Ask any marketing expert or advisor and they’ll tell you to learn and follow the 4 Ps of Marketing, or the Marketing Mix: Product, Price, Place, and Promotion. They’ll help your company apply the 4 Ps of the Marketing Mix if you can’t or won’t do it yourself. (That’s a good thing by the way!)
BUT—and this is a big but—this marketing mix can lead your firm astray. Every marketing expert says that the 4 Ps are intertwined, that decisions about one impact decisions about the others. I agree with this. And that’s why they lead you astray.
How the 4 Ps Lead You Astray
The practices promoted for the first two Ps-Product and Pricing—are simply wrong for knowledge based services firms. Here’s why:
Every single expert writing about the first P, Product, writes “product or service” as if products and services are the same thing. They are not.
Most importantly, this equivalence is wrong because knowledge based services should have no competitors. No other firm has the same knowledge and expertise, the same skills in delivering value, or the same relationships with clients and customers.
Since the 4 Ps are intertwined, when you understand that Products in the marketing mix is not applicable to services firms, your approach to the other Ps changes by necessity.
The second P, Price, is tied to what is being marketed. Since we know that services are unique, the typical calculations about price are invalid. Your firm would be mistaken to use competitors’ pricing, geographic locations, seasonality, industry standards, or other external factors as deciding pricing factors. And while you need to cover costs and include profit margin, if you stop there, your revenue will be less that it should be.
What outcomes do your clients value is the only benchmark that matters when it comes to pricing. The clients who find it meaningful it will pay fees commensurate to the value you deliver.
What the client values is never ending and always changing. Once you deliver value the first time, you help the client experience new needs, wants, and desires. Meet those new needs, wants, and desires, and you have new services to offer and new fees to collect.
Two More Words About Pricing Model
There’s a profound difference between what you charge and how you determine what you charge. How you determine your fees is a strategic decision that must be made by the CEO or Owner.
‘Pricing model’ refers to how you determine what the charges or prices are.
There are two pricing models for services firms: value based, and time based.
Value based pricing models are based upon the belief that the firm delivers life-changing value to meet the needs, wants, and desires of its clients; thus, the client should pay fees commensurate to the value delivered. Time is not a factor, other than the start and end date.
If you believe that time has an intrinsic value, you will charge for time spent. You expect compensation when using your time for clients. The most common forms of time based pricing models are hourly billing, retainers, and the therapy model (X dollars per fixed unit of time).
What to Charge Follows How to Charge
The firm that chooses value based pricing looks at client needs, wants, and desires, and offers services that deliver life-changing value. They charge fees commensurate with the value delivered. This means that as value increases, fees increase, and the client understands completely. This is not a mystery. You can find your fee-to-value ratio and phase in value based fees.
Time based pricing model firms look to their accountants or chief financial officers to calculate the actual dollars charged for units of time. One of the biggest difficulties is charging different rates for the services of different people. If the premise of time based pricing is that time has an intrinsic value, how can its intrinsic value be different between different providers?
Pricing Model+ Services+ Promote+ Place = Marketing Mix for Services Firms
The marketing mix philosophy is sound. Marketing is about attracting clients. The mix provides a clear process and framework for the firm to attract clients and customers. Make these substitutions and your services firm will become more attractive to those you seek as clients:
- Start with Pricing Model (how you charge)
- Substitute Services for Product
- Promote to current clients and to the right prospects
- Remember that knowledge services can be delivered any where, so expand your vision of Place.
To read more about Value Based Pricing download the first several chapters of my upcoming book: Crack the Pricing Code. They’re complimentary.
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