Consulting Journal: Techniques

Techniques: Premium pricing

by David Blakey

You certainly should not discount. You might even charge premium prices.

[Monday 12 July 2004]

In my previous article, I encouraged you not to discount your standard rate. If you read that article, you may have thought that it was easy to give that advice, but a lot harder to follow it in the real competitive world. In this article, I shall attempt to convince you that you can actually win more business by not discounting.

Imagine two situations. I shall describe each situation and then ask you to think about it.

The first situation

The first situation occurs when you have previously worked for a client and they ask you to do some more work for them. They do not ask you to bid. They do not ask you to compete against other bidders. They ask you to do the work.

In this situation, are they likely to haggle with you over your rate? They are not. They have asked you to do the new assignment because they are confident that you will do it well. They would prefer to work with someone they can trust. They trust you.

It may be that they could have had the work done by someone else at a lower rate. In their minds, the purely monetary saving is outweighed by the lower risk. They know that they can rely upon you, and they are happy to pay your rate in order to get the quality that they expect of you.

The second situation

The second situation occurs when you are in a competitive bid with other consultants for an assignment with a new client. The client does not know you, although they may know some of your competitors.

Differences

Consider what makes the second situation different from the first.

Competition

The first difference, and the most obvious, is that in the second situation you face competition that you do not have in the first. The immediate reaction of many people in a competitive situation is to lower their prices. A basic knowledge of economics convinces them that this will make them more competitive. This approach works in situations when there is no other difference between the competitors. So, if you believe that you can best compete by lowering prices, then you are admitting that your services are the same as those of your competitors.

Confidence

The second difference is that, in the second situation, the client does not have the same level of confidence in you as the client in the first situation. In a competitive situation, you need to build that confidence. You need to convince the client that you are better than your competitors.

An obvious parallel is with cars. There are several manufacturers who sell family cars at prices that families can afford. If you want a better car, then you have to pay more. At the level of family cars, the vehicles are much the same. They are usually differentiated only by minor differences in design. At higher price levels, the vehicles themselves are different. They tend to fit into niches. So, although there may be little difference between a Rover and a Honda, there is a considerable difference between a Bentley and a Porsche.

So, rather than discounting, you might consider charging a higher price than your competitors.

Risk

The final difference that I want to consider is risk. The client in the second situation may think that you are a higher risk than the client in the first situation. This is because you represent an unknown risk. You will be seen as less of a risk if you can give the client greater assurance that nothing will go wrong. If you offer stronger warranties and guarantees than your competitors, the client may see you as a lower risk than those competitors. You can only offer these if you can afford them. You are unlikely to be able to afford them if you discount.

Clients will often be prepared to pay a higher rate for a lower level of risk.

Actions

In any competitive situation, consider carefully whether the only way that you can demonstrate that you are different is by lowering your prices. By not lowering your prices - and sometimes by raising them - you can differentiate yourself from the competition.

By having a higher price than your competitors, you may remove yourself from competing. The client may think that you are so successful that you do not need to compete on price.

Several consultants have told me that raising their prices raised the quality of their clients. Clients who are prepared to pay a premium price for consulting are less likely to query invoices, less likely to expect additional work without an additional charge, more likely to pay promptly and more likely to accept necessary changes to scope and costs.

You can actually go further than removing yourself from competing for the client. You can make the client think that you must be so good that they could be competing for you.

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