Opinion piece from Richard Barrett, MD of Initials
Let’s talk about the elephant in the room – pricing. Everyone is thinking about it, but we’re all too polite, or nervous, to bring it up directly. There shouldn’t be any negative connotations to this conversation, it isn’t about agencies being creative with how they make money and far from being personal it’s simply a central pillar of any business relationship. It’s about us all understanding the value of our offering and conveying its importance to clients in an appropriate way and that means being open and brave without becoming belligerent.
This relates to client’s needs as much as our own. They (understandably) want value and results that are exponential to the price they’ve paid. It’s up to us to meet that need. So, charging for outcomes and outputs rather than service inputs benefits everyone – making things more economical through efficiencies and streamlining – but all that necessitates a move from commodity to value or outcome-based pricing.
First step – think about what you offer, then think about what you’re charging and consider if it’s appealing to your client. Identify the value of your offer (this must be tailored to the needs of your client and is bespoke to every brief), then commercialise it. One obvious example, we all need to move away from charging for things like amends. Those aren’t the things that matter to clients. There is a missed opportunity here to highlight what clients really care about – strategy, concept, evaluation and learnings – and make everything clearer for everyone in the process.
With margins shrinking, agencies need to focus on tailored solutions for individual clients and projects, old fashioned one-size-fits all approaches are margin killers. It’s the areas clients see as valuable that we should all be focusing on and overdelivering in, but current models don’t necessarily reflect that need, or encourage that type of behaviour. If you tried to answer every marketing brief with the same solution you wouldn’t get far, the same can be said for pricing but by applying a little thought mutually beneficial solutions can be found.
Where does the role of pricing start? The normal paradigm is brief leads to scope leads to pricing. Agencies need to address value up front. Rather than project fee tunnel vision we should start by looking at the business problem we’re being asked to solve. Then price accordingly. We focus on the time it takes to do something, but what about the years of experience that are being utilised, especially when speed to market is so important these days? Distribution of the idea is the element with the least value, so why do we all continue to be so hung up on it?
The simple answer is that the more challenging the market conditions, the less inclined people are to have difficult conversations. We need to find a pragmatic way around this reluctance.
Retained relationships, ones that constitute ongoing partnerships focused on consultancy as much as execution, are increasingly what brands are looking for, and agencies love that type of relationship too. Essentially, we’re all moving in this direction, but traditional pricing structures are failing to keep up with the pace of change. For those that have been exposed to The Gap Partnership’s TCSN (The Complete Skilled Negotiator) course you’ll know the difference between a bartering/hard bargaining strategy and one that stimulates partnerships and relationship building and how pricing structures play a different role in both.
Old school marketing campaigns are becoming increasingly irrelevant. Channels should be used for ongoing conversations between brands and their audiences, it’s not about turning things on and off like we used to. Ongoing loyalty and communication with audiences means new marketing models, and these new models need new pricing structures to support them.
A couple of years ago I saw Tim Williams from the Ignition Group give an inspiring presentation on the future of agencies – exploring why and how we should all be more commercial. Pricing is just one of the many issues he touched on, but it’s a cornerstone element that will help facilitate long-term solutions to the changes we’re all experiencing.
We spend countless hours brainstorming ideas, and no time looking at pricing strategically. It’s just based on team and fee, nothing more. That’s madness. Rather than worrying about mark-ups we should focus on understanding our value, applying that value throughout the year and billing accordingly. That’s a fundamental shift, and it’s long overdue.
You don’t have to push the needle very far to make a crucial difference, and all kinds of game-changing things might result from that bravery – from putting quality over quantity to investing in the things that matter, from tech to flexible working initiatives. Those that take steps to change it – to the benefit of both themselves and their clients – will win out in the end.