This week’s PM Forum training workshop “Commerciality: Finance, Pricing, Innovation and Research” was attended by delegates from law, accountancy and insolvency firms. As well as marketing and business development executives and managers there were also those in specialist pricing and bid roles. Thanks to Simmons & Simmons for hosting the event at Citypoint. This summary forms part of the learning resources for this session: Context and curiosity drive commerciality and pricing.
Why commerciality for M&BD?
My intention, when I created this workshop a few years ago, was two-fold.
First, to respond to various research reports showing the need for M&BD professionals to “be more commercial”. This supports career development by broadening knowledge, facilitating collaboration and becoming T-shaped.
Second, I observed that often in professional services marketing and business development we have minimal involvement in research, innovation, product development and pricing. These functions are often in separate parts of our firms yet M&D has a valuable contribution.
Context and curiosity drive commerciality and pricing
By exploring key themes in commerciality and entrepreneurship, we saw why risk management and anticipating return on investment (ROI) is critical when making the business case for marketing investment. And the strategic need to align marketing objectives to a firm’s strategic intent. The crux of marketing is to anticipate (and meet) client needs whilst maximising profit. Price is a major driver of profit. So marketing is reliant on research and financial knowledge.
Delegates then chose to focus on finance, economics and pricing. So we didn’t spend much time on innovation at this session – but here is an overview of the topic: Innovation in Marketing (kimtasso.com).
Finance fundamentals
Financial awareness is another capability required by M&BD. Having considered the principles behind accounting and financial statements, we delved into the accounts of a large accounting LLP to see what we could find out. (PWC provides a simple introduction Microsoft PowerPoint – Basic Understanding of a Company’s Financials -PWC-2.pptx). A key question was “How does it compare to other accountancy practices?”. This type of curiosity drives industry and competitor analyses. And shows the immediate value of research and benchmarks.
Curiosity
Curiosity is a key aspect of commerciality. We must be inherently interested in our wider external environment to see connections and to identify and evaluate new opportunities.
From leaders asking “Why?” and “What next?” to the way we research sectors and interrogate company accounts. Curiosity also drives our client listening programmes where we focus on outliers to pick up on weak signals.
The Human Edge – How curiosity and creativity are your superpowers (kimtasso.com) explores how curiosity is one of the four things we can exploit to make us robot-proof and less likely to be replaced by automation. This seems even more relevant in the context of the surging use of AI.
Commerciality and pricing
Pricing draws on many disciplines: economics, marketing, finance and psychology. Project management, innovation and technology also play an increasing role. Perhaps one of the reasons that pricing is often outside of M&BD in professional services marketing.
Economics and pricing
Economics underpins the commercial context for marketing and business development. We reviewed macroeconomic and microeconomic concepts and trends. We noted that these shaped many of our sector-based strategies. Government policy and regulation – a key element of PESTLE analysis – also drives many new work opportunities for both lawyers and accountants.
Supply and demand underpins pricing decisions for markets and clients. There was an interesting debate about the extent to which the Covid pandemic disrupted economic and business cycles (The UK economy is bigger than we thought. It still has a growth problem | CNN Business). Naturally there was a discussion about inflation and interest rates which have significant impact on investment, costs and pricing.
I recalled the economics module of my MBA. I received significant assistance from the Cambridge economists who were management consultants at the major accountancy firm where I was employed at the time. I urged delegates to visit the nearby Museum | Bank of England where interactive, educational exhibits allow you to experiment with economic interventions.
Psychology and pricing
Behavioural economics has added much to our understanding of how psychology impacts pricing. For example, we touched on cognitive bias, priming, anchoring and decoy pricing. Willingness to pay is another key concept.
Cialdini includes the economic concept of scarcity in his six drivers of persuasion: Influence – Cialdini’s six principles of the psychology of persuasion (kimtasso.com). Nudging and choice architecture also have a lot to contribute: Book review: Nudge: Improving decisions about health, wealth (kimtasso.com).
Marketing theory and pricing
Marketing theory offers many tools to assist with pricing.
From Kotler’s nine marketing mix pricing strategies to our old friend the product life cycle (Product Life Cycle Explained: Stage and Examples (investopedia.com)).
Advanced Marketing Management: Principles, skills and tools (kimtasso.com) considers empathic pricing.
And, of course, some of the main benefits of a branding strategy is differentiation that supports premium prices. Leading brands in all categories enjoy larger market share and superior financial performance as a result (see, for example The Financial Power of Brand Preference (forbes.com)).
Strategic and tactical pricing
Few professional service firms have a formal pricing strategy which acts as the starting point for more tactical pricing decisions for particular clients, services, contracts or bids.
