* How can we deliver higher value, given what the clients truly need?
Once you have meaningful answers to these questions, you can then move forward in your investigation of employing value-based pricing as a strategy.
Top Challenges Focus on Value It"s worthwhile to note that the top chal enges uncovered in our fee and pricing research for professional services firms focus on value when it comes to pricing: * Uncertainty about what price a particular client wil accept (because you don"t know how wel you sold the value).
* Pressure not to leave money on the table (because you think you sold the value-but you"re not sure-so you"re second-guessing your own fees and worrying they are too low).
When a firm is able to increase its perceived and real value to clients, it wil find that: * Clients wil likely be wil ing to accept higher fees (though, granted, you may never know the exact fees each client wil actual y be wil ing to accept).
* The firm wil be less concerned with leaving money on the table, because it wil be more confident in the fees it is charging.
* Clients wil pressure the firm less, because they wil have confidence in that firm"s ability to deliver additional value.
Focusing on the value provided for clients and strengthening the overal value proposition of the firm can decrease some of the major chalenges found in pricing services.
Welesley Hils Group began working with a smal consulting firm seling to the insurance industry several years ago. Let"s cal the two main partners Bil and Sam. Both Bil and Sam had been with a successful national consulting firm. In their work there, they had regularly commanded fees of $5,000 per day. Unfortunately, these same people doing the same work but no longer under their wel -regarded consulting firm umbrel a rarely could get clients anywhere near those fee levels. Bil and Sam were experiencing firsthand the negative effectives of not having a brand.
Fast-forward to three years later. Since beginning to work with us, Bil and Sam have created a web site focused on the needs of their target market, packaged their services in a way that is compel ing and clear, conducted annual research to create cachet to al that they say, and built a regular ongoing communications plan to their target market that has established them as the go-to people for the types of services they offer.
In other words, they have established a brand, which has established in the minds of their market that Bil and Sam provide value. As prospects were intrigued and focused on the value, the focus on fees faded into the background; and they"re now garnering "wel -branded firm" fees once again. Natural y, they provide great service and value. The marketing and brand work they have done over time has positioned them as the firm people are eager to do with business with. And remember, this is a two-person firm.
The moral of this story is that whichever pricing model you employ, marketing pays off in many ways-not the least of which is in getting the fees you know you deserve.
6.
Don"t Worry about Your Compet.i.tion (Let Them Worry about You) What, me worry?
-Alfred E. Newman Who are your closest compet.i.tors? How are you going to beat your compet.i.tion? What makes you better than your compet.i.tion? What are the differentiating factors between you and your compet.i.tion?
You probably get asked these types of questions al the time from your prospects, your clients, and your internal staff. Should you have answers?
Yes. But don"t overdo it.
Over the years we have spoken with numerous clients about their strategies, and the conversation inevitably turns to the compet.i.tion. We often find that the people who run services firms waste an inordinate amount of time and effort worrying about, and angling against, other firms that provide services to their target market. Often it"s just not worth the intense time and focus that firms give it.
These mistakes are understandable, but they"re stil mistakes. Since time is something we al have precious little of, we list the most common mistakes so you can spend more time on the marketing issues that wil make a bigger difference.
Mistake #1: Over-the-Top Compet.i.tive Research Some service firm business and marketing plans list and describe page after page of information about their compet.i.tion. One plan we reviewed included: "Over the past three months, we were able to successful y locate 37 negotiation consulting firms. Detailed descriptions fol ow, along with our unique positioning against each one. . . ."
Reaction: Obsessing about the compet.i.tion to this degree is simply a waste of time and money. Most people would laugh at an accountant who confidently stated, "I have discovered that there are 62 other accounting firms in the state and can confirm that 51 of them offer a number of services similar to ours." Yet somehow this information shows up in service firm marketing plan after marketing plan as if it were a necessary component.
Mistake #2: Market and Service Offering Reluctance Many services firms are reluctant to offer a new service that complements their current services because a compet.i.tor already offers it. "You see, we can"t launch an intel ectual property law practice. At least five other firms offer that in our market, and I learned in business school that first movers have an advantage. If you"re not number one or number two, you shouldn"t launch into the market."
Reaction: Law firms, consulting firms, information technology (IT) firms, financial services firms, and other professional services firms are not c.o.ke and Pepsi. The market dynamics for services firms just don"t work like this. (See more about this mistake later.) Mistake #3: Cliched Compet.i.tive Differentiation "We at [name here] Tax and Consulting Services are the number-one provider in our market. Our biggest differentiator is our people, who take a strategic look at our clients" businesses and blend people, process, and technology to create efficient and effective solutions for our clients" most pressing strategic needs. We"re more than tax services; we"re strategic business advisors with the experience you need to solve your real problems." (This is real copy, by the way, and can be found on dozens of accounting firm web sites.) Reaction: Copy like this takes up a lot of s.p.a.ce and doesn"t say much.
