Pricing Strategies in Consulting Services

7/24/2019 Pricing Strategies in Consulting Services

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RESEARCH PROJECT REPORT

ON

PRICING STRATEGIES IN CONSULTINGSERVICES

Under the Guidance of:

PROF. DR. RAVI SHANKAR

Submitted By:

MEENAKSHI JARYAL

Roll No.: IM 17

INDIAN INSTITUTE OF FOREIGN TRADE

NEW DELHI


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TO WHOMSOEVER IT MAY CONCERN

This is to certify that the research project titled Pricing Strategie in

C!n"#ting Ser$ice% done by Ms. Meenakshi Jaryal, Roll No. 17 IM ,

was under y super!ision and "uidance and is the ori"inal work of the

researcher.

Pr!&' Dr' Ra$i S(an)ar

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AC*NOWLEDGEMENTS

# lot of effort has "one into this project and y thanks are due to any

people with who I ha!e been closely associated. $irst of all, I "ratefully

acknowled"e the continuous assistance and inspiration "i!en to e by Pr!&'

Dr'Ra$i S(an)ar

$inally, I would like to thank y faily for pro!idin" e onetary and non

% onetary support, as and when re&uired, without which this project would

not ha!e copleted on tie.

Meenakshi Jaryal

Roll No. 17 'IM(

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TABLE OF CONTENTS

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EXECUTIVE SUMMARY

ettin" and aintainin" consultin" fees can be &uite copleB for any business, and it can

be especially difficult when pricin" consultin" ser!ices because thereCs so little publicly@

a!ailable inforation on "oin" rates. )!en once you set the base price for your ser!ices,

dealin" with price ne"otiations and discounts is often uncofortable. 9ere are a few

thin"s to keep in ind to ake your pricin" decisions, especially those around

discountin", ore effecti!e.

New entrepreneur consultants tend to underchar"e for their ser!ices. The istake is

understandable. $irst, itCs difficult to know the "oin" rate because ost consultants

!i"ilantly "uard their prices. #side fro not bein" able to pay the electric bill, the other

bi" proble with low@ballin" out of the "ate is that it akes it hard to up the fees later%

when probles ine!itably arise%without rubbin" clients the wron" way. To be sure,

consultantsC fees !ary dependin" on location and tar"et industry. :ut there is a coon

ethodolo"ical fraework for arri!in" at an attracti!e pricin" structure%both for the

consultant and her custoers.

ne of the ost powerful strate"ies a!ailable to any professional ser!ice fir is pricin".

Re"ardless of the ser!ice, the reputation of the pro!ider, the sophistication of the buyer,

the &uality of the ser!ice or any other aspect of a firDs position in the arketplace, price

plays a si"nificant role in a clientDs decision to purchase a ser!ice. #nd, of all of the

factors affectin" profitability 'price, utiliEation, le!era"e and ar"in(, price is the only

one that does not ha!e a directly ad!erse ipact on soe other factor when it is

increased. #s a result, sall adjustents in price ha!e a ajor effect on net profit.

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INTRODUCTION

In the current econoic conteBt, the consultin" has as ain tar"et to help a copany

ana"e hoe and forei"n resources to cope with the probles and chan"es findin" the

best and inno!ati!e solutions. 6hen a copany preparin" to launch a new product or

ser!ice it is iperati!e that it "ets the price ri"ht the first tie and that is based on useful

data fro the arketplaceF the !alue perceptions of the buyers, their willin"ness to pay,

and eBpected price elasticity and deand cur!e

To address these issues is !ery useful resortin" to specialiEed consultants. In the

consultin" field, one of the "reatest !ariations is in pricin".


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the copetiti!eness of firs in the arket.


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New entrepreneur consultants tend to underchar"e for their ser!ices. The istake is

understandable. $irst, itDs difficult to know the "oin" rate because ost consultants

!i"ilantly "uard their prices. econd, despite the seein"ly sall barriers to entry, first@

tie consultants usually donDt ha!e the stron" relationships with clients. $inally, any

consultants siply underestiate how uch a business will cost to run

C!n"#tant2 &ee!ary dependin" on location and tar"et industry. :ut ust be a coon

ethodolo"ical fraework for arri!in" at an attracti!e pricin" structure@@both for the

consultants and its custoers


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LITERATURE REVIEW

Genera# Intr!."cti!n a,!"t t(e ect!r

9uan resource is the ost precious resource for any or"aniEation. Recruitent of ri"ht

person on the board of a copany is indispensable for success of the or"aniEation.

9uan resources solution pro!iders consist of dedicated tea of eBperts which pro!ides

its clients with workforce solutions like hirin" ri"ht candidate 'teporary and peranent

nature( to strealine the huan resource processes at the clients end. taffin" industry

works in an increasin"ly dynaic business en!ironent today and has seen utost

transition in recent years. It has eer"ed its status fro only Kreplacin" absentee

workersH to becoe Kstrate"ic partnerH for its clients by pro!idin" entire "aut of

eployent solutions like pro!idin" corporate trainin", pay@roll processin", recruitent

process outsourcin", etc.

The staffin" industry in India is hi"hly fra"ented and pro!ides ser!ices in !aried

streas such as $inance, ales, )n"ineerin", Inforation Technolo"y and Mana"eent.

Recent de!elopents on the econoic front like openin" up of !arious se"ents like

retails, a!iation, etc. for $2I is also a boost for the se"ent as this will lead to increase in

hirin" acti!ity. >rowth econoics shown by India has also attracted lar"e MN+s to set

their foot in the nation and ride the "rowth tide.

The Indian recruitent industry is dri!en by a nuber of factors includin" the "rowth of

key client industry, lar"e con"loerates enterin" into new business doains, entry of

ultinational copanies in the Indian arkets aon" others. Indian econoy has been

"rowin" at an attracti!e rate backed by "rowth in its key custoer industries like IT,IT), retail, bankin", health care and hospitality aon" others. #lso the industry is

characteriEed by the increasin" trend of pri!ate e&uity transactions and a nuber of

er"ers and ac&uisitions. #lso, a nuber of copanies ha!e started outsourcin" their

recruitent processes to third party recruiters.

