shift the focus away from the service provided, and think about the 8 kinds of utility.
by august j. aquila
price it right
if indeed we believe the phrase “perception is reality,” then it is the client’s perception that is the only reality. ultimately, only a client can determine the value of your service, that is, the fee he or she is willing to pay. if the client perceives that he or she has received a benefit there will be some perceived value attached to the service.
more: the four types of competition | how demand affects pricing | how to shift from production to marketing orientation | how traditional fee methods hurt firms
exclusively for pro members. log in here or 2022世界杯足球排名 today.
consciously or unconsciously, the client’s determination of the correct fee for a service is related to two concepts: utility and value. let’s look at these two concepts and how they apply to setting prices.
“attracting loyal customers based on price is like believing in the tooth fairy.” – colin myles, how to avoid business failure: 7 steps
how clients perceive utility
utility is often defined as the ability of a service to satisfy the needs or provide the benefits that the client or prospect is seeking. it is the utility of benefits of a service that ultimately determines its value. the higher the service’s utility is to the prospect or client, that is, the more it satisfies a client’s need, the more the value to the client.
utility increases value, and value is then translated into the price that someone is willing to pay for a product or service. a client can receive eight kinds of utility from a firm that offers accounting, tax or business consulting services. each is discussed below.
- form utility is created by making a service available in the right form. for example, a client may be looking for a firm that offers electronic income tax filing service, or cloud-based services. if your firm offers these services, you would be providing a form utility. another client might expect his accountant to be able to prepare his quarterly financial statements online. if your firm was not able to accommodate this client, you would probably lose the client because form utility is not being met.
- place utility is created by making the service available for purchase in the right place. a firm that has multiple offices in a region usually offers clients a higher degree of place utility than the firm with a single office. the easier a product or service is available to the client, the more likely they will purchase it. with the internet and cloud, services such as tax compliance and write-up accounting are no longer restricted by place utility. if you are competing in a broad geographical area, place utility may then become more important.
- time utility is created by making a service available at the right time – in other words, when the client needs it. time utility is also known as responsiveness. time utility usually occurs at two levels. the first level of time utility addresses being able to respond to a prospect’s request for a proposal or just starting an engagement when the client is ready to move ahead. the second level addresses the ongoing responsiveness of you and your staff to the client’s needs, items such as promptness returning phone calls, text messages or email, or delivering the tax return on or before the promised date.
- possession utility only happens when the client receives the service. for example, possession utility occurs if the client actually has in his or her hands the monthly financial statements, the budget or projections or the tax return draft.
- change utility occurs when the service creates a change in the client’s physical, emotional or spiritual well-being – for example, a tax service that increases the client’s wealth, or an estate plan that provides the client with more peace of mind.
- expectation utility addresses the relationship of actual service outcomes, timing and cost compared to the client’s initial expectations. expectation utility can be either positive or negative. most of us have experienced it, especially when a client is surprised by a bill that is more than he or she expected.
- information utility adds value by opening two-way flows of information that enable clients to make an informed choice and buy a service or product that will satisfy their wants. one way marketing intermediaries can provide information utility is by having well-trained and well-informed salespeople who can answer customer questions accurately and offer useful advice.
- service utility means providing clients with fast, friendly service during and after the sale and by teaching clients how best to use the product over time. this utility is crucial, especially to retailers; without providing excellent service, they lose customers to online stores or other types of directing marketing. the same applies to accountants who don’t follow up with clients after the service is delivered.
how clients perceive value
although we hear and read a lot about value, it is one of those terms that seems to be elusive. what one person considers a value, another may consider a great expense. for example, what is the value of a business that is for sale? is it a future stream of cash flow? is it some multiple of current sales? is it the price that you would get on an auction block, or is it merely the price that a willing buyer would pay for the company?
value has many definitions, depending on how you use the word. for example, in accounting, value is the monetary worth of an asset or service rendered. in economics, it’s the worth of all the benefits and rights arising from ownership. two types of economic value are (1) the utility of a good or service, and (2) the power of a good or service to command other goods, services or money in a voluntary exchange. in marketing, value is the extent to which a good or service is perceived by its customers to meet their needs and is measured by the customer’s willingness to pay for it.
let’s define value as the measure of what benefits the client perceives have resulted from the accountant’s effort. from this standpoint the value of any service is what a client is willing to pay for the perceived benefit, tangible or intangible, that he or she receives. the emphasis is on the word “benefit.” client-centered firms realize that they have to understand the client’s perception of the firm’s services and the benefits the client receives from the services.
hence, it is necessary that a basic shift in the service provider’s focus needs to take place. the shift is one from the service we provide to the benefit or perceived value the client receives. this is the first step in moving away from the hourly billing paradigm and creating a new billing paradigm wherein we learn how to understand the perceived value that a client receives and bill for the value of that benefit accordingly, irrespective of the time spent.
the fee charged is really nothing more than the exchange value of the service provided. the exchange value is determined by the client. clients will tend to pay whatever they feel a service is worth. if clients think that the fee for a particular service is too high, they will not buy it or will argue with the service provider. if this happens, you generally have two choices, either lower your prices or lose sales. after all is said and done, the value of a service is established by the marketplace, which also includes the impact of competitors’ prices and overall demand for the service. fee evaluations by clients are also influenced by other factors, such as competition, perceived expectations, what they are used to paying for a similar service and even the psychological makeup of the client.
when i ask clients how they perceive the value from services, they give answers that are consistent with the conclusions that can be drawn from client satisfaction surveys that i have conducted over the years. the four main value perceptions are the following:
- clients will feel that there is value to your service if it adds value to what they already have. for example, did your service save the client from paying additional taxes? did the computer system you suggested improve productivity or efficiency? did the estate planning advice you provided reduce estate taxes? did it provide your client more peace of mind? the more your clients feel that you have added tangible or intangible value to something they already possess, the more they will be willing to pay for your services.
- the better you understand a client’s needs and the importance of the service, the more value there will be to your services. clients tell us that the accountant who really understands not only the client’s business needs but also his or her personal needs, as well as their interrelationships, is very valuable.
- if the service does not add value to an existing asset of a client, then does it save the client from an unpleasant or costly situation? for example, a corporate client receives notice from the internal revenue service that it will have to undergo an audit. because of your advice and previous representation before the irs, the client does not have to pay any additional taxes. in another example, two physicians want to dissolve their partnership. you represent one of them and assist this physician through the entire process, saving the physician not only a great deal of money, but also much mental anguish.
- value is also determined by the current supply and demand situation. unique services have more value than commodity services. specialized tax planning services have more value than tax compliance service because of their complexity and the fact that there are fewer providers of the specialized tax consulting. even in the compliance area, the preparation of form 1040ez will have less value in the eyes of the client than a return that has several schedules.