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Session "Setting Price at a Professional Firm" given at Accounting Today's Growth & Profitability Summit #GroPro on Nov 18, 2010.
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Setting Price at a Professional Firm
by Michelle GoldenSenior Fellow, VeraSage Institute
TODAY
• Why you should set 3 prices not just 1
• How to develop pricing as a core competency within your firm
• How to scope complex jobs and use change requests
Understand the Buyer
Most pricing mistakes result in underpricing
not overpricing.
The 5 Cs of Value 1. Comprehend customers’ key value drivers
2. Create value for customers
3. Communicate that value
4. Convince customers they should demand (and pay for) value
5. Capture value in your pricing strategies
Image: oregongirl (flickr)
Charles Revson, Revlon’s Founder
What people really buy….
“When it leaves the factory, it’s lips?ck.
But when it crosses the counter in the department store,
it’s hope.”
Peter Drucker
“The customer never buys a product.
By defini?on, the customer buys the sa?sfac?on of a want. He buys value.”
Customer Segmenta?on by Value
Value of Differen<a<on
Pain of P
rice
Low
Price Buyers
High
Convenience Buyers
Relationship Buyers
Value Buyers
High
Purchase Risks Performance Risk Won’t func?on/solve as intended
Financial Risk Monetary loss if product fails (services higher risk than products)
Time Loss Risk Customer’s ?me due to failure
Opportunity Risk Choosing one product over another
Purchase Risks
Psychological/Social Risk Purchase won’t fit customer’s self-‐concept. (Restaurants, cars, stylists, cosme?c surgery, etc.)
Physical Risk Chance purchase will cause physical harm (medical care, Michelin ?re ads)
Value Creation & Capture
Value captured
Value created
Price
Customer’s Profit
Costs
Intangible Value • Specialist exper?se/knowledge • Unique social capital • Brand/reputa?on • Unique result: crea?vity & innova?on • Reducing risk • Excellent experience • Making customer “look good” • Rela?onship • What else?
34 Sources of Tangible Value
ORGANIZING & PRESENTING YOUR PRICES
(video clip)
SCOPE
COST TIME
QUALITY
The Triangle of Truth
8 Steps to Pricing on Purpose ① Conversa?on with customer ② Present to value council ③ Value council ques?ons,
develops op?ons ④ Present op?ons to customer ⑤ Op?on selected is codified
into an FPA ⑥ Proper project management ⑦ Any scope creep, use change
requests ⑧ Perform AWer Ac?on Reviews
Step 1: Conversation
• Listen > Talk • Focus on wants, needs and value
Opening: “Chris, we will only undertake this
engagement if we can mutually agree that the value we are creating is greater than the price we are charging you. Is that acceptable?”
Steps 2/3: Value Council 1) Learn the customer
– 20 Questions Answered 2) Establish internal prices 3) Establish options
– Generic customer segmentation strategies
– American Express Models – Five Ts for offering options – Chris’s Concentric Circles
Image: cefeida (flickr)
Image: ginable (flickr)
Step 5: FPA = Scope Doc • Objec?ves, deliverables • Constraints, assump?ons • Project structure, ?meline & milestones • Scope details, func?onal requirements • Roles & team defini?ons (detail customer’s responsibili?es too)
• Establish parameters for change request (aka project change control)
• Future projects list (i.e. what is NOT included) • Approval
Steps 6,7 & 8: Part of Work! • Project management developing a core competency
• Scope creep management crea?ng processes, providing training
• AWer Ac?on Reviews if we don’t act differently based on our learnings, we miss the opportunity to improve quality, profitability, everything…
McKinsey: 1% Improvement
Review • Turn pricing into a core competency • Appoint a Value Council and/or CVO • Develop project management skills • Maintain minimum prices, offer op?ons • Price EVERYTHING up-‐front, use phasing • Employ Change Requests • Don’t treat all buyers equally • Don’t use “?me” as your basis for pricing, instead, align w/customer objec?ves (KPIs)
• Learn from your AARs for con?nuous improvement
[email protected] goldenpracticesinc.com goldenpractices.com (blog) @michellegolden (twitter)