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!er the last two decades, IndiaCs ia"e as a land of snake charers has chan"ed rapidly

to that of a power house of huan resources. ur "reatest resource today is our people,

be it our entrepreneurs or our lar"e, youn" and !ibrant workin" population. IndiaCs

huan resource industry, doinated by talent ac&uisition in the for of recruitent,

teporary staffin" and eBecuti!e search, has been "rowin" be an estiated +#>R of

41L o!er the last four years and is now estiated at ore than INR44? billion. Many

"lobal players ha!e entered the Indian arket o!er the last decade and soe are poised to

ake the &uantu leap. This arket is rapidly o!in" fro a hi"hly fra"ented and

unor"aniEed sector to a structured and or"aniEed industry.

6hile there is no unifor definition for the 9R solutions industry, for the purpose of this

report, we ay define it as the rewards deri!ed fro any decision on buyin" ser!ices for

any part of the huan capital !alue chain. The 9R solutions industry can be broadly

di!ided into two ain functions peranent recruitent of eBecuti!es and

professionals, and teporary recruitent, specialiEin" in professional and "eneral

staffin". 9R solutions are bein" increasin"ly !iewed as a distinct industry with the role of

9R consultants e!ol!in" with chan"in" arket dynaics.

5ar"e Indian copanies are di!ersifyin" into new sectors and prefer candidates with

rele!ant eBperience.

9owe!er, since their 9R function find it difficult at ties to source candidates fro the

lar"e and "eo"raphically dispersed talent pool, copanies are increasin"ly lookin" at

eBternal help. This chan"e in approach and indset has ade sourcin" a relati!ely

copleB acti!ity, resultin" in copanies increasin"ly partnerin" with recruitent

consultants with a "lobal footprint or access to "lobal databases to source the ri"ht

candidates.

The ser!ice industry is a people@dri!en one and is clockin" double@di"it "rowth. The

ser!ice industry has a lar"e anpower re&uireent, which facilitates the need for a lar"e

9R function to fulfill its "rowin" needs. ince recruitent is not a recurrin" acti!ity and

is a function of econoy and a copanyOs "rowth plans, copanies prefer to partner with

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and retains workers, while other copanies in need of short@ter workers enter a contract

with the a"ency to send teporary workers on assi"nent.H

Teporary eployees are "enerally used in industries that are cyclical in nature and

re&uire fre&uent adjustent of staffin" le!els, the study further infors, statin" that the

teporary recruitent arket can be broadly classified on the basis of the skill set of

teporary workers. They are as follows

Pr!&ei!na# ta&&ing3

# staffin" copany pro!ides teporary skilled professionals on their payrolls to lar"e

copanies that typically operate in the IT and en"ineerin" sectors. These are technically

proficient workers such as web de!elopers, planners, etc.

Genera# Sta&&ing 4 1(ite c!##ar3

# staffin" copany pro!ides teporary skilled labour on their payrolls to lar"e

copanies operatin" in the ITe, retail and teleco sectors. These ay be people with

basic trainin" for "eneric trainin" such as front@endin" a retail store, :


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The study says that the Indian IT copanies ha!e been pioneers in teporary recruitent

and are presently in!ol!ed in increasin" their teporary staff in non@core acti!ities and

ser!ices 'where the re!enue flow is not recurrin"( to focus ore on core acti!ities and cut

down on costs to withstand copetition fro other eer"in" arkets and becoe ore

copetiti!e. 6hat has been rated as a leadin" 9R trend worldwide, teporary staffin", is

finally catchin" up in India.

Meanwhile, the countryCs en"ineerin" sector is the lar"est of all industrial se"ents in

India and accounts for about 14 per cent of its >2eneral staffin" can be broadly di!ided into blue collar and white

collar recruitent. The latter is "enerally at the "raduate le!el, while the forer consists

of labourers and workers.

>eneral staffin" is "rowin" at a rapid pace thanks to the de!elopent of any key

industries. K>rowth in key user industries such as retail, IT) and teleco, and the lar"e

copanies shiftin" fro unor"aniEed to or"aniEed players is eBpected to contribute

towards the "rowth of "eneral staffin",H the study adds.

o why has teporary recruitent becoe so iportant in the o!erall 9R industry scene,

e!en as the econoies witness hard ties The study reiterates, KTeporary recruitent

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copanies are "rowin" with or"anisations that are "radually increasin" their share of

teporary staff in their total workforce to withstand the econoic downturn, reco"niEin"

the erits of ha!in" teporary staff.H

C(a##enge &!r t(e In."tr-

The staffin" industry today works in an eBceedin"ly dynaic business en!ironent,

perhaps the ost transforational the industry has seen in the 0= years of its e!olution. It

no lon"er functions solely in the capacity of replacin" absentee workers with teporary

ones, but has slowly eer"ed as a strate"ic partner for its clients by pro!idin" an entire

"aut of eployent solutions and ser!ices.

The staffin" industry has seen a hu"e swin" towards recruitin" professionals fro !ariedstreas such as $inance, ales, )n"ineerin", Inforation Technolo"y, and Mana"eent

6hile this trend pro!ides yriad opportunities for "rowth, it has also bou"ht a set of

uni&ue challen"es with it. 9ence the "rowth challen"es are +ustoer Retention Q

er!in" new industries, #pplicant loyalty, soarin" operational cost due to disinte"rated

systes in usa"e, hi"h percenta"e of anual effort in!ol!ed in the process of atchin"

the ri"ht people with the ri"ht job there by prohibitin" a &uick response to the custoer

for an order Q inte"ration of the business processes across "eo"raphies. These challen"es

needs to be addressed by a >o@To@Market solution that pro!ides a real@ tie !isibility

into opportunities and resources, findin", brin"in" and retainin" the best talent across the

"lobe, ana"in" clients, applicants Q orders fro a sin"le source, fully inte"rated to

ana"e both the front office and back offices sealessly and inculcates the best industry

practices so as to deli!er the hi"h &uality ser!ice thereby addin" ore !alue to the

custoers while reducin" the costs and aBiiEin" profitability.

Dereg"#ati!n

The re"ulatory fraework of labor arkets in indi!idual countries is a si"nificant

influence on the staffin" arket siEe and "rowth rates. There is a direct relationship

between the re"ulatory fraework of labor arkets and staffin" arket siEe @ ore

fleBible labor arkets lead to hi"her penetration rates for staffin". S, one of the ost

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liberal labor arkets, also enjoys one of the hi"hest penetration rates of around ;.0L in

teporary staffin". ther countries such as >erany, pain, Italy and Japan ha!e all seen

an increase in opportunities as a result of labor arket liberaliEation in recent years.