Mistake #4: Unique Methodology "We have a unique methodology that al ows us to deliver projects more efficiently and with greater ongoing success. There are five major steps: discovery, design, development, implementation, and measurement."
Reaction: Sure, it"s unique-there"s just one process exactly like this-but, with some variances, it"s employed by hundreds of firms.
Misconceptions about the uniqueness of the firm or services hinder service business growth and success because they limit the thinking of the people who run firms and practices. Leaders spend days, months, and even years trying to find the unique services they can offer while perfectly fine but not-so-unique services could produce a steady stream of revenue.17 What, then, should firms keep in mind?
Forget General Marketing Advice Your marketing textbooks and many marketing consultants wil advise you to: * Be the first mover in a market. You"l have an advantage over later entrants.
* Be number one or number two in a market. No one else can make enough profit.
* Establish your unique sel ing proposition that other firms can"t easily duplicate.
* Be amazingly different from other firms in your s.p.a.ce. Being unique is key to your success.18 Do you think people in a six-person law firm can"t make big money? They can, and they can do it in a market in which there are 200-person law firms that deliver similar services to similar kinds of clients.
Don"t Worry about Crowded Markets We can"t tel you how many Italian restaurants are in New York"s Little Italy (though we have eaten at a good number of them) or how many steak houses there are in Chicago; there are simply too many to count. But we are pretty confident that there is not a booming row of authentic French bistros in Peru, Maine.
If you"re a human resources consultant and there are a mult.i.tude of human resources consultants that do what you do in the market in which you practice, it simply means there"s a market for your type of services. If you look for a unique s.p.a.ce to create a market and be the first mover, there"s a good chance n.o.body"s there because n.o.body"s buying.
In the microeconomic technical sense, the c.o.ke-versus-Pepsi market dynamic is oligopoly, while service firm markets are monopolistic compet.i.tion. In oligopoly, you have a few top players with al the clout, market share, and profits; and everyone else is struggling to survive. This doesn"t happen in monopolistic compet.i.tion. There are 88 pizza restaurants in the Yel ow Pages in Miami, Florida. The 89th can make it, too, if the pizza"s good, food and labor costs are in line, and the newcomer plays its marketing cards right.
CHARACTERISTICS OF MONOPOLISTIC COMPEt.i.tION.
From a microeconomic perspective, there are four types of firm dynamics: 1. Monopoly 2. Oligopoly 3. Monopolistic compet.i.tion 4. Perfect compet.i.tion Who cares? Much of the bad advice given to service firms that we highlight in this chapter and throughout the book (be first in a market, be number one or number two, own a word in your market) is good advice for oligopolies but bad advice for monopolistic compet.i.tion (i.e., most service firms). Many business cases and strategies focus on oligopoly-Merck versus GlaxoSmithKline, HP versus Del , and Toyota versus VW. These firms are oligopolies.
Monopolistic compet.i.tion-the type of firm most service businesses fal under-are characterized by: * Many producers (firms) and many consumers (buyers).
* Perception from the market that there are non-price differences between firms but that those differences vary in degree and are often termed as subtle.
* Typical y smal barriers to entry and exit (lots of firms in your field can and do hang out a shingle).
* A degree of control by producers over the price they can command, versus monopolies that can charge whatever they want versus perfect compet.i.tion firms that can only charge the same price as anyone else.
With perfect compet.i.tion, firms can only charge what everyone else is charging (i.e., price of pork belies on the exchange, price of corn that wholesalers are paying farmers on a particular day). These firms don"t have to care much at al about other firms. They care only what the market is bearing for price.
Oligopolies live and breathe by their ability to beat the other guy. It"s a constant game of one-upmanship. Most service firms are somewhere in the middle.
Enter a crowded market where there"s a lot of business to be had and there are lots of clients with needs, and (a.s.suming your pizza"s any good) there"s a good chance you can thrive. Open a French bistro in Peru, Maine . . . good luck sel ing foie gras.
Change the Question from Compet.i.tion to Clients Let"s say you"re interviewing someone for a job at your firm. It"s perfectly reasonable for the candidate to ask you, "What differentiates you from your compet.i.tion?" The same thing goes with your clients and prospects. You may feel the need to answer-comparing yourself both categorical y to your compet.i.tion and then against a specific compet.i.tor. And on and on about your compet.i.tion.
You don"t want the conversation to linger on about compet.i.tors. The more you talk about them, the more you validate that your client, prospect, or staff member should be comparing you to them.
