In Pricing, Brand Really Does Make a Difference

June 11, 2008

This article is included in these additional categories:

Agency Business | B2B | Brand Metrics

Brand leaders among marketing, advertising and PR firms are more likely to price their services at a higher level than their competitors (41% of brand leaders were premium-priced vs. 24% of lesser-known firms) – and more likely to actually get higher fees, according to a RainToday.com survey.

Brand and value are paramount in pricing and discounting is hurting firms’ bottom lines, finds the 2008 “Fees and Pricing Benchmark Report: Marketing, Advertising, and PR Industry” report, which provides insight from 343 marketing, advertising and PR executives.

It also finds that prices are on the increase despite the economic downturn, and communicating value is still the biggest pricing challenge facing firms. Below, findings from the study.

Brand Names Drive Profits

Firms that are well-known in their target markets receive premium fees, and are more likely to grow their business and realize higher profits, than lesser-known counterparts:

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  • Professionals at leading branded firms command up to 33% higher actual/realized fees.
  • 79% of brand leaders experienced revenue growth in the last two years vs. 65% of lesser-known firms.
  • 69% of brand leaders are profitable vs. 56% of lesser-known firms.

Discounting Hurts Bottom Line

Discounting is widely used in the industry, though it can dramatically affect profitability:

  • 59% of firms report that they discount their fees.
  • The most common level of discount offered is 6-10% off originally published or mentioned rates, with an average discount of 12.8%.

The report asserts that discounting shifts the focus away from the value the firm provides and reduces negotiations to discussions about price. “If price is an objection (and it often is) don’t jump straight to cutting price – cut the deliverables and promised outcomes first and the decrease in price will follow without forfeiting project profitability,” write authors Mike Schultz and John Doerr.

They add that if firms strengthen their value proposition clients would be willing to accept higher fees, the firm would be less concerned about leaving money on the table and clients would put less pricing pressure on firms because they would have more confidence that the firm delivers value.

Prices Rising, Despite Economic Downturn

Though the economy has slowed, the data suggests that most firms have either not felt a pinch or are not adversely affected by downturns:

rain-today-fee-change-predictions.jpg

  • Two-thirds of firms have increased fees for services at least somewhat in the past two years.
  • 76% expect to increase their fees at least somewhat in the next one to two years.
  • The top three factors influencing fee increases were company improvement/experience/reputation/brand, the competitive landscape or market conditions, and clients’ perceived value of firms.

Communicating Value Is Biggest Pricing Challenge

The top 3 pricing challenges for firms:

rain-today-top-3-pricing-challenges.jpg

Premium-price firms reduce uncertainty by focusing on profit and value and are more likely to use value-based pricing to price their services (43% versus 21% of the bargain price firms). These firms first consider the value they can provide, then back that up with the confidence and in their ability to provide that value.

The factors that matter most to premium-priced firms:

rain-today-pricing-decision-factors-premium-priced-firms.jpg

Additional Observations

  • Firms must break out of the “going rates” spiral by offering distinct, differentiated services.
  • There is no clear winner in the “billable hour” vs. “value-based” pricing debate, though premium-priced firms and price-increasers tend to use value-based pricing, while hourly and daily fees are used more often by profit and brand leaders.
  • In its ability to deliver value on the next engagement, a firm’s relationship with a prospective client mattered more than twice as much (59% “very” or “extremely” important) as whether a client has worked with the firm in the past (27% “very” or “extremely” important).
  • The most profitable firms have the least price pressure from clients. Price pressure from clients often comes during times of economic distress, when a client does not see value in a particular solution or firm, and when clients are open to or are entertaining discussions from other providers.

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