In many cases the same hourly rate is applied to partners across the firm regardless of their area of expertise. Or the likely differences in a firm’s reputation in the area or clients’ value perceptions.
Differential pricing is rarely discussed in professional services although it is often implicit in key account management.
Value propositions and pricing
“Companies that employ a good value-based pricing strategy are 20% more profitable than those that have weak execution on value pricing and 35% more profitable that those that are good at executing a cost or market share driven strategy” is from Malcolm McDonald on value propositions – How to develop them (kimtasso.com).
Mainstream pricing models
The most common pricing models used in industry were considered – including cost plus, percentage value of transaction (as used by estate agents and other transactional services), value pricing (we looked at the example of flight tickets to explore this concept), licensing, retainers and subscriptions.
Professional services and pricing
We looked at over 15 alternative fee structures and reflected on how professional services still feel most comfortable with the billable hour business model. This is essentially an internal cost of production basis.
This is despite numerous attempts to encourage firms to consider a value pricing approach which is more client-centric. Although developments in technology to analyse large data sets of past project costs has led to some firms taking a more sophisticated approach to estimating, predictive pricing and risk and project management.
Procurement and pricing
Increasingly for global or public sector clients, procurement will have a major role in managing panels, framework agreements and tenders. Often, pricing becomes the focus of these negotiations. We communicate differently with procurement professionals than other decision-makers and users of professional services.
Pricing is one of the five considerations for procurement Do You Know what the Five Rights of Procurement are? (procurementexpress.com)
Technology, automation and pricing
David Maister’s view was that all professional services are prone to commoditisation through the 3Es (Expert, Experience, Efficiency). The implication being that as a “product” (service line) matures, there will be downward price pressure. In line with the ideas in the product life cycle.
We discussed the “tech double whammy” often experienced by professional service firms. They invest in new technology to increase efficiency. But then clients expect lower prices as services can be delivered faster and cheaper.
There was naturally much discussion about disruption by Artificial Intelligence (AI) in this regard. But it also prompted discussion about the need for more strategic thinking to change business models and focus on new product and service development.
PS I shared one of my favourite pricing stories which involves art and the law: When James Abbott McNeill Whistler Sued John Ruskin over a Bad Review | Artsy “During his cross-examination, Holker asked Whistler how long it took for him to “knock off” one of his paintings. When Whistler responded that it took just two days, Holker asked if two days’ labour was worth 200 guineas. “No,” Whistler responded, “I ask it for the knowledge I have gained in the work of a lifetime.”
Books on pricing?
For beginners I would suggest “The psychology of price – how to use price to increase demand, profit and customer satisfaction” by Leigh Caldwell (a cognitive economist). It’s not specific to professional services though.
Former partner of Eversheds law firm, Kevin Doolan wrote “Mastering services pricing” in 2015.
To keep things balanced, Ronald J Baker (US accountant) wrote “Implementing value pricing – a radical model for professional firms” in 2010.
Richard Burcher, CEO of Validatum, is one of the leading consultants in legal pricing. Many law firms have participated in his pricing training programmes.
Which books would you recommend on professional services pricing?
New market research qualification
In a timely move, Cambridge Marketing College has launched a new level 4 Market Research Executive apprenticeship. Information and data are increasingly important for modern marketing and business development so this looks like a highly relevant and useful new qualification. Cambridge Marketing College
Related posts on commerciality and pricing
Professional services benchmark and accountancy profession (kimtasso.com) September 2023
know about commercial awareness by Christopher Stoakes (kimtasso.com) August 2023
Managing Partners’ Forum Strategy Summit (kimtasso.com) July 2023
Pitching, differentiation and competitor analysis (kimtasso.com) June 2023
Key Account Management (KAM) – Research companies (kimtasso.com) June 2023
Book review – Managing Brands (kimtasso.com) May 2023
2023 financial benchmarks for law firms (kimtasso.com) April 2023
Be more strategic – PESTLE, Positioning and Plans (kimtasso.com) December 2022
Law Society Research Report – Future Worlds 2050 (kimtasso.com) July 2021
Law firm analysis – MHA Legal Benchmarking Annual Report 2020 (kimtasso.com) January 2021
Innovation in Marketing (kimtasso.com) August 2020
Commerciality – Finance, pricing, innovation and research (kimtasso.com) May 2019
Malcolm McDonald on value propositions – How to develop them (kimtasso.com) May 2019
Advanced Marketing Management: Principles, skills and tools (kimtasso.com) May 2019
Selling – research in the pitch process (kimtasso.com) October 2016
10 tips on price communications for professionals – Kim Tasso April 2016
10 practical tips for fee and price negotiations – Kim Tasso June 2014
The pricing (and value) of legal services (kimtasso.com) February 2012
