tried to value these Activity based measures e.g. Advertising Value Equivalent (AVE), but such valuations aren’t measuring the value that the PR has created for the organisation, rather they are trying to measure the value of the activities that have occurred. These two things are not the same. Also the way that online advertising and publishing works makes any online AVE calculation even more spurious IMHO.

I think some of the answers to valuing these “softer” areas may lie in the world of accountancy and this will be the subject of my next post.