Ec!n!0ic en$ir!n0ent

2eand for 9R ser!ices is sensiti!e to chan"es in the le!el of econoic acti!ity. In "ood

ties, when >2< eBpands, deand for teporary eployees increases. In a downturn,

copanies tend to reduce their &uota of teporary eployees before peranent staff,

resultin" in lower re!enues for the staffin" business, with a ne"ati!e ipact on

profitability and the financial position.

>i!en the opacity of the staffin" business, it is iportant that ana"eent at countryle!el is aware of econoic de!elopents in order to adapt the cost base to re!enue

trends. +orporate and re"ional ana"eent need to aintain an acti!e dialo"ue so that

capacity can be adjusted as and when necessary. +lose onitorin" of onthly results and

updated forecasts ensures a rapid response to business de!elopents.

C#ient attracti!n an. retenti!n

The taffin" firCs business potential and lon"@ter profitability depends on attractin"

and retainin" clients. +lient satisfaction breeds loyalty and leads to consecuti!e

assi"nents. $ailure to pro!ide this is a business risk.

taffin" firs can conduct a "lobal Q local +lient atisfaction ur!ey with ana"eent@

defined short@ter tar"ets. The results will help to draw up local sales action plans,

support salespeople, and "ear the ser!ices to client needs. In addition, staffin" firs can

also continue to re!iew the deli!ery odels and optiiEe sales processes.

E5terna# Ta#ent attracti!n an. retenti!n

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The successes of the taffin" firs depend on their ability to attract and retain eBternal

talent who possess the skills and the eBperience to eet clientsC staffin" needs. 6ith

talent shorta"es in certain sectors and intensi!e copetition for skilled indi!iduals,

pro!idin" suitably &ualified candidates is both a challen"e and a risk. The continued

success of staffin" business depends in part on the ability of the staffin" fir to offer

attracti!e conditions to retain collea"ues.

# key to retainin" eBternal talent is to offer consecuti!e assi"nents and copetiti!e

wa"es. The >lobal +lient atisfaction ur!ey can also address eBternal and internal

collea"ues while helpin" the offices around the world to identify their needs.

Fr!nt t! /ac) Integrati!n

2isparate systes create ultiple !ersions of inforation that ipede the ability of a

staffin" fir to ana"e the business efficiently. 2ecentraliEed inforation pre!ents your

eployees fro ha!in" realtie !isibility into a!ailable resources, open orders, and

client re&uests. #nd it pre!ents you fro ha!in" realtie insi"ht into your pipeline, cash

flow, and business trends.

The taffin" solution copletely inte"rates the front and back@office systes to pro!ide a

consistent, centraliEed data source for clients, applicants, orders, projects, and billin"

inforation. /our eployees can easily !iew and share the sae data directly fro a

6eb browser. :y connectin" eployees throu"hout your or"aniEation to a sin"le source

of inforation, you can draatically increase efficiencies, reduce errors, and eliinate

redundancy.

P!1er&"# Searc( an. Matc( Ca6a,i#itie

ne of the ost iportant tasks for a staffin" fir is to find the best resource for a job.)!en with an en!iable pipeline of job orders and a top@notch pool of resources, staffin"

firs ay not realiEe the full potential for profitability unless they efficiently and

effecti!ely atch the resource to the job profile.

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The taffin" $ront ffice solution deli!ers the eBtensi!e search and atch capabilities

that ake it easier to find the ri"ht person for any job based on skills, location,

a!ailability, and billin" rate fro a sin"le labor pool. It not only increases the operational

efficiency but also reduces the risk of losin" business to copetitors

Hig( attriti!n rate

It howe!er cautions that such copanies face hi"h attrition rates with clients absorbin"

teporary staff, pressure on their workin" capital and copliance with laws applicable to

peranent staff.

:ut certain critical factors ha!e contributed to the success of teporary recruitent

copanies, whose antra has becoe one of the ost iportant trends in the 9Rindustry at lar"e.

$actors such as a pan@India presence, network of client relationships and &uality of the

sales tea ha!e "one a lon" way in sealin" the success of teporary recruitent, the

study says.

:esides, peranent and teporary is a host of other se"ents with a arket siEe of Rs

88@8? billion, which also contributes to the 9R solutions industry. ne of its facets

includes ORecruitent


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personal data sharin" and the ability to pro!ide end@to@end solutions,H the study says,

entionin" Online Job


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of arket structure to a!oid the business failure. o, it is rele!ant for a select arket

structure to choose the optial pricin" policy to insure that the fir is able to be

successful and earn lon"@ter profit.


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$i"urin" cost per hour is uch less coplicated at the end of the year 'as a reportin"

function( than at the be"innin" of the year 'as a pricin" function(. :ut e!en if a fir "ets

the ath ri"ht, other difficulties eer"e in translatin" cost into hourly rates. :asically, the

proble is that cost@plus pricin" is internally focused. $or pricin" to be effecti!e, both the

buyer and seller ust accept the price. /et clients could care less about a filDs costs.

+lients !iew price in coparison to what copetitors char"e, by how uch they can

afford and what sees fair. )!en ore iportantly, cost@based pricin" produces abo!e@

arket prices when the arket is weak and below@arket prices when the arket is

stron". That is, cost@plus pricin" copletely i"nores the arket !ariables of copetition

and deand. The ethod is unresponsi!e to chan"es in the copetiti!e en!ironent.

:ut for ost consultin" firs, the concludin" issue is that cost@plus pricin" produces

wacky results in coparison to traditional law fir pricin" schees. 5aw fir billin"

rates tend to be hi"hly linear. They reflect a reasonably strai"ht line fro the ost junior

lawyer to the ost senior lawyer, relatin" to eBperience. :ut the cost of a lawyer !aries

treendously o!er tie. This is ost noticeable at the eBtrees. Most firs char"e

below cost for youn" lawyers, choosin" instead to ake their profit on senior associates

and youn" partners. #t the hi"h end, the profit attained fro a senior partner re&uires a

subjecti!e decision how uch of a partnerDs copensation is attributable to work

perfored and how uch can be attributed to other factors like business de!elopent

and capital at@risk If a fir applied cost@plus pricin" to a senior partner with hi"h

copensation and relati!ely low billable hours, that partner could end up with a billin"

rate of se!eral thousand dollars per hour.

