I was talking recently with my #ProfServ co-moderators Alan Berkson and Kelly Craft about Value Pricing and all I could think about was McDonald’s. No, I’m not a fan of their food and haven’t eaten there in ages – it was their product & pricing strategy that kept coming to mind, what they call their Meal Bundles: the Dollar Menu, the Extra Value Meals, the Mighty Kids Meal and the every-kid-must-have-one Happy Meal. McDonald’s became a leader in the fast-food services industry in part by bundling groups of items, offering certain loss-leader products and building a multi-faceted “loyalty” approach that kept people coming back for more (games like Monopoly and indoor play-houses are good examples here). Forget about the actual “cost” of their product, they created a fun “experience” that people are amazingly willing to pay for.  Even my son admits that their burgers aren’t as tasty as the ones that we grill in the back yard, but every time we pass a McDonald’s his 8yr old brain shouts “Can we play at McDonald’s? Can I get a Happy Meal with a toy?”

McDonald’s has Value Meals, not Value Pricing.

Thinking back, that is not that dissimilar from what we did at my first consulting firm. We offered bundled packages of services, we gave away a certain amount of loss-leader content (writing, white papers, telephone calls) and almost always included some type of longer-term retainer to monitor the progress after we had completed the initial effort (and build that long-term, come back for more, relationship).  But unlike McDonald’s, we had the ability to create a flexible pricing structure and we leveraged that as much as we possibly could. In the beginning, our pricing structure was designed to cover our expenses and make a certain level of profit on each engagement. Across the board, our pricing was fairly uniform client-to-client. But over time, as our “brand” grew and our client base expanded, we gradually adopted a different approach that took advantage of the demand, or value, that we were providing to our clients. Rather than trying to maintain a certain level of profitability, we started to look at how much certain clients were willing to pay for our services. Gone were the fixed hourly rates, replaced by a flexible pricing approach that was different for each client. It was, for us, the beginning of Value Pricing.

Value Pricing is about finding a client’s pain and fixing it. More cure = more value.

In Value Pricing, the goal is to match your price to the level of value that the client receives from your services. Forget about what your competitors are charging, or what your costs/expenses are, focus on the value that you bring to the client. To be more precise, think about the value the client believes you are providing. If they believe the value you are bringing to the table is high, price accordingly. Conversely, if they believe the value you are bringing to the table is low, you probably shouldn’t be there in the first place. Here are some guiding principles to Value Pricing that help define the concept as it applies to professional services:

• Value Pricing is NOT the same as “Compensating for Value” in the financial market.
• Value Pricing is determined and agreed to by the customer ‘up front” in advance of the actual engagement.
• Deferred “bonus” payments – typically based on operational or sales improvements – can be considered part of Value Pricing if you really intend/expect to meet or exceed the clients goals.

For Value Pricing to work in the professional services sector, my experience has shown that there are several key items that need to be in place: QUALITY Your “brand” and reputation must equate to quality. If you aren’t bringing extraordinary quality to the table, you will never be able to convince a client of your true value. The interesting part about quality is that it goes well beyond just the service that you deliver, it’s something that must come through in all of your dealings with a potential client, before, during and after the engagement is over. TRUST If a client doesn’t completely, totally, without reservation trust you, Value Pricing is simply not going to work. Trust is most often conveyed through experience and references, but it is also something that you must proactively promote. How? Ask your past clients for that reference, the letter of recommendation, the endorsement. And when you get it, don’t hide it, put it out there. Especially in the era of social media, get that word out there. Or better yet, get others to promote it for you. UNDERSTANDING In order for Value Pricing to work effectively, you have to really understand the needs (and urgency) of the client. Taking this further, you need to think like the client – put yourself in their position and figure out where their real pain point is and how quickly it really needs to be solved. Often, what they really need and what they say they need are two totally different items. Many times I’ve gone into a potential client meeting to discuss a particular subject only to find that there is a different, perhaps more urgent, issue that needs to be addressed. In some cases, these needs are totally unrelated to the original need, in others, they are the root cause of problem they need fixed. The only way to figure this out is to listen to the client, analyze their business model and start asking questions. Sometimes you’ll be surprised at the opportunities the answers lead to. GUTS Here it is in a single word. Guts. You have to have (as my grandfather used to say) the “gumption” to take the risk and Value Price your services. I have yet to see a client offer to pay me more than I’ve asked for. If you aren’t willing to ask your client to pay based on the client’s perceived value, you are better off sticking with your standard hourly rate. There are other factors that go into making Value Pricing work for your business, and being able to not only sell the value of your services but understand the perceived value that a client is receiving is not always an easy task. But when it is done right, it is a win/win for both you and your client. What are your thoughts? Do you use Value Pricing as part of your business strategy? Has it worked, failed? Leave me a comment below and let me know. The more we share about our own experiences, the more successful we all become, and the level of client satisfaction that we deliver improves. To keep up with all my posts, you can subscribe to my Email feed or RSS feed. Thanks for reading – Fred.

---

UPDATE: Note that his post was updated after our last #ProfServ Twitter chat. @Provserv is held on alternate Thursdays at 10pm ET. Hosts are Alan Berkson (@berkson0), Kelly Craft (@KRCraft) and Fred McClimans (@fredmcclimans). Come join us for discussions on the issues facing consulting professionals! Share your insights & experience as: Legal, Analytical, Business Intelligence, Financial Advisors, Accounting & Audit, Public Relations, Sales, Operations, Management, Marketing, Interactive, Entertainment, IT, Social, Software consultants. It’s all about sharing techniques, tactics and building a community of trusted professionals.