Instead, like a good salesperson, take control of the questioning and you wil take control of the conversation. For example, you might answer, "Wel , we have a very robust research division that keeps us on the cutting edge of the supply chain field and" to my knowledge, none of our compet.i.tors do. In fact, they quote our research to make their points; but at the end of the day, we"re the source and the leaders.
"I don"t know what they do with our research. I know what we do, however, and how it makes our clients" lives better. Here"s a specific example from your industry. . . . "
Drop the Cliches When you do answer the question, "What makes you different?" don"t answer, "Our people, process, and technology are efficient and effective. We are the best; we are unique and cutting-edge; we push the envelope, go the extra mile, are client-centered, and so on."
If you do, you"l simply be helping people win their game of buzzword bingo. (You don"t believe us? Google buzzword bingo, and see what comes up first.) Leave the cliches at home, and say something worthwhile.19 Overcome Your Greatest Compet.i.tor-Client Indifference Final y, and perhaps most important realize that for most product companies, the compet.i.tion is another product company. For many service businesses, the stiffest compet.i.tion is the indifference of your client to do anything at al or the desire of your client to "just do it with in-house resources."
In How Clients Buy: 2009 Benchmark Report on Professional Services Marketing and Selling from the Client Perspective,20 40 percent of 200 buyers of consulting and professional services encountered service providers that did not understand their needs; and 32 percent said that the service providers did not convince them of the value they would receive from the service provider.
You have to convince the buyer of the value your services wil bring to the table, regardless of how you stack up with some compet.i.tor. So worry less about who your compet.i.tor is, and worry more about the value you offer to the client. You"l win more deals in the process and beat your compet.i.tors without even giving them a second thought.
"The compet.i.tive scriptures almost systematically ignore the importance of hustle and energy. While they preach strategic planning, compet.i.tive strategy, and compet.i.tive advantage, they overlook the record of a surprisingly large number of very successful companies that vigorously practice a different religion. These companies don"t have long-term strategic plans with an obsessive preoccupation on rivalry. They concentrate on operating details and doing things well. Hustle is their style and their strategy. They move fast and they get it right."
-Amar Bhide, "Hustle as Strategy," Harvard Business Review, September 1, 1986.
When Compet.i.tion Is the Order of the Day We hope you"re saying to yourself, "You"re right. We should focus on our value and our ability to position that value to the market versus spending so much time on the compet.i.tion." However, we understand that some service firms often find themselves up against the same firms regularly. For example, the big four accounting firms find themselves in compet.i.tive shoot-outs with the other big four accounting firms (and perhaps a smattering of Grant Thornton, UHY Advisors, and other large accounting firms, depending on the situation).
When it comes to marketing against the compet.i.tion, remember the first three outcomes we initialy stated that marketing can deliver for you: 1. Help you create conversations with potential buyers when they have a need. Firms often say, "I can"t believe they bought technology services from Firm X, and we were never even part of the conversation!" You don"t want that to happen.
2. Ease winning of client engagements by affecting the prospect"s perception of your firm.
3. Increase your revenue per engagement and client, and increase your ability to generate premium fees.
From a macro perspective, you need to know enough about the compet.i.tion to be able to say (1) who they are and (2) what they"re doing at their own firms to move any of these three objectives forward.
This may require some compet.i.tive research. Indeed, between 33 percent and 52 percent of professional service firms conduct formal research to find out what their compet.i.tors are doing and how their compet.i.tors are pricing their services.21 Stil, the question becomes, "What are you going to do about it?" The answers may affect marketing and may affect overal business direction.
However, as much as firms make mountains out of the compet.i.tion molehil , from a strategy perspective, it"s not much more complicated than finding out where they stand in the market, what clients perceive about them, and figuring out what to do about it.
7.
The "Get It Done" Culture There"s a hole in the bucket, dear Liza, dear Liza.
A hole in the bucket, dear Liza, a hole.
-Harry Belafonte Question: On a scale of 1 to 5, 1 being "always" and 5 being "never," how often do you stick to project schedules and keep commitments you make to clients?
I"m guessing that most of you would give yourself a 1 (or a 2). Of course, you make commitments and keep them. What kind of professional would you be if you didn"t?
Next question: On a scale of 1 to 5, 1 being "not chalenging at al" and 5 being "extremely chalenging," how chalenging is it for you to implement your marketing and lead generation plans that you put in place at your own company, a.s.suming al of the stakeholders at the company agree on the plan?
At the Welesley Hils Group and RainToday.com, we asked 731 marketers and leaders at professional services businesses the same question as a part of our research report, What"s Working in Lead Generation. Of the respondents, 76 percent said they found implementing their own marketing and lead generation plans "somewhat chal enging" to "extremely chal enging," even when they agree internal y on the plans. Since service businesses fancy themselves as pretty good at delivering on commitments they make to clients, we believe service providers should be able to execute the marketing commitments they make to themselves. Yet when it comes to sustained marketing, lead generation, and business development, they consistently let themselves down.