C!06etiti$e Pricing

In a ature arket, what copetitors char"e is an iportant factor in establishin"

price. ThatDs because in a ature arketplace, industry leaders can establish arket

pricin", and buyers are well aware of how uch that price is. The "ood news for

consultin" firs is that the practice of law, e!en at its ost sophisticated le!els, is hi"hly

iature. In fact, it constitutes what ay be the last cotta"e industry left in the ode

world. The le"al arketplace is populated by sall arket share pro!iders and incredibly

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unsophisticated clients. ItDs true. In India the total arket for le"al ser!ices is just below

P4== billion, and no law fir can clai anythin" e!en approachin" one@half of one

percent of that arket share. $irs appear e!en saller when !iewed on a "lobal basis.

#nd, while we ay pretend that buyers of le"al ser!ices know what their copetitors are

payin", the cobination of antitrust laws and :yEantine le"al departent accountin"

systes akes it tou"h for any client or law fir to effecti!ely copare pricin". oe

firs ay "lean insi"ht fro bankruptcy filin"s and anecdotal e!idence picked up when

partners fro copetin" firs ha!e lunch, but obser!in" prices in the le"al arketplace

is siilar to blind en touchin" an elephant.

W(at t(e Mar)et Wi## /ear Pricing. >i!en the !a"aries of the other two ethods of

settin" prices, it is not surprisin" that ost firs use their clients as the arbiter of

acceptable pricin". :ut just how does a law fir know what the arket will bear I know

one ana"in" partner who belie!es in the "a" threshold ethod. That is, when a client

opens a bill, the dollar aount should be hi"h enou"h to cause throat uscles to

constrict, but not so hi"h that the bill "ets tossed in the trash. Indeed, for any firs,

jud"in" what the arket will bear in!ol!es a "ae of brinksanshipthe fir raises

rates until the client screas or, in the worst case, takes their le"al work elsewhere. #s an

alternati!e, lawyers could siply ask clients how uch theyDre willin" to pay. :ut this

strate"y typically fails, not so uch because the client lies 'althou"h the &uestion be"s for

a low ball answer(, but because ost clients are siply unaware of how uch theyDre

willin" to pay. #"ain, as one of the last cotta"e industries, consultin" firs continue to

custoiEe ser!ices in a anner that akes it nearly ipossible for any but the ost

astute client to copare prices aon" copetitors. Not surprisin"ly, the result is often a

le!el of sticker shock for the client that reaches or surpasses that "a" threshold. $or the

law fir, all of this adds up to inefficient arket pricin". That is, because firs lack any

effecti!e eans of easurin" the acceptable client price, they consistently fall prey too!erchar"in" in weak arkets and underchar"in" in stron" arkets. 6hen a fir char"es

ore than a client is willin" to pay, the client will either coplain or take their business

elsewhere. In either case, the fir is offered iediate feedback of their price bein" too

hi"h. :ut, no such feedback eBists when the price is too low. Most consultin" firs,

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bein" the risk@a!erse or"aniEations they are, safely react to this situation by preferrin" to

char"e too little, thereby a!oidin" the risk of offendin" or losin" a client. 6orse, any

lawyers routinely train clients to seek discounted fees. Most consultin" firs ha!e

established a standard billin" rate for each attorney 'e&ui!alent to the anufacturerDs

recoended price for a product(. #t any firs, thou"h, partners re"ularly pro!ide

clients a discount fro this rate, e!entually reachin" a point where char"in" full rates is

a rare accoplishent. +lients are &uick to fi"ure out how to play this "ae.

Price Seniti$it-

If consultin" firs intend to char"e clients based on what the arket will bear, then they

need a echanis for fi"urin" precisely what, in fact, each client is willin" to pay. This

in!ol!es understandin" each clientDs uni&ue circustances in the arketplace and settin"

the firDs price in appreciation of those indi!idual circustances. To do this, firs ust

first deterine the clientDs le!el of price sensiti!ity. To start with, four basic types of

clients eBist, each with their own le!el of price sensiti!ity

Price4,ae. C#ient

There are no purely price@dri!en clients. #ll clients understand to soe de"ree that you

"et what you pay for, i.e., they reco"niEe soe differentiation aon" the &uality of

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lawyers and le"al ser!ices. :ut for the eBtree pricesensiti!e client, the dri!in"

consideration in selectin" counsel is price. #fter the copletely un&ualified lawyers and

consultin" firs ha!e been screened, price is what itDs all about. f course, the best

eBaple of the eBtree price@sensiti!e client is the insurance copany. Insurance

copanies are in the business of assessin" risk and, clearly, they ha!e deterined that

abo!e a certain le!el of &uality, the difference aon" firs in affectin" the actual

likelihood of a successful outcoe is insufficient to justify anythin" but the lowest

possible price. )Btree price@sensiti!e clients are easy to spot.


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#ll clients are !alue@based to soe eBtent. They ake rational decisions about pricin"

based on what they belie!e they will recei!e in return for their in!estent. Then they

copare this to copetin" firs in the arketplace. +lients ay place !alue on the le!el

of client ser!ice, the success of the outcoe, or a !ariety of other perceptions. ften,

!alue is actually dri!en by price. +lients ha!e !ery little inforation on which to base

price decisions. utside of a coodity@type ser!ice that a client ay ha!e used before,

it is difficult to copare prices or "ain insi"ht into what le"al ser!ices should cost. $or

this reason, clients ay place "reater !alue on eBpensi!e ser!ices and less !alue on

ineBpensi!e ser!ices.

Pricing Strategie

The first reaction of ost consultin" firs is that they should char"e as uch as possible.

:ut, like ost products and ser!ices, pricin" influences deand. #t the broadest le!el,

hi"h prices will cause hi"hly price sensiti!e clients to rule out a fir. :ut to a client who

e&uates price with &uality, those sae hi"h prices ake the fir e!en ore attracti!e.

)!en so, a hi"h pricehi"h !alue strate"y ust be copatible to the le"al ser!ices offered.

$or eBaple, the client ust care about &uality in order to justify a hi"h priceF therefore,

such a strate"y would likely fail with routine coodity@le!el le"al ser!ices. :y the

sae token, a hi"hly copetiti!e pricin" structure appeals to a broader arketplace butproduces less re!enue. In this situation, low pricin" ust support a strate"y that

anticipates attractin" a hi"h !olue of work or a ser!ice deli!ery strate"y that perits a

fir to perfor work at a lower cost than its copetitors. There are se!eral specific

pricin" strate"ies that firs ay eploy

O$er6ricing t(e Mar)et

# fir can pursue a strate"y of enhancin" the !alue of its ser!ices by positionin" itself as

the hi"hest@priced pro!ider. $irs use a hi"h@price strate"y to call attention to thesel!es

in the arketplace and create a basis for differentiation. This weCre eBpensi!e, but weCre

worth it strate"y effecti!ely supports se!eral other possible practice and client@based

strate"ies

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# strate"y focusin" on newly eer"in" or hi"h "rowth industries or practices

Instances where the firDs client base is ade up of or is tar"etin" con!enience clients or

relationship client

The objecti!es of char"in" fees substantially hi"her than the arket is to con!ey

eBceptional !alue to clients who base both their buyin" decision and their e!aluation of

perforance on factors other than price

The Khi"h@!alue ser!ice pro!iderH reco"niEes that it will not copete for substantial

portions of the arketplace but will copensate for losses in !olue throu"h eBceptional

profit ar"ins. To achie!e a hi"h@!alue strate"y, a fir ust be prepared to address three

tactics

1.nderstand clientsD needs 'includin" uneBpressed needs( better than copetitors,

4.2e!elop a arketplace reputation that is consistent with hi"h !alue clientsD needs and

8. +reate a eans of consistently deli!erin" the fulfillent of the clientsD needs.

It is iportant to reco"niEe that a clientDs needs ay in!ol!e a !ariety of factors beyond a

hi"h le!el of ser!ice. # hi"h !alue client ay seek a fir with the ability to win difficultcases, close copleB deals, influence "o!ernent decisions or enhance business throu"h

its reputation.

Un.er Pricing t(e Mar)et

+onsultin" firs also can build an effecti!e pricin" strate"y based on their ideal clientele.

$or eBaple, a fir that wishes to pursue price@based clients ust build a strate"y that

cobines pricin", arket position and the operation of their practice.


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# low@price strate"y can work effecti!ely for consultin" firs capable of accurately

definin" ser!ice le!els and ana"in" costs. To use a basic eBaple, a fir that

strate"ically specialiEes in a specific area of insurance defense is capable of sur!i!in" and

prosperin" in a crowded and copetiti!e arketplace. In fact, a fir that defines itself to

this arket and de!elops an operatin" procedure and cost structure to this arket will

e!entually dri!e copetitors out of the practice. :ut a price@based strate"y can be

dan"erous for the fir who is uncoitted to the strate"y. There is no roo for second

place in a price based arket. :y definition, clients will i"rate to the lowest price.

The fir ust ha!e accurately identified its clients as priced@based,

The client base ust be lar"e enou"h to perit profitability throu"h !olue,

The fir ust ha!e ana"eent both willin" and capable of puttin" operatin"

procedures and cost controls in place to perit profitable operation, and

The lawyers ust be prepared to, in conforance with ethical standards, ana"e

cases on the basis of profitability

$or any firs, copetiti!e pricin" siply ser!es as a default. These firs are unable

to establish a practice area eBpertise or capability that justifies o!erpricin" the arket.

They also are unwillin" to "o head@to@head with other firs in a pricin" battle. till,

copetiti!e pricin" can be a hi"hly credible strate"y in support of other client@based

strate"ies. The best use of copetiti!e pricin" is in situations where a liited nuber of

firs ser!e a specific industry or industry se"ent. 5o"ic predicts that the ore focused

a firDs client base, the ore likely they are to ha!e knowled"e of standard char"es

aon" copetin" firs. 6hile copetiti!e pricin" ay, in effect, liit the aBiiEation

of profits throu"h hi"her pricin" le!els, it also pre!ents pricin" fro deterioratin" if new

firs attept to ser!e the arket or if a particularly a""ressi!e client attepts to

inappropriately reduce le"al fees.

$or eBaple, in the real estate practice, both de!elopers and lenders anticipate le"al fees

to be approBiately two percent of the !alue of a transaction. The priary objecti!e of

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both clients is to close the deal. #s such, these clients will tend to be suspicious of a law

fir that draatically under@prices the arket, e!en if it is !iewed as a credible fir. :y

the sae token, in the eyes of clients, there is little a fir can do to brin" eBceptional

!alue to the en"a"eent. Therefore, a fir atteptin" to price abo!e the arket would

&uickly be eliinated fro copetition. +opetiti!e pricin" accoplishes what open

arketplaces are desi"ned to accoplish it creates a rational pricin" base that reflects

supply and deand. In professional ser!ices, arkets tend to be fairly inelastic to

chan"es in deand, i.e., when there is a recession and corporate transactional work dries

up, corporate lawyers typically donCt reduce their hourly rates. #s a result, the entire

arketplace takes on a stability that works to firsC ad!anta"e. :y coparison, when a

fir prices itself o!er or under a arket, its price strate"ies deal with a liited nuber of

clients and will, therefore, iediately feel chan"es in deand. 5ow@price strate"ies

ser!e clients who are seekin" any justification to achie!e price concessions.

A.8"ting Price t! V!#"0e

This strate"y pioneered by firs specialiEin" in coodity@le!el work 'such as

residential real estate con!eyances and insurance defense liti"ation(, attepts to control

cost by carefully adjustin" price to atch !olue. That is, if the !olue of work eBceeds

the firCs capacity to perfor the work, the fir will increase its rates for new work

before it hires additional attorneys. If the work continues to coe to the fir at the hi"her

rates, the risk of increasin" capacity is justified. :y the sae token, the fir can attract

additional work by reducin" rates, if its attorneys are workin" below their capacity. 6hile

adjustin" price to !olue akes sense in econoic theory, it does not see to work in

practice. #lthou"h price clients are drawn to the lowest price, !olue based price

reductions and increases are rarely si"nificant enou"h to justify the client under"oin" the

disruption caused by chan"in" firs. 6orse, the lower rate now becoes the benchark

and a return to the pre!ious rate is !iewed by the clients as a rate increase and a reason to

o!e work elsewhere. ne area where adjustin" price to !olue ay work is in the

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increasin"ly popular trend, particularly aon" hi"h re"ulated industries, to pre@&ualify a

nuber of firs as a panel and bid le"al work aon" the panel ebers.

$or eBaple, health care institutions pursue this eans of obtainin" counsel with

purposefully sall chunks of work, it would perit biddin" firs to reflect their current

le!el of busyness in their price.

Price Strateg- i Har.

+reatin" a pricin" strate"y is difficult. $or any firs it is unseely that a clientDs

decision to retain a lawyer would be ipacted by soethin" other than eBperience,

&uality of work and personal relationship. /et, as clients becoe increasin"ly aware of

coparati!e pricin" le!els in the arketplace, pricin" ay be aon" the ost iportantdecisions a firDs ana"eent can ake in a strate"ic plannin" process. 6hat akes

pricin" so difficult is that, while it is a free standin" strate"y, just like focuses on practice

areas, "eo"raphic locations or industry clusters, it also cuts across all of a firDs

strate"ies. The pricin" strate"y eployed for each of a firDs locations and practice

"roups ay be copletely different.


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C!ntri,"ti!n 0argin4,ae. 6ricing

+ontribution ar"in@based pricin" aBiiEes the profit deri!ed fro an indi!idual

product, based on the difference between the productDs price and !ariable costs 'the

productDs contribution ar"in per unit(, and on oneCs assuptions re"ardin" the

relationship between the productCs price and the nuber of units that can be sold at that

price. The productDs contribution to total fir profit 'i.e. to operatin" incoe( is

aBiiEed when a price is chosen that aBiiEes the followin" 'contribution ar"in

per unit(X'nuber of units sold(.

In cost@plus pricin", a copany first deterines its break@e!en price for the product. This

is done by calculatin" all the costs in!ol!ed in the production such as raw aterials used

in it transportation etc., arketin" and distribution of the product. Then a arkup is set

for each unit, based on the profit the copany needs to ake, its sales objecti!es and the

price it belie!es custoers will pay. $or eBaple, if the copany needs a 10 percent

profit ar"in and the break@e!en price is P4.0, the price will be set at P4.? 'P4.0 B

1.10(.

Crea0ing !r )i00ing

In ost skiin", "oods are sold at hi"her prices so that fewer sales are needed to break

e!en. ellin" a product at a hi"h price, sacrificin" hi"h sales to "ain a hi"h profit is

therefore skiin" the arket. kiin" is usually eployed to reiburse the cost of

in!estent of the ori"inal research into the product coonly used in electronic arkets

when a new ran"e, such as 2-2 players, are firstly dispatched into the arket at a hi"h

price. This strate"y is often used to tar"et early adopters of a product or ser!ice. )arly

adopters "enerally ha!e a relati!ely lower price@sensiti!ity @ this can be attributed to

their need for the product outwei"hin" their need to econoiseF a "reater understandin"

of the productDs !alueF or siply ha!in" a hi"her disposable incoe.

This strate"y is eployed only for a liited duration to reco!er ost of the in!estent

ade to build the product. To "ain further arket share, a seller ust use other pricin"

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tactics such as econoy or penetration. This ethod can ha!e soe setbacks as it could

lea!e the product at a hi"h price a"ainst the copetition.

Dec!- 6ricing

Method of pricin" where the seller offers at least three products, and where two of the

ha!e a siilar or e&ual price. The two products with the siilar prices should be the ost

eBpensi!e ones, and one of the two should be less attracti!e than the other. This strate"y

will ake people copare the options with siilar prices, and as a result sales of the

ore attracti!e hi"h@priced ite will increase.

Free0i"0

$reeiu is a re!enue odel that works by offerin" a product or ser!ice free of char"e

'typically di"ital offerin"s such as software, content, "aes, web ser!ices or other( while

char"in" a preiu for ad!anced features, functionality, or related products and ser!ices.

The word freeiu is a portanteau cobinin" the two aspects of the business odel

free and preiu. It has becoe a hi"hly popular odel, with notable success.

Hig(4#!1 6ricing

Methods of ser!ices offered by the or"aniEation are re"ularly priced hi"her than

copetitors, but throu"h prootions, ad!ertiseents, and or coupons, lower prices are

offered on key ites. The lower prootional prices are desi"ned to brin" custoers to

the or"aniEation where the custoer is offered the prootional product as well as the

re"ular hi"her priced products

Li0it 6ricing

# liit price is the price set by a onopolist to discoura"e econoic entry into a arket,

and is ille"al in any countries. The liit price is the price that the entrant would face

upon enterin" as lon" as the incubent fir did not decrease output. The liit price is

often lower than the a!era"e cost of production or just low enou"h to ake enterin" not

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profitable. The &uantity produced by the incubent fir to act as a deterrent to entry is

usually lar"er than would be optial for a onopolist, but i"ht still produce hi"her

econoic profits than would be earned under perfect copetition.

The proble with liit pricin" as a strate"y is that once the entrant has entered the

arket, the &uantity used as a threat to deter entry is no lon"er the incubent firDs best

response. This eans that for liit pricin" to be an effecti!e deterrent to entry, the threat

ust in soe way be ade credible. # way to achie!e this is for the incubent fir to

constrain itself to produce a certain &uantity whether entry occurs or not. #n eBaple of

this would be if the fir si"ned a union contract to eploy a certain 'hi"h( le!el of labor

for a lon" period of tie. In this strate"y price of the product becoes the liit accordin"

to bud"et.

L! #ea.er

# loss leader or leader is a product sold at a low price 'i.e. at cost or below cost( to

stiulate other profitable sales. This would help the copanies to eBpand its arket

share as a whole.

Margina#4c!t 6ricing

In business, the practice of settin" the price of a product to e&ual the eBtra cost of

producin" an eBtra unit of output, by this policy, a producer char"es, for each product unit

sold, only the addition to total cost resultin" fro aterials and direct labor. :usinesses

often set prices close to ar"inal cost durin" periods of poor sales. If, for eBaple, an

ite has a ar"inal cost of P1.== and a noral sellin" price is P4.==, the fir sellin" the

ite i"ht wish to lower the price to P1.1= if deand has waned. The business would

choose this approach because the increental profit of 1= cents fro the transaction is

better than no sale at all.

Mar)et4!riente. 6ricing

ettin" a price based upon analysis and research copiled fro the tar"et arket. This

eans that arketers will set prices dependin" on the results fro the research. $or

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instance if the copetitors are pricin" their products at a lower price, then itDs up to the

to either price their "oods at an abo!e price or below, dependin" on what the copany

wants to achie!e.

O.. 6ricing

In this type of pricin", the seller tends to fiB a price whose last di"its are just below a

round nuber 'also called just@below pricin"(. This is done so as to "i!e the

buyersconsuers no "ap for bar"ainin" as the prices see to be less and yet in an actual

sense are too hi"h, and takes ad!anta"e of huan psycholo"y. # "ood eBaple of this

can be noticed in ost superarkets where instead of pricin" at V1=, it would be written

as V..

Pa- 1(at -!" 1ant


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sensiti!e buyers are to the price of the end benefit, the ore sensiti!e they will be to

the prices of those products that contribute to that benefit.Price proportion cost The

price proportion cost refers to the percent of the total cost of the end benefit

accounted for by a "i!en coponent that helps to produce the end benefit 'e."., think

+


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RESEARCH OBJECTIVES

To identify the pricin" strate"y used by consultin" ser!ices

To easure the effecti!eness of pricin" strate"y used by consultin" ser!ices

To identify the eployeesC perception towards pricin" strate"y in consultin"

business

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SCOPE OF THE STUDY

This research identifies the pricin" strate"y used by consultin" ser!ices. This study

easures the effecti!eness of pricin" strate"y used by consultin" ser!ices. This research

identifies the eployeesC perception towards pricin" strate"y in consultin" business

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RESEARCH METHODOLOGY

Reearc( T!!#3

It is !ery uch iportant to understand the research tools to be used in a particular

research before o!in" on to the research ethodolo"y. Research approach can be

defined in two different ways i.e. &uantitati!e approach and &ualitati!e approach. 6hen

the data is collected in a structured forat and the data analysis is done in ters of

statistical nubers and calculations, this type of data collection ethod is called as

&uantitati!e research. 6hereas the data collected in an unstructured forat and the

analysis is done in ters of in@depth discussion is called as &ualitati!e research. o as per

the definition and the researcherCs understandin" this research will in!ol!e ore of

&uantitati!e inforation as copared to &ualitati!e inforation, because the feasibility of

the business depends on the actual facts and fi"ures. #s a whole the research approach for

the new "rocery store business will &uantitati!e in nature. 9owe!er &ualitati!e approach

will be re&uired to support the &uantitati!e inforation in the research study. 6ithin the

&uantitati!e approach, the data can be collected either usin" priary or secondary

research or in cobination of both.

T!!# &!r .ata c!##ecti!n34

Pri0ar- Data 4 The priary data are those which are collected afresh and for the first

tie, and thus happen to be ori"inal in character. In the present study priary data will be

collected !arious ethods as such like

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Sec!n.ar- Data @ The secondary data are those which ha!e already been collected by

soeone else and which ha!e already been passed throu"h the statistical process. In the

present study secondary data will be collected throu"h !arious as such like

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DATA ANALYSIS AND INTERPRETATION

9:' Fr!0 (!1 0an- -ear -!" (a$e ,een 1!r)ing in c!n"#ting ,"ine;

;0L respondents replied that they ha!e been workin" in their or"aniEation fro 4 to less

than ; years but 40L respondents replied that they ha!e been workin" in their

or"aniEation fro less than 4 years.

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9=' Gen.er

?L respondents were ale and rest were feale

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9>' Fin.ing t(e ,et 6ricing trateg- i e5tre0e#- i06!rtant t! a c!06an-?

c!06etiti$ene

47L respondents were stron"ly a"reed howe!er 1;L respondents were disa"reed with

the abo!e stateent

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9@' We a#1a- create 6rice in t(e c!nte5t !& c#ear trategic 0ar)eting !,8ecti$e

48L respondents were stron"ly a"reed howe!er 1?L respondents were disa"reed with

the abo!e stateent

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9' Pricing .ecii!n are .!0inate. ,- c!t4,ae. an. &!##!14t(e4#ea.er a66r!ac(

4L respondents were stron"ly a"reed howe!er 13L respondents were disa"reed with

the abo!e stateent

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9B' A,i#it- t! .e#i$er re"#t &act!r i $er- critica# an. i06!rtant in 6ricing trateg-

8=L respondents were stron"ly a"reed howe!er 1;L respondents were disa"reed with

the abo!e stateent

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9' /ene&it !& t(e c!n"#ting &ir0 &act!r i $er- critica# an. i06!rtant in 6ricing

trateg-


the abo!e stateent

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9' W(at t(e 0ar)et 1i## ,ear &act!r i $er- critica# an. i06!rtant in 6ricing

trateg-


the abo!e stateent

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9:' Pricing 6!#icie are critica# .e6en.ing !n t(e t-6e !& 0ar)et tr"ct"re t! a$!i.

t(e ,"ine &ai#"re'

4?L respondents were stron"ly a"reed howe!er 1;L respondents were disa"reed with

the abo!e stateent

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FINDINGS OF THE STUDY

T(ere are 0an- 1a- t! 6rice a c!n"#ting er$ice "c( a3

Pre0i"0 Pricing

This approach is used where a substantial copetiti!e ad!anta"e eBists and the arketer

is safe in the knowled"e that they can char"e a relati!ely hi"her price. 6e can use a hi"h

price where there is a uni&ue brand.

Penetrati!n Pricing

The price char"ed for ser!ices is set artificially low in order to "ain arket share. nce

this is achie!ed, the price is increased. The copanies need to increase the nuber of

their consuers in order to "et people to si"n up for their ser!ices. nce there is a lar"e

nuber of subscribers prices "radually creep up

Ec!n!0- Pricing

This is a !ery low price. The costs of arketin" and prootin" a ser!ice are kept to a

iniu. 2urin" ties of recession econoy pricin" sees ore sales.

Price S)i00ing


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Ser$ice Line Pricing

6here there is a ran"e of ser!ices the pricin" reflects the benefits of parts of the ran"e.

er!ice line pricin" seldo reflects the cost of akin" the ser!ice since it deli!ers a

ran"e of prices that a consuer percei!es as bein" fair increentally % o!er the ran"e.

O6ti!na# Ser$ice Pricing

+opanies will attept to increase the aount custoers spend once they start to buy.

ptional KeBtrasH increase the o!erall price of the ser!ice.

Ca6ti$e Ser$ice Pricing

6here ser!ices ha!e copleents, copanies will char"e a preiu price since the

consuer has no choice.

Ser$ice /"n.#e Pricing

9ere sellers cobine se!eral ser!ices in the sae packa"e. ItDs a "ood way of o!in"

slow sellin" ser!ices, and in a way is another for of prootional pricin".

Pr!0!ti!na# Pricing


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#lso, on these issues, consultin" firs can de!elop

a+ L!1 6rice trateg-

sed to attract new consuers or to ake an offer to eBistin" custoersF

sed short ter to stop new copetitors enterin" the arket

sed to "enerate enou"h re!enue to co!er costs

,+ Hig( 6rice trateg-

sed to "enerate profits to co!er launch costs, ser!ice ay ha!e a uni&ue point of

differentF

sed to "row profits

sed to aBiiEe re!enue in order to fund new projects

$or any consultin" ser!ices, arketers rely on fiBed pricin", in which custoers pay

the price set by the arketerF in other cases, arketers use dynaic pricin", !aryin"

prices fro custoer to custoer or situation to situation. $ro a custoerCs perspecti!e,

!alue is the difference between the total percei!ed benefits and the total percei!ed price

of a consultin" ser!ice. Marketers care about custoersC price perceptions because they

influence the deand.


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+opany objecti!es


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CONCLUSION

If puttin" the ri"ht people in the ri"ht places is the top priority, then deli!erin" results that

eBceed eBpectations is the second. uccessful professional ser!ices firs reco"niEe fro

the "et@"o that they ust build stron" ser!ice histories to ana"e client perceptions, "ain

references and de!elop fa!orable word of outh counication.

#"ain, this is a natural fit for a !alue dri!en approach to pricin". tron" ser!ice histories

enable the professional ser!ices fir to effecti!ely deonstrate and docuent !alue

deli!ered in onetary ters. This is the key to understandin" the )conoic -alue

2ri!ers of the sale. In su, the "reater the econoic ipact the ore the custoer can be

con!inced to pay for a ser!ice. The challen"e, thou"h, is the custoer ay not reco"niEeall the !alue bein" deli!ered with the ser!ice.

#n understandin" of both the syptos and systeic causes of business probles is

necessary. 6hen the custoer does not reco"niEe underlyin" systeic issues as causal

factors for the probles they are facin", it is ore likely the custoer will not reco"niEe

the econoic ipact of the professional ser!ices firCs work. Intensi!e counication

efforts are necessary to ensure the custoer both understands the real issues it is facin"

and the !alue of the professional ser!ice firCs solutions.

>i!en an understandin" of the clientCs price sensiti!ity and how they will deri!e !alue

fro a solution, it is tie to confi"ure offerin"s. In the case of professional ser!ices, this

is soe cobination of differentiated resources, coodity resources and intellectual

property.

The objecti!e of the professional ser!ices ana"eent tea is to construct a enu of

offerin" choices for the custoer. The enu pro!ides real options with real !aluetradeoffs for. # enu of options is critical in liitin" price ne"otiations and discountin",

forcin" custoers to ne"otiate on !alue deli!ery rather than on price. -alue deli!ery is

then &uantified for the alternati!e options, and price points are set to pro!ide a sufficient

econoic incenti!e for the custoers to buy.

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Multiple offerin"s "i!e the custoers options that liit attepts to price deal and result

in hi"her ar"ins for the professional ser!ices fir. hould the fir decide to offer any

discounts, discount policy is deterined at this point. nly when the econoic !alue to

the custoer and price points are established does the tea look at costs to assess

profitability.

The tea deterines the resources re&uired to deli!er the specified !alue, and costs are

estiated. In ost cases the price points deterined by this !alue dri!en pricin"

approach will eBceed those of the cost based approach


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RECOMMENDATIONS

Note that nowhere here has it been stipulated that !alue pricin" ust be fiBed bid. The

!alue based pricin" approach is not a specific pricin" odel. Rather it is a syste for

settin" and capturin" a fair price, based on !alue to the custoer relati!e to copetiti!e

alternati!es, with the objecti!e of aBiiEin" lon" ter profitability. o a !alue price

ay be hi"h or low, and ay be fiBed bid, tie and aterials, or soe cobination

Increase price points, reco"niEin" this reduces the clientCs incenti!e to purchase and

possibly increasin" custoer price sensiti!ity 'price sensiti!ity increases as the fir tries

to capture ore of its deli!ered !alue(.

#dd additional ser!ices 'i.e., odify the ser!ice offerin" enu( with ser!ices that

increase !alue faster than costs increase, allowin" hi"her price points and ore profitable

offerin"s

uccessfully capturin" a !alue price depends on tar"etin" buyers who benefit fro and

are willin" to pay for !alue. These are custoers for who the fir has the ability to

deli!er differential !alue at copetiti!e ad!anta"e. In the real world, howe!er, soe

buyers are !alue buyers and others are not. o the pricin" process starts with price

&ualifyin" the buyer based on price sensiti!ity. This price &ualification dri!es the entire

pricin" process. # price buyer, for eBaple, is treated uch differently than a !alue buyer

in sales approach, offerin" confi"uration and ne"otiation strate"y


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REFERENCES

#dcock, 2., 9albor", #l., Ross, +., Marketin".


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ANNEXURE !UESTIONNAIRE

A1. $ro how any years you ha!e been workin" in consultin" business

5ess than 4 /ears 4 to less than ; /ears

; to 5ess than 3 /ears More than 3 /ears

A4. #"e

4=@40 yrs 43@8= yrs 81@80 yrs

83@;= yrs ;1 or ore

A8. >ender

Male $eale

A;. $indin" the best pricin" strate"y is eBtreely iportant to a copanyCs

copetiti!eness

tron"ly #"ree #"ree Neutral

2isa"ree tron"ly 2isa"ree

A0. 6e always create prices in the conteBt of clear strate"ic arketin" objecti!es



A3.


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A?. :enefits of the consultin" firs factor is !ery critical and iportant in pricin"

strate"y



A. 6hat the arket will bear factor is !ery critical and iportant in pricin" strate"y



A1=.

Documents

Pricing Strategies in Consulting Services