Price signaling and alignment to value is
critical to establishing and maintaining a positive reputation.
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.
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.
The 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 exceeds 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
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 savings;
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.
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.
evaluating the pricing of services the following factors should be taken into
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
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
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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