Many articles are being written about the increasing cost pressure our clients face: how they are living in a more-for-less environment, and how they are passing on those pressures to the firms who serve them.
And some commentators are advocating that as a result, firms will need to contain rates and price more aggressively. We disagree.
Why price aggressively?
The two primary arguments for pricing aggressively are:
- To win more work (after all, competitors will be pricing lower, won’t they?)
- To strengthen – or at least not damage – the firm’s relationships with clients
So let’s test these arguments.
Price low to win work?
While clients say they want lower prices (who wouldn’t), when it comes to winning work, we need to look at the selection criteria used by clients. Generally, when clients are allocating work to professional service firms, they are primarily doing it based on:
- Who’s best placed to help me on this project
- Who do I want to work with?
Having made a decision based on the above, they then ask (as a secondary consideration) if they are comfortable with the price.
While it’s true that some work, from some clients is purchased primarily based on price, this remains the minority in the professions. And unless your strategy is to compete on price – because you regard yourself as a commodity – this isn’t the work you should be chasing.
Price low to strengthen client relationships?
We’ve been involved in a lot of client feedback over the years and yet we’ve never heard a client rave about their firm because they’re cheap. Strong client relationships are generally based on outstanding service, investing to understand the client and providing practical solutions. In these relationships clients will often say, “they are expensive, but worth it”.
This feedback highlights that we strengthen client relationships through the benefits we provide, rather than through a price reduction.
“The bitterness of poor quality remains long after the sweetness of low price is forgotten”
But the times they are a changing?
Detractors would say that these were the rules but that the pressure on client costs are increasing significantly and so buying behaviour and drivers of client loyalty are changing. While it’s true that pressure on client costs are increasing, this is balanced by two other trends.
The world in which clients are operating is becoming far more challenging. Globalization, technology and regulation are all making business far more complex, and to help navigate this minefield clients need good advisors.
In addition, while clients are under increasing cost pressure, the financial impact of the work they engage firms to assist them with is increasing at an even greater rate. When dealing with a cross border acquisition, or a major tax dispute or a significant regulatory fine, clients are primarily concerned with choosing the right firm to assist them, rather than which firm didn’t increase rates by 3%.
How should firms respond?
There are many things that firms can do to win more work and improve client satisfaction, without choosing to compete on price. At the very least these strategies should include:
- Demonstrating empathy for our clients’ need to contain costs and working with them to achieve this. This can include behaving in a cost-conscious manner and offering fee structures that provide greater certainty or share risk.
- Competing on superior value rather than competing on price. We need to be able to justify why we should be chosen even if we are more expensive. This means understanding our differentiation and helping our clients make decisions based on value.
- Demonstrating that our price is fair. While we may not actively compete on price, we won’t be chosen if the client believes our price is unreasonable. This is particularly true with rate increases. It’s our role to influence the client’s willingness to pay and to demonstrate our price is fair and reasonable.
When clients say they want (or demand) a lower price it is tempting to jump to a discount. But to help both your client and your firm, we strongly encourage you to take the path less trodden.