Advice and Comments
Graphware provides software for football coaches. Vicki Weber of Graphware recently sent in the following comments:
I just wanted to thank you for your book and newsletter. I implemented some of your pricing solutions for our business recently, and it has worked out wonderfully. Schools have temporarily cut back their purchasing of software, and coaches are being conservative. We came up with a very low end, inexpensive software offering for them, and it is selling like hotcakes. It’s the same program we sell to the high schools and universities, but they don’t get as many files saved to the database, etc.
Our license has always allowed two computer installs, too, b/c the coaches usually work at school and at home. I changed the configuration to one install at a lower price, with the option of buying additional installs at a fixed cost (after the first purchase). They love it. And we love the orders.
I also instituted a maintenance renewal offering, that was completely new. Again, I got the idea from you. Charge for support! Some of our resellers and other colleagues said they couldn’t do it for their customers, b/c it would meet too much resistance. They support their customers forever at no charge. Yikes! The schools wipe out the drives each year or get new computers, and they need to reinstall the software. Well, that requires an activation key from me, b/c the software is copy protected. I have to make a new entry in our customer database, talk to them or email them about how to reinstall the software, calculate a new key, etc. It takes time, and I was tired of doing it for free. Now I charge them a small maintenance renewal for each computer, and not one has refused. Their IT guys know other software companies do the same thing. The other vendors are in awe that we can “get away with that.”
The new solutions are keeping us in business during the sluggish economy. Many coaches tell us they’ll have their school upgrade their low-end purchase when they free up some money. We’re maintaining marketshare, keeping coaches happy with us, and making money. Not a bad day’s work. Thanks to you and your ideas.
I originally thought that we were such a small business that I couldn’t find anything to change in the pricing structure. But with some thought, there’s a lot that can be done. I’m now convinced that no matter what the business or product, there has to be some ways to improve the profit.
Strategic Software Resources is professional services firm which specializes in finding candidates in engineering, sales, and marketing for software and other professional services firms. Ellia Kassof, their President was a student at Boston University–he recently sent the following e-mail:
I now have some of the groups within a major client that want my fee to go down to 10-12%, (which I will never do). I’m currenly at 30% fee and, as you know, more strategic in nature, then the common recruiter. It’s very hard for some to understand that companies who add more value, should get a higher fee. I even mentioned to them, they work with Christian and Timbers as well as Hendrick and Struggles (both high-level retained firms). Both companies charge higher fees and never discount. I can also give you some other interesting examples if you’re interested. Indian consulting companies are weathering the slowdown quite well because they are considered the, ‘low priced leader’ in the consulting group. But as the companies grow, they need to raise their prices as the greater value is shown. This goes back to point number one that you could really help them out. Their goal is to get from an ‘off-shore’ Indian body shop, to a full-service consulting company.
My Answer:
On the issue of “what should you do with the price pressures”–that depends. You are a small shop and if you offer high value services, don’t drop your price. Dropping price on a high value service will just undermine the perceived value of the service, especially if other customers find out about it. If they don’t value the things you do, then encourage them to go with a lower priced competitor–there are a bunch of guys in your business who want to meet the price and move to a cookie cutter hiring shop–have seen that in each of the past three decades. These were the guys that went out of business when the growth slowed.
The real question is whether you want to expand your footprint and offer a lower value flanking offering for the price buyers like Tata et. al. As a small shop, you shouldn’t have to and it will certainly make things more complicated for you. The recruiting business is sufficiently diverse that says that such a move is unecessary–focus on what you do best and charge for it. The answer would be different for a supplier that controlled 20% of a market and wanted to move to 40% of a market. Rather than dropping price, you’re almost always better served to introduce both higher and lower valued offerings to meet the needs of different markets. Just look at what Nokia is doing!!!.
There is an old theory of retailing called “the wheel of retailing” where a company will enter as a low priced shop and evolve upwards to higher value, more services. The same thing is happening to professional services. What drives that is global competition. The Indian firms entered based on price but as China comes on board, they are going to see lots of competition from the bottom. And, as their population gets paid more, their costs will go up and they have to raise prices to stay in business. It’s called getting caught between a rock and a hard place.
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