5 factors to consider.
by august j. aquila
price it right
once you have decided to adopt an alternative pricing philosophy, what do you do next?
more: 11 alternative pricing methods | 12 pricing factors beyond cost | 13 questions about providing value | how demand affects pricing | how to shift from production to marketing orientation | how traditional fee methods hurt firms
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changing your firm’s pricing philosophy is really a three-step process. first, you need to consider several factors before suggesting a change. second, you need to get your partners to agree that it is a good idea, and third, you need to educate your clients so that they accept and understand the new approach.
the steps are not easy, but they are possible. and, remember, change does not occur overnight.
“pricing is actually pretty simple. … customers will not pay literally a penny more than the true value of the product.”
– ron johnson
preparation for making a change in pricing philosophy
any change will, of course, be met with resistance. you can be sure of that! so, before you start making drastic changes to your pricing strategies, you will need to take into consideration the following key factors:
1. what exactly will be changed? make sure you have a clear vision of what you want to accomplish. the best way to develop your vision is to brainstorm with some of your partners and get their input. you will need to understand their fears and concerns. if you don’t address them, your partners will resist the changes.
2. why do you want to make the change? there will probably be two major reasons for making a change. first, it should produce more profits for the firm. second, it should improve client service and satisfaction. it should also give you an initial marketing advantage over your competition, at least in the short run.
3. what will be the effect of the change? how will the change affect your clients, your firm, your position in the marketplace, your staff and finally your partners or shareholders? you need to think carefully about this and write down your answers. the more thought you and your partners give to the entire process, the more successful you will be in the transition.
4. what will be the biggest obstacles to making the change? are these obstacles real or perceived? partners often like to say “this won’t work” or “the clients won’t like it” without having any hard data to support their claims. who will resist making the change? your clients? your partners? your staff? the resistance will come from all of the above. whenever a change takes place, an organization tends to go through four stages:
- there seem to be a lot of internal, “water cooler” conversations as everyone is trying to come to grips with the announced change.
- people start developing their own personal agendas. in other words, they are thinking “what’s in it for me? how can i fit into this new system?”
- in the third stage they begin to accept the new organization and make a commitment to it. if they don’t accept the change, they will ultimately move out of the firm.
- in the last stage, they have fully accepted the new billing philosophy and the new paradigm.
you will need to spend a lot of time with your people to make sure that the transition goes smoothly. extra hand-holding and open communication are critical to the success of this venture.
5. what programs can you put into place to overcome the obstacles to change? clients as well as accountants have become comfortable with the hourly billing method. you should begin educating your partners and staff so that they understand the new pricing methods – and you should be tying compensation and rewards into the new methods.
remember that effective change needs to be evolutionary and not revolutionary. alternative pricing strategies will evolve over time as both sides gain a better understanding of these different methods. ultimately, it is the marketplace that will dictate the changes that we will have to make.
that does not mean that you need to respond in a reactive mode. rather, this would be a great opportunity to be proactive. to begin the process of change it is important for you to become convinced that there are distinct advantages to using alternative pricing methods.