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The Magic and Logic of Pricing with Tim Williams

Via Art of Value : The Magic and Logic of Pricing

Pricing Integrity

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

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