Basing your fees on outdated models may drive away clients and leave your profits in tatters. Kim Tasso looks at how marketing specialists can determine the right price for property services
Price is one of the key elements of the marketing mix. So important, in fact, that no one was prepared to talk to me about the actual prices they charge. For buildings, price is largely determined by the market – but how do you price professional and agency services?
Despite most people’s reluctance to discuss the matter, we know that there is a strong relationship between the service on offer and the price clients are prepared to pay. If clients perceive that you are providing an undifferentiated “commodity” product or service, then they will expect to pay a commodity price. But clients of organisations with dominant market share will pay significant premiums for branded products.
In the past, professional services used set fee scales. Then the rules changed and time – the dreaded hourly rate – became the basis for professional fees, along with a percentage of the transaction for agency services. The problem is that, from many clients’ perspective, neither of these pricing models is satisfactory. To remedy this, you need to make some strategic versus tactical pricing decisions.
Secrets of strategic pricing
Strategic pricing is the firm’s general approach. What level of profitability is desired? To what extent will different markets and services bear different prices? What does our pricing say about our services: high-quality or bargain basement? Are we planning to cream off the most profitable work with a premium price or are we trying to attract volume with a commodity price?
Client analysis has challenged the wisdom that the largest clients yield the highest profits. Instead, the studies show that long-standing large clients are the least tolerant of reasonable prices and can be less profitable than smaller and newer clients. It has also questioned the validity of some “upselling” approaches, suggesting that exposure to lower-value services may negatively affect their willingness to pay a premium for the original services purchased.
Then there’s tactical pricing. On every tender or piece of work there is a need to take account of the overall pricing strategy in the context of that specific situation. Factors to consider are the nature of the client and the assignment, the competition, how the client values your specialist skills, the risk profile, the prospect of ongoing work with that client and so on.
What can marketers do?
Marketers can assist with research to support both pricing decisions by finding out what competitors charge, gauging clients’ reaction to present prices and deciding which clients and services support the highest prices. The amount of time spent by your professionals in delivering the service has little to do with the value the client perceives and receives. Pricing in this way means that expert advisers are penalised for being more efficient and better at their jobs. Qualified marketers will have studied pricing models and can support the detailed analyses and testing of alternative approaches.
Finally, do you charge for the right things? Developers have long argued that the most valuable aspects of the service from agents is their market research and preliminary advice – which is usually free – and they resent the cost of the letting or sale. Marketers can help to identify these issues and alter the pricing to ensure that the client is happy and that you get the best value from your people.