This failure to meet these marketing and seling commitments is usualy due to three factors: (1) lack of performance readiness, (2) disconnect with reality, (3) and lack of wil .
Challenge 1: Lack of Performance Readiness The 1,000-mile journey to developing a culture of marketing implementation and rainmaking starts with the first step. If you"re looking to create this culture of pa.s.sion, energy, enthusiasm, and skil , start by making sure the bucket doesn"t have any holes before you start to fil it up-or it won"t hold water.
We see firms doing a certain percentage of what they need to do to help the professionals in the firm market and develop business-but rarely 100 percent. If you"re doing only 70 percent of what you need to do, you don"t get 70 percent results; you get much less. Like patching a leak in the bottom of a bucket, if you don"t patch it 100 percent, it stil leaks.
If your firm is looking to create a culture of business development performance, make sure you address the gamut of management topics you need to address in order to give yourself a fighting chance of success. If you don"t, you may find yourself expending 90 percent of the effort-almost there-but stil fal ing short of your growth goals.
Building a Performance Culture There are six areas you should address in order to build a rainmaking firm. (See Figure 7.1.) Three are control ed by the organization, and three are brought to the table by individuals (but can be influenced by the firm).
Figure 7.1 The Six Boxes Source: Binder Riha a.s.sociates. Used with permission.
Organizational Influences 1. Expectations and Feedback 2. Tools and Resources 3. Consequences and Incentives Individual Influences 4. Skil s and Knowledge 5. Selection and a.s.signment 6. Motives and Preferences (Att.i.tude) Expectations and feedback According to Dr. Jim Harter, Gal up Consulting"s Chief Scientist of Workplace Management and Wel -Being, Gal up has asked over 12.5 mil ion people: "Do I know what is expected of me at work?" By and large, just over half answer the question "strongly agree." In other words, just under half are not so sure of what"s expected of them at work. Dr. Harter further told us, "Workplace performance suffers dramatical y with those that answer below "strongly agree.""
When it comes to marketing and business development, in our experience, many professionals don"t know what they"re supposed to do at any given time, and they also don"t know what they are supposed to produce. Some know they are "expected to network," "expected to make cal s,"
"expected to "build the brand,"" or "expected to spend 15 percent of their time on business development"; but rarely do they know what they need to do at 9 A.M., 11 A.M., or al day Tuesday.
"Taking the leap from "successful lawyer" to "rainmaker" is more likely to be successful when the lawyer works with others. Marketing professionals, for example, help with the candid a.s.sessment of strengths and weaknesses, interpersonal skills, and networks that lead to new business."
-Kevin McMurdo, Chief Marketing Officer, Perkins Coie What happens without clear expectations and feedback? Inconsistency. (See Figure 7.2.) * Inconsistent business development activities across al professionals with business development responsibilities.
* Inconsistent business development effort levels.
* Inconsistent persistence.
* Inconsistent improvement (due to lack of coaching).
* Inconsistent results.
* Inconsistent implementation of marketing tactical programs.
* Inconsistent implementation intensity.
Tools and resources Marketers and rainmakers need the right resources to help them implement. Sometimes they need more time to do it, sometimes a budget for generating publicity, sometimes just an expense account. Perhaps they know that they"re supposed to be marketing, but they don"t have a good target profile or list of likely prospects.
Figure 7.2 What Won"t Happen It is possible a rainmaker doesn"t have the right marketing or sales col ateral materials to help them sel . And the marketer has no time, budget, or support to build them. A rainmaker may not need col ateral but does need to bring a technical guru along to represent a specific expertise of the firm . . . but that technical guru can"t afford to lose the bil able time.
Whatever the need, rainmakers need the right level of resources in order to find and win new clients.
What happens without the right resource levels? Frustration.
* Ready to cal , but doesn"t have the names.
* Ready to present, but doesn"t have materials.
* Ready to visit the client, but don"t have the budget or time to go.
* Ready to implement a lead generation campaign, but can"t get the firm to release the budget, or get a subject matter expert to review the campaign, or get a copywriter to make the words sing, or get a business developer or professional to fol ow up on inquiries.
* Ready to kick off a new Web project, but can"t get final approval from various stakeholders to move forward.
Consequences and incentives It"s strange; some service firm leaders rush to add incentive compensation to inspire professionals to sel , while others vehemently resist compensation adjustments. Incentive compensation, built correctly, can significantly influence rainmakers to find more new clients.
However, incentive compensation, while necessary, is not sufficient. Even those service firm leaders that do inst.i.tute incentive compensation plans rarely state (or if they do state, act on) any negative consequences of not hitting client development goals.