Wednesday, 22 October 2008

Ron Baker on hard times

Ron Baker of Verasage asks in a posting this week "what the burning platform will be that will, ultimately, force firms to give up the Almighty Hour" - will it be the recession or something else?

The recession - like any change in the economy - accelerates capitalism's process of creative destruction, putting more pressure on broken and unworkable models than on better ones. However I agree with him that, on its own, that will not be enough to trigger the change.

A combination of factors will contribute to this - and their combined strength will determine when the tipping point is.
  1. A recession, by making buyers risk-averse, will encourage value pricing because it acknowledges and reduces the buyer's risk
  2. New information technology enables better measurement of the value generated for clients, and therefore allows prices to be based more directly on it
  3. Competition will operate - once a significant number of supplier firms start to offer structured or value-based pricing, it will become hard for others not to
  4. Clients will be educated - there is a suspicion that value pricing is just a way for suppliers to get more for the same service. In fact structured pricing incentivises suppliers to deliver more of what clients want, which is in the client's interest; but this message will take a while to be widely accepted
  5. As more professional knowledge firms productise their services (e.g. the following two firms: Betternest in architecture and Jigsol in accountancy), value pricing on those products will be easier to adopt than in traditional services. Competition and commoditisation in a cost-competitive marketplace will drive this move to products instead of services.
My original post on structured pricing is here, and this one is about structured pricing in the property sector. I presented the latter at Agency Expo in London last week and 100 estate agents came to find out about it. I am writing an article for Negotiator magazine (also aimed at estate agents) next month - so if professional services isn't ready, at least some industries are interested.

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