It started with a single, simple, question put to me by a good friend:  ”What are the key qualities needed to be a leader in customer service?”  There are, of course, a great number of existing text books, essays, blogs, etc. that address  “best practices” in customer service, so answering the question with an easy answer was, well, easy. Too easy.  So, as I often do, I stepped back and took a look at the question in its true context. The question was an outgrowth of the merging of a continuing series of conversations that I’ve been involved in regarding both business leadership and customer service. As I began considering the question in the context of these two somewhat independent discussions, a single point began to crystalize in my mind:  Good customer service – industry leading customer service – involves all aspects of a company. It’s not just a customer service issue by itself, it’s a mindset or business ideal that is shared by all aspects of a company.

“Great Customer Service is a corporate mindset, not a job description”

Looking at it from a different perspective, leadership in customer service can be thought of as a trait of companies that have strong corporate leadership – leadership that values a high level of customer-centric focus, strong business ethics, team empowerment and corporate-wide cooperation.  I’ll emphasis the last point in particular, because customer service is but one single piece in what I’ll call the customer cycle – the series of events and processes that exist in most successful companies. With this in mind, I’ve compiled a list of traits of companies that I consider to have outstanding customer service – those companies that are not only leaders in customer service, but influence the business and customer service models of their competitors and the industry. PRODUCT DEVELOPMENT: Leaders in customer service include their prospective customers in the development process, helping to refine both product features and availability/pricing. A great product idea is only a winner if it is high quality, addresses a customer need at the right time, in the right place and at the right price point (think of how many products failed because they were either ahead of their time or late to market – ditto products that didn’t fit the value/dollar realities of the market at that particular time). CUSTOMER ACQUISITION: Leaders in customer service don’t just sell a product, they sell the value of the entire company, including customer service. Contrast two competing vendors with exactly the same product at the same price and the same quality. The vendor that introduces the prospective customer to their client service organization – or their specific customer service representative – will win the business every time. CUSTOMER SERVICE: Leaders in customer service place value in, and empower, their customer service representatives. Employees in the customer service organization are representatives of the firm, not “agents” as they are often tagged. As such, they represent the company and are often the most important (and in many cases the only) person that an actual end user will interact with. Representatives who are empowered have the ability to follow guidelines, not scripts. They can escalate when they feel necessary. They listen to what the customer has to say and in turn, they are listened to by their corporate management, and the knowledge they gain from their customer interactions aren’t just mined, they are sought out and encouraged on a personal level (and then fed back to product development, marketing and sales teams). Leaders in customer service also recognize that each customer is different, and their needs are different. In turn, they offer a variety of means for a customer to receive support and assistance, including every social media venue where their customers are active (both listening and in two-way communications). They also provide different levels of support, allowing a customer to choose as little or as much personal contact as they require. CUSTOMER RETENTION: Leaders in customer service recognize that great customer service leads to great customer retention, and great customer retention leads to great customer advocacy. The value of retaining a customer can never be underestimated – especially if you listen to them, learn from them and adapt your products to their changing needs. I remember the days when we would set up “VIP” user groups, get everybody together once a year at a major conference and tell them how much we appreciated them.

“Customers who are partners are also part of your sales team”

With social media, leading companies are encouraging the creation of online user communities that are open to all and discussion, praise and dissent are encouraged and shared. Customers that feel you are a partner are much more likely to offer advice and suggestions to products, rather than look for alternatives. In turn, they become your best customer advocates, influencing others to consider your product through their own product loyalty and satisfaction shared in these open (not just for customer) forums. MY THOUGHTS. YOURS? These are just some of my thoughts on the characteristics of companies that are leaders in customer service. I believe that if they have these characteristics, while they may not be the largest vendor in their market, they are most likely the most influencial and will ultimately rise through the market-share ranks. Are there other characteristics or “must have” items for a top-notch customer service organization? Absolutely. Let me know what you think some of those are – I’d love to hear your opinion on what qualities are needed to be a leader in customer service.

It’s hard to think of any aspect of any market sector that doesn’t involve, or revolve around, influence. Back on October 7^th, Steve Loudermilk (@loudyoutloud) and I tried a novel approach to our Analyst Relations/Influence chat (#ARchat) by engaging in a joint chat session with #B2Bchat, the B2B chat hosted by Ksenia Coffman (@kseniacoffman), Jeremy Victor (@jeremyvictor), Andrew Spoeth (@andrewspoeth) & the crew at @b2bento. During this chat, we focused on market influencers, specifically, what role can, or should, Analyst and Influencer Relations have in the B2B sector. Tonight we’re firing it up again with the #B2Bchat team for our 2nd look at influence in the B2B sector. This time, however, we are taking an inward-looking approach regarding how firms themselves influence their market, the importance of defining an “influence strategy”, working with new influencers, and measuring a firms “influence impact” on the market. Questions that we will discuss include:

1. How do you presently identify your own firm’s “influence” in the market?
2. How do you measure your firm’s influence against your competitors?
3. Who drives your corporate market influence strategy (both customer-side and outside influencers)?
4. What steps can be taken to improve your influence (How key is traditional marketing vs SM in these efforts)?
5. How do you spread your influence to “new influencers” like bloggers who break news stories and analysis faster than traditional influencers?
6. How are you thinking about your “influencing” strategy from an in-sourcing or outsourcing approach?

Please join us tonight, December 2nd at 8pm ET for this “influencing” event. We’ll be using the #B2Bchat hashtag – hope to see you there.