Price the Building, Not the Bricks
By Tim Williams
When you purchase a new car, you’re buying a professionally assembled product, not a list of components. Of course, some of the major elements are listed on the window sticker, but even these are priced as "packages." It would be senseless to attempt to deconstruct the entire cost of a car in order to judge its value. Or, better yet, demanding to know how many hours it took BMW designers, engineers, and assembly line workers to make a new X5.
Why, then, do agencies persist in selling components instead of finished products? Or worse yet, selling the hours required to build the components?
Beyond the economic arguments against charging for the labor instead of the deliverable, there are vital elements of pricing psychology at play. When presented with a bill for $1,000, car repair customers feel better paying for $800 in parts and $200 in labor than they do $500 in parts and $500 in labor. The pricing psychology is the difference; It's not the "what" of the price that matters, but rather the "how."
The destination vs. the journey
When we sell the meal instead of the ingredients, our clients are more likely to fully appreciate the value being delivered. These principles of pricing psychology can be effectively applied by professional service firms. Here are some practical ways to think about making this transformation:
Package what you do as solution sets instead of services. Serve up your firm’s competencies as named programs instead of a list of widely available services. Consider the difference in perceived value between “crisis communications” and a bespoke program like “Firebell,” Weber Shandwick’s unique crisis simulations platform.
Price the program, not the person. The way to command uncommon pricing is through uncommon offerings. Instead of trying to defend higher hourly rates (inputs), price the deliverables (outputs). To provide trade support to its clients in the home improvement space, the agency Wray Ward offers its "Trade Love” program. Instead of pricing the hours, the agency prices the program, which they offer in three different versions: Baseline, Enhanced or Comprehensive.
Create program roadmaps. For each of the programs you develop, create a roadmap outlining the what, who, where, where and how for each key element. This provides the information your project managers need for allocating resources and managing workflow.
Moving to a program-based business model in no way diminishes your firm’s ability to deliver custom thinking. Programs are simply frameworks for solving business problems. The advantages to the agency are significant:
It allows the firm to increase its revenues without increasing its staff.
It significantly reduces the administrative costs in the agency-client relationship (estimating, tracking, reporting, and reconciling hours).
It provides reliable information for forecasting, allocating and managing internal resources.
It improves the firm’s ability to manage and prioritize workload and workflow.
It creates a shortcut to pricing.
It enables the monetization of the firm’s intellectual property.
It makes it harder for professional buyers to directly compare the firm’s offerings with competitors.
From a client perspective, programs present significant benefits. Compared with stand-alone services, programs significantly reduce the time and expense associated with integrating individual components and dealing with multiple providers.
The gateways through which your clients pass
A productized business model also helps your clients and prospects understand the best way to engage with your firm. In effect, you're offering a series of doors through which brands can enter. Instead of featuring a loose confederation of "brand communications services" (which tend to be very similar to those offered by your competitors), you create a set of doorways that are aligned with the business problems your clients are trying to solve.
For example, one agency defined six different doors, which include such programs as “Brand Integration,” “Brand Portfolio Simplification,” and “Brand Revitalization.”
The “Brand Integration” program is designed to solve a very specific client problem (stated in first person from the client’s point of view): “We have made a signification acquisition. How do we best integrate and bring continuity to the brand?” The sub-products that support the “Brand Integration” program include:
Business strategy analytics
Brand equity research
Brand portfolio assessment
Brand architecture
Nomenclature system
Culture assessment and alignment.
In effect, programs are solution ecosystems, where the agency takes responsibility for delivering a result instead of a service. As business thought leader Michael Hammer observes, “A professional is someone who is responsible for achieving a result rather than performing a task.”
To upgrade not only your professionalism but your profitability, take the step of upleveling your services to solutions.
