[Video]: Accelerating growth through quick pricing wins

When should a professional services company implement a rush fee? Is it worth rounding prices up to the nearest dollar? Did Ticketmaster ruin service fees for all of us? Adnan Akbari, Senior Director of Pricing, addresses some recent inbound pricing questions.

Tracy: Thanks for joining me!

Adnan: Yeah I’m excited.

T: This started from somebody who wrote in through the website with a question about rounding prices. Then we started looking at the kind of things that come our way when people reach out for pricing help and thought: Why don't we jump on video and go through a couple of these questions, and I’ll pick your brain about where you've seen things go well, and then where you've seen things kind of go off the rails and learnings from those experiences.

A: Yeah, yeah, for sure. What we often see, and even from a mindset perspective, as folks are thinking about their strategic plans over the course of the year, is everyone wants growth. So part of what comes to mind is: What are some of the quick wins that we can achieve to accelerate growth from a pricing perspective? So the list could go could be very long. But these are some of the recent or common ones that we've encountered.

T: Yeah, let's start with rush fees. Can you explain what a rush fee is? Let’s stay in the context of professional services. What is it? And where have you seen this kind of in play before?

A: We had a recent client that delivered professional services to PE firms. Their service is fairly niche, pretty differentiated, meaning that there is some level of competition in that realm. But in many ways aligned with the deal cycle. Meaning that PE firms, when they are close to closing a deal, there are a lot of dollars on the table. And as they get closer to the time the deal is about to close, each minute, every hour is more and more valuable. 

A: So with our client selling services, if there is the appropriate amount of planning in place, then they can plan on their end. They can allocate resources to deliver these services in the right way, and the process tends to work pretty smoothly. But there are these scenarios where the deadline for a deal gets moved up, perhaps these services were not accounted for initially, and they have to accelerate the delivery of their services. Point being that the acceleration of the delivery of our client services are incredibly valuable to the PE firms.

A: I think the other side of the coin is that it is difficult for us for our client to have to reallocate resources and say, “Okay, we're going to drop everything and focus on this single engagement.” Meaning that there is a significant cost. So our client did have a rush fee in place, but we dove in. We did some analysis, and said, “You know this rush is in place, but you're not charging it over 50% of the time, meaning that you're leaving money on a table.”

A: We did a bit of a deeper dive into why that was the case and to get a sense of if clients were pushing back on the rush fee. We talked to their customers as well, and got a sense of when do you need this rush fee to get to? To better understand the value that it's going on there, and they're like, “Well, we only need it when we're in a bind, and in that case it’s highly valuable.” So there wouldn't have been push back from the customers themselves. It was more of an internal issue, and getting themselves to be able to get over that hump of saying, “We have to enforce this rush. We have to ask for it,” and recognizing the value associated with it.

T: With customers that you've worked with for, or you have some history with... It's weird. It's awkward. Perhaps there's some emotion involved in actually using the fee.

A: For sure. I think there is absolutely a relationship element where you've got this long-standing relationship with an organization or an individual. And they say, “Hey, we're in a bind. Can you turn this around in 3 days versus 10 days?” The person in front of them, because of the relationship, can say “Yeah. We can do it. We have the ability to accommodate that.” It’s a natural reaction that we as humans can certainly understand.

T: Then you move all the people around, and it has actually a bigger impact than you might imagine. On the whole organization or part of it.

A: Absolutely. You're re allocating resources. It causes disruption. There's a cost associated with it. The other thing is that you do it one time, and the next time that expectation is in some way set. Right? So there's a downstream impact in many ways. Meaning that one time you're moving things around, having to re- prioritize. But then, the next time somebody asks for it, you've set a precedent at this point for something that is highly valuable.

T: So where this kind of falls off is if people just don't use it. If somebody was considering adding one in to their pricing, how would they? Where do you even begin in terms of approaching this?

