Community Section -
Dan Morris - 05/30/2010
A year or so ago, I was reading an article about novel pricing methods and fun restaurants and I wrote myself a note to visit Floyd’s Diner the next time I was in Victoria, BC. Today I fulfilled that reminder. Floyd’s could have simply been like any other diner in any other similar city where tourists and locals gather for comfy food served by local flavor. Floyd’s goes beyond that and in a total VerasSage way. We at VeraSage appreciate fully the Experience Economy (see Pine and Gilmore’s excellent book with the same title) and Floyd’s Diner has their hook.
Their hook is straight forward, gutsy, and fun. On their breakfast menu along with all of the traditional and local faire, the chef offers The Mahoney. The Mahoney is described in their menu as: “You’ll get whatever the kitchen prepares and you can either pay the original price (currently $11 CDN), or we’ll flip you for it - double or nothing! Breakfast or Lunch”
Walking in I knew I was going to try this and I was going to flip for it. I was willing to pay 2x the base price for the opportunity to have fun and share in this experience. My good friend Sven also ordered the Mahoney. The rest of our table were unwilling to gamble on what might be delivered and remember it is the chef’s choice and how they feel. Two plates arrived, Sven’s was some form of Eggs Benedict with chicken, ham, potatoes and eggs, tasty but a traditional style breakfast. Mine arrived as some form of triple decker Texas Toast, slightly grilled with eggs and meats on each layer, covered with cheese and scallions along with potatoes. The meats were of all flavors and variety and when I asked the body art embellished waitress what the meal was called, she reminded me it was the Mahoney and it isn’t on the menu. The meal was extremely large and thankfully my 13 year-old son was there as he was still hungry after his “lumberjack breakfast”.
When the meal was done, the waitress asked if we were going to gamble and Sven and I both said yes. Sven went first, she pulled out a quarter from her pocket but offered us to use one of ours (we declined) she flipped the coin, Sven called “heads” she showed tails and now his $11 breakfast was $22 (and heck, I was paying so I am now really in the hole). My turn. She flipped, I called “tails” and tails it was. Mine was free. We broke even. That was fine.
Sven and I discussed that the best we could do was win 2x (saving $22 + GST) and worst we could do was spend an extra $22 (without GST) (the value of gambling is it must be outside of taxes) and the expected outcome of course would be to break even. Of course, fair coins are only fair over many tosses and results are independent. In then end, we both had excellent meals (visit Floyd’s next time you are in Victoria) and we had the opportunity to both receive free meals (pre-tip that is, the servers aren’t gambling with their wages).
The lessons for other businesses is that maybe this is possible for your products and services. Would you be willing to serve your own version of a product (remember, I didn’t get to choose my meal, it could have been something distasteful) and then offer your customer the chance to escape payment if they were willing to risk paying double?
Think about - great fun and the courage to experiment just might be worth it and engaging your customer is never a mistake. You can afford the risk, and the overall numbers are on your side. Simply win more than you lose.
Ron Baker - 05/27/2010
Hat tip to Jay Shepherd for pointing out the Wall Street Journal article, “Raise Your Prices!,” which Ed wrote about yesterday.
I finally read all of these articles this morning. They are all excellent, but one in particular stands out: “The Myth of Commoditization,” by Michael Schrage, a research associate wtih MIT’s Media Lab.
As readers of VeraSage know, we vehemently disagree with the notion that any product or service is a commodity. It’s a cop-out.
Well, sometimes someone says it better than you.
Please read Schrage’s article.
Ed Kless - 05/26/2010
The Wall Street Journal posted several excellent articles (including links to some MIT Sloan articles) on pricing yesterday. I thought it might be helpful to provide the links.
Ed Kless - 05/21/2010
I have just returned from Sage North America’s Insights conference in Denver. The conference is, at the same time, completely exhausting and completely invigorating. I learn so much from Sage partners because they continue to test my thinking.
Without question, the best test of my thinking came during my pre-conference session on Sunday. One of the attendees (I cannot remember who, so if it is you, please claim the credit) shook me to the core. She said, “So if you believe we are professional knowledge firms, why should we be selling service level agreements?” I was dumbstruck.
My only response was, “You should not.” I have to admit, I have been wrong.
