Pricing Strategically in the Complexity Avalanche
In October 2009 J.B. Wood, CEO of the Technology Services Industry Association, challenged the 800 participants at Technology Services World to think more strategically about the mega-forces driving growth and opportunities for services in technology industries. This paper outlines strategic price management issues that technology services leaders should keep in mind to maintain financial performance while navigating the turbulence. The author examines why value based pricing is instrumental to successful change, the dramatically changing role of services pricing, how to defend maintenance, and pricing for value added services.
Pricing Professional Services
Professional services are different. Different than hard goods, and even different than other kinds of service. Historically, professional service (PS) firms have relied on cost driven pricing, both because it is a relatively easy approach and because it can be managed to achieve profitable performance. Value driven pricing has proven itself in many sectors, but we have observed that it is more the exception than the rule in professional services. PS managers are skeptical of its applicability in a time and materials world and may see it as added work in an already complex management environment.
With increasing pressure on PS rates, it may be time for a fresh look at the subject. In this paper we will demonstrate that value driven pricing is a viable, in fact preferred, pricing model for driving PS profitability. We’ll look at the costs of ineffective pricing, at the key elements of profitable pricing strategy in a PS environment, and we’ll introduce a framework of a more successful – that is, a more profitable – pricing process for professional services firms.
The Pricing Maturity Model
A commitment to improved pricing practice is a commitment to profitable growth. But where do you start? Every organization is different. How can you improve the pricing practices at your business? History has shown that organizations generally mature along a well defined path, growing in pricing sophistication, strategic orientation and power to drive profitable growth. The Pricing Maturity Model maps the path, providing insights into steps any organization can take to improve their pricing capabilities.
