The Influence of Pricing on the Business Success of Professional Services

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Home > Articles > The Influence of Pricing on the Business Success of Professional Services

 The Influence of Pricing on the Business Success of Professional Services

by Louise Robinson and Daryll Cahill | Today's Manager
June 1, 2021
Price signaling and alignment to value is critical to establishing and maintaining a positive reputation.

In business, the interlinked pressures of evolving competition and ongoing change means that professional service organisation (PSOs) should regularly review the pricing of their offerings. Price plays several roles inside a PSO and externally sends important signals to the marketplace.

ide a PSO, the price assigned to a service offering impacts revenue and profitability. Additionally, the pricing sends a message to staff about the prioritisation and importance of that service and subsequent decisions such as budget allocations, marketing focus, resourcing support as well as ‘longevity’ which further impact on staff retention and career planning.

Externally, the pricing of a service indicates the PSO’s own perception of its value and the quality of its services; including comparisons to relevant competition, and subsequent positioning to existing and prospective clients. Pricing also assists with establishing and maintaining the PSO’s value proposition to decision-makers in the client pool. Pricing interacts with and contributes to a PSO’s brand and reputation because it sends messages about quality of staff, depth, and relevance of their experience and capabilities as well as enabling resource support.

he impact of COVID-19 has added an additional new factor to pricing considerations: response to the increasing societal and governmental pressures to purchase domestically and developing local talent and skills.

PSOs need to constantly monitor their value proposition from both internal and external standpoints. This assists to manage the value that is communicated for accuracy, currency in the marketplace so as to be understood by current and potential clients, meets or ex
ceeds their expectations and is able to defend market share. Aligning value perception and delivery means that client relationships remain strong, current revenue streams are protected and future revenue sources are secured.

Obviously a key driver for any business is the amount of profit derived from revenue. The relationship between price and a PSO’s total value proposition is vital.
Price is a fast and convenient element to change; however it is also easy to make a wrong decision, to the detriment of an organisation’s viability. Reacting to competitive pressure and stressful market circumstances with quick discounting needs to be aligned to the understanding of pricing’s role in the value proposition. Sudden changes in price, will create a reaction by current and potential clients. This reaction may not always be positive; eg, a discount offered to ‘placate’ clients during tough economic times might lead to questions regarding perceptions of diluting the quality and quantity of the offerings.

Clients are not homogenous: they differ substantially in their views of value: for some, seeking the lowest price for the service, will consider the services offered against volume which could yield savin
gs; others may seek a premium service that includes additional features such as access to training for their staff; reassurance of a major brand advisory which provides a foundation for actions and will pay higher margins for these.

During difficult economic times, it is tempting
to reduce rates to retain or win new clients. Assuming that prices can be increased in the future to make up for the loss, this approach should be resisted or treated as a last resort decision. The impact on the value proposition and market perception can be detrimental: reducing fees to produce a short-term win may, in effect, lock the firm in to those low rates in the future and also cement a lower market standing linked to perceptions around the quality of work provided at the lower price.

Quite possibly the worst pricing decision is to offer discounts to a select few clients. This activity could be highly detrimental; because news of a discount always gets out into the market and could result in client losses.

When evaluating the pricing of services the following factors should be taken into account:

Client Loyalty / Disloyalty.
A client solely attracted to a PSO’s offerings because of low prices is likely to continue to be strongly motivated by seeking discounts and scanning the market in order to move on. This means that ongoing work and future revenue from this client is not guaranteed.

Extra Marketing Costs.
If excessive marketing efforts are undertaken, some level of client agitation will occur due to perceptions of fees paying for business development activity, rather than the professional services.

Brand Dissonance.
Discounting can generate dissonance in the marketplace’s perception of the PSO. Credibility and reputation are built over time and earned through stable and consistent behaviour. Discounting raises questions regarding commitment, ability to deliver on the level, timeliness, and quality of the service being purchased.

Relationship Deterioration.
The relationship between a PSO and its clients can swiftly deteriorate if priority given to and due diligence observed in the conducting of the service changes.

Pricing is an essential tool for business to remain viable.
Price signalling establishes and maintains market position and aligns to an organisations reputation. Any change to pricing, especially discounting, needs to be evaluated carefully and rigorously for its possible positive and negative impacts.

Louise Robinson is a Fulbright scholar researching 21st century skills and an executive leader within the Technical and Vocational Education & Training sector in Australia. She is currently the Executive Director, Industry & Growth at Victoria University.


Daryll Cahill has been a senior academic in business and accounting, working across Australia and South-East Asia for nearly three decades.



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Today's Manager Issue 2, 2021

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