A: Yeah. For the engagement that I previously referenced… anybody that's listened to or read much of our content knows that we want to understand the value associated with it. So in this case, how much value is there from delivering a service from what normally would be 10 days to 5 days? You're cutting that in half. Does that mean double the value? It's hard to say. But in the PE world, doubling the value for a service that is priced in a way that is fairly inconsequential. When comparing it to the size of a 6 or 7 figure deal, it doesn't mean a whole lot. That time can be incredibly valuable. So the balance is, you don't want to be overly egregious. You don’t want to be taking advantage of your customers by any means. You want to introduce the pricing in such a way that feels fair to the client, that is reflective of the incremental lift that you would want to do on your end. So first step is figuring out what that value is to the customer. Second step is internally being able to align, and making sure that anybody that is customer facing recognizes the value to the customer as well as the disruption with your organization so that they can eventually go out and effectively communicate those 2 things to their customers.

T: Yeah. What about something like a service fee? Which industries is that relevant for? You mentioned Ticketmaster in your blog. The worst of the worst. But can you just walk through that and how that works? 

A: Yeah, that's a good one, because it tends to stir up some emotions, particularly just with experiences on the B2C side. Everybody's gone and been excited about the latest performance or a concert, making a purchase, and at the end, you see, let's just say a 20% upcharge for a range of different fees that you don't fully understand. The same could be said when you're looking at a cell phone bill, for example, or even like a cable bill something like that where there are these fees.

A: In the B2B world, I had seen a proliferation of these types of fees when Covid hit. For onsite services, for example with PPE, we are incurring a cost, and that's causing a bit of disruption in our business. So this is simply going to be a pass through cost that we're going to give to our customers. That's a scenario where it feels fair. There's an incremental cost that the service provider is incurring, and I think there was some emotion at the time of Covid, where businesses were struggling, and there was some sympathy on these incremental costs that were being incurred. So those are 2 examples: that first one is where it just feels very unfair. It feels egregious. You don't really know what constitute these fees, so that level of transparency, isn't quite there. In the second example, it's one where it doesn't necessarily feel egregious. It feels fair because it's explained to the customer. 

A: There's that element of transparency. And the way that I think about these types of fees is, if you can explain the rationale, and if it feels like something you're simply just passing the cost along. It feels fair to customers. Then yeah, you can do it. But what you don't want to do is go out there and have a line item that says Service Fee with a dollar value attached to it without any explanation of what this service fee is for. Because you're inevitably get pushback there.

T: The other one… we sort of started with this one, what prompted this whole thing was rounding to the dollar. It depends on a lot of different factors. But how do you approach this one in B2B?

A: Yeah, that one's interesting. The question posed was: What is the impact on buyer behavior from rounding up to the nearest dollar? The rationale for a business doing so is simply, you know, we can grab some incremental profits as a quick win by doing that. Our view, and this ties back to what I said earlier, the ideal scenario is to have an understanding of what your value is, and have a price that reflects that.

A: That being said, what a rounding strategy is doing is, it can give you some incremental uplift. And if it works, great, right? You've gotten some incremental dollars. But then the question that poses is: Could you have gone up a little bit more? How much should you have gone up? Are you still leaving dollars on the table? So, in essence, what that's doing is serving as a price test. If it's successful, then you can keep moving it up. But then you're getting to the point of: Why are you continuing to change your prices and continuing to test in this way?

A: So we have made recommendations in the past to use a roundup type of a strategy. But the scenario in which we applied it is a little bit different. Meaning that the first step is to align price to value and figure out what your pricing strategy should be, and then this kind of the rounding approach was more of a cherry on top. They went and started charging $15.18, based on our price to value calculations. You could round up to the nearest dollar at $16 (or $15.99 if you want to preserve that $15 price point), and that can give you a bit of incremental uplift. Point being that it is a lower lift, lower impact strategy that from our perspective, it should be added the end once you want to have that understanding of value. So that you're not doing a price test and potentially continuing to leave money on the table.

T: Yeah, or to your point about when you do multiple tests like that when it starts to instill doubt on the other side. I think it takes a hit in the trust of the relationship, too.

A: For sure. You're setting yourself up for potentially having multiple price increases over time. I wouldn't necessarily say that having multiple price increases is negative. But when it’s done in a way that leaves uncertainty in the mind