Via Art of Value : The Magic and Logic of Pricing
What is the most important thing you can share about pricing?
- Stand your ground.
- When you protect your pricing integrity, it makes the client want you more.
What is pricing integrity?
- We only have our intellectual capital and integrity to sell.
- If we violate that, it sends a strong message about how we work.
Is it lying to lower the price without lowering value?
- Yes, then you are not providing your real price.
- It is an issue of respect.
- You can change the price if you remove things that contribute to the value.
Can you value price in China?
- Everything is value priced in China, as you negotiate every price.
- Some stores and markets have no price marked.
Do you recommend a trip to China to learn to value price?
- It is an interesting wakeup call.
- The jade craftsmen are paid per piece, so the more skilled they are at their craft, the more money they earn.
- They price what the maximum value is to the customer.
- Pricing principles and business practices can be cultural.
Value Pricing in Advertising
What is the status of value pricing in advertising?
- After about 5 years of foot-dragging, the advertising agency business, finally, is aware that the billable hour model is sub-optimal.
- Most firms are still pricing by the hour.
- Marketing procurement folks are more enlightened on the customer side, but still purchase a staffing plan.
- There is a 40-year decline in profitability in the agency business.
- The client community (large advertisers) have been interested in value-based compensation for a long time.
Can value pricing scale in a larger agency?
- There is a stronger imperative for a 700-person firm to abandon the practice as it eats up so much of their capacity.
- Time sheet management accounts for 10-12% of the total energy of the organization.
Do you have to eliminate time sheets to value price?
- You will be better at value pricing if you take away the time sheets.
How did you help Teehan+Lax switch to value pricing?
- Tim showed Jon Lax examples of value pricing from agencies around the world.
- As soon as you can change your mind, you can change your practices.
- Time forecasting needs to be done in advance as a cost-accounting measure.
What is the first step for an agency to switch to value pricing?
- Help them to understand how they create value for their customers, other than time, and how they can be compensated for that value.
- You only get paid what you think you are worth.
What is the value of the Nike swoosh?
- How would Wall Street value it? Billions?
- It was created by a freelance college student for $40 and was almost overlooked as one of the options.
- Real Beauty campaign for Dove by Ogilvy & Mather generated a 700% increase in sales in Europe.
- When you decouple price from value, then you are unable to get paid for what you do.
- Questions to ask:
– What is the potential financial impact?
– Is this about short-term or long-term value?
– How uniquely qualified is our firm to complete this assignment?
- Hourly rate assumes that everyone’s talent and expertise is equal, which they are not.
Magic, Logic and Pricing
What is your concept of Magic and Logic?
- Most professional firms are in two different businesses – magic and logic.
- Magic is the high-level, strategic planning that a client cannot do for itself.
- Logic is the execution – distribution, coordination, etc.
- Logic is perceived as a commodity.
- You can charge a premium price for Magic. It is better to unit price Logic.
Is it better for an agency to only do Magic?
- Yes and that’s what’s happening. It is the ultimate solution.
- Decouple your company. Create one Magic brand and one Logic brand. This is a trend.
- Ideation vs. execution – companies are looking to hire separately.
- Different pricing and cost structure for each company.
Why do you recommend using the word “value” instead of “cost”? (from Changing the Dialog)
- Language is the precursor to behavior change.
- Stop using the old language of cost and replace it with new terminology of value.
- Replace “time” with resources.
- Don’t use the words estimate and cost with the customer.
How can you align economic incentives with the customer?
- If you only have one thing in mind when pricing, it should be how to align the economic incentives.
- To learn, take the concept of hours off the table with your next new client/assignment.
- Engage your team to discuss how to create a win/win.
- Creative agencies should be among the most creative pricers around.
What is the difference between “scope of value” and “scope of work”?
- Scope of work outlines what is needed and when a proposal is requested.
- It skips the expected outcomes, the scope of value.
- Success workshop is a concept that has been adopted by some agencies as the first meeting with the client.
- Don’t charge for the success workshop, unless you are doing market research.
- In the proposal, precede the scope of work section with a scope of value section.
What are a straight fee, a usage fee and a results fee?
- Straight fee is a fixed price based on what it is worth to the customer.
- Usage fee is being paid not for the creation of an idea, but for the use of the idea.
- Results fee is a price based on outcomes.
What is your best story about creating value for a customer?
- Full-service, integrated ad agency who didn’t know what they stood for.
- Helped them understand that they were great at digital lead generation.
- Reconfigured their focus around that offering.
- Since, they have a remarkable success story. They have grown to 300 employees, 5 offices and expanded beyond their local market to a national roster.
- They decided to be best in class at something and that drove their success.
About Tim Williams
- Founder of Ignition Consulting Group
- Author of Positioning for Professionals
- Speaker and consultant to marketing agencies
- Senior Fellow at VeraSage Institute