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What is Value Pricing? Part 5

Brendon Harrex - 08/25/2006

We have now established some of the key points regarding value pricing—they are as follows:


  • The purpose of a business is to create value for its customers.
  • Value is customer dependent—subjective and external to the organisation.
  • Pricing based on value created—motivates us to provide higher value services to our customers.
  • Value pricing forces us to segment our customers and differentiate our service offerings.

Value pricing forces us to focus on the total customer experience. While I was on holiday, I read the attached article in the Waikato Times. This simple example of differing service levels between two car dealers highlights how powerful a customer’s total experience is in determining their loyalty and willingness to refer other business to Ward Wilson. The experience our customers have when dealing with us is more important than on time delivery or technical quality alone (although these factors do contribute towards the customer experience).

The customer experience is obviously a very subjective matter, however it is very important. We should also note that customers will judge their experience with Ward Wilson, not just based on their experience of service from accounting firms, but from any business, e.g. the customer in the attached article will have raised experience expectations because of the way car dealer B treated him.
The experience our customers have is influenced by factors such as:


  • Our friendliness on the telephone.
  • The way we dress.
  • Our conversational skills.
  • The level of advice we give.
  • The things we remember about our clients’ business, family etc.

Focussing on these things as well as providing excellent technical quality, allows us to create a “wow experience.” Often customers do not expect this from their accountant, however as Keith Hitchcock points out in the attached article, “wow’ is what we must do.

Have a great “wow” week!

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Comments

Carolyn Elefant

Thank you for this series on value pricing - and explaining how it differs from value billing.  I am an attorney and I’d say that half of my work is performed on a billable rate, while the remainder I use alternatives like flat fees, reduced hourly with bonus, etc...So I don’t revere the billable hour and I understand how it gives incentives to waste time or engage in unproductive work.
At the same time, I have difficulty entirely reconciling what you describe as “value pricing” with my Professional Responsibility as a lawyer and my own professional ethics.  All of those elements you listed - friendliness, type of advice, etc...I do that already as part of my practice.  I strive for excellence because that’s why my clients hire me and that’s my obligation.  Are you saying that I should charge people more because I’m nice to them?
Also, I loved the airline analogy of setting different prices for different levels of service.  If I pay $200 for my airline ticket in coach, I don’t expect to get the wine and large seats they have up in first class.  And I’d love to be able to offer reduced service to clients for lower rates, but the Code of Professional Responsibility won’t let me.  For example, if I take a litigation matter for a $2000 fee, I may not be able to depose every witness whereas I can certainly do that if I’m paid by the hour.  I may be more inclined to settle the flat fee case for less because the client can’t afford to bring it, but I can then be found liable for negligent settlement.  In short, the Bar expects the same level of service for all matters, irrespective of price.  My question is how can lawyers reconcile value pricing with professional responsibility?

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