In one of the all-time great movies The Ten Commandments, Cedric Hardwicke as the Pharaoh Sethi says, “Let the name of Moses be stricken from every book and tablet. Stricken from every pylon and obelisk of Egypt. Let the name of Moses be unheard and unspoken, erased from the memory of man, for all time.”
The same must be done for service level agreements. So, let the phrase “service level agreement” be stricken from every Ron Baker book and article. Stricken from every blog post and comment on the VeraSage Website. Let the phrase of “service level agreement” be unheard and unspoken, erased from the memory of professionals, for all time.
In keeping with this pronouncement, above is my slide from my session on creating, service access level agreements at the conference. Access Level Agreement is, for now, a placeholder. Other ideas I mulled over where: customer level agreements (too direct), support level agreements (too limiting), and access contract (too legal).
It is time once again to tap into the collective intellectual capacity of the community. Please post your ideas and arguments for or against the correct phrase.
Ron Baker - 05/18/2010
The Hon Wayne Martin, Chief Justice of Western Australia, gave a speech on Monday, 17 May 2010 to officially launch Law Week 2010.
The address, titled ”Billable hours—past their use-by date?, reviewed the criticisms of time costing and suggested new approaches to charging for legal services.
It was presented by the Perth Press Club at Frasers Restaurant in Kings Park. You can watch a 50-second clip from a news report here.
I had the good fortune of having a private meeting with the Chief Justice on my last trip to Australia. The meeting was arranged by David Garnsworthy, a cost consultant in Perth, and my colleague John Chisholm.
We had an incredibly candid discussion with the Justice, and he asked many penetrating questions regarding alternatives to the billable hour. You can tell he has given this issue much thought.
After our meeting, I send him two chapters from my forthcoming book, Implementing Value Pricing: A Radical Business Model for Professional Firms.
I was humbled to see he cited me in his speech, and used some of the material I had sent him on the deleterious effects of hourly billing.
He also makes many valid points regarding the perverse effects of the billable hour. If you are a lawyer in Australia, this speech is a must read. If you are a lawyer in the USA, or anywhere else, the speech is worth reading to gain a perspective of the billable hour from a Justice’s point of view.
Is there any doubt that the pressure points on the billable hour are far greater than merely from law firm customers?
There is a Perfect Storm brewing against this antiquated model from all sides.
Ed Kless - 05/10/2010
On Wednesday, May 19th from 1:30pm to 5:30pm at Sage North America’s annual partner conference, Insights, I will be presenting a session entitled Creating the Firm of the Future (GEN52-1,2&3).
This session will be dedicated to the possibility that a professional organization can be run more effectively when it becomes a knowledge firm rather than a service firm. Creating such an organization is hard work and not for everyone. It requires us to think differently than we have in the past about what it is that we do.
I am planning to live stream this at ustream.tv. If possible, please join us.
Learning Objectives:
- What is a knowledge firm?
- Moving from revenue to profit
- Moving from capacity planning to knowledge management
- Moving from efficiency to effectiveness
- Moving from hourly billing to fixed pricing
Ron Baker - 05/04/2010
Greg Kyte is the self-proclaimed “Champion of the Dissenters.” This is his third entry explaining why I’m wrong about VeraSage’s Quest to bury the billable hour and timesheet.
I have to admit, he’s starting to make a compelling point, causing me to rethink our entire approach. Perhaps there is a place for billable hours and timesheets?
Oh, Ron Baker, your naivety is so cute—the way that you regularly promote the fabrication that billable hours and timesheets retard people’s creativity. So untrue; so precisely wrong.
On Friday, an audit manager at my firm had an inspired proposal to boost our firm’s profitability. One of our clients with whom we have a 25-plus-year relationship has been required by its lender to have its financial statements reviewed rather than compiled for 2010. My colleague invited the client to lunch to discuss how this new requirement will affect them. We paid $60 for the three of us to go to lunch for an hour and a half, and—here’s the inspired part—both the manager and I billed the client for our hours. My rate is $200 per hour. My manager’s is $150. Ron, we just sold a $20 chicken marsala for $525! That’s a 600% return! That’s beyond a “fist pump price”; that’s a pelvic thrust price!
I know you won’t believe it, but this plan was hatched without any Google time. The creative force was the fact that she was ten hours behind her billable hour goal. The billable hour: a wellspring of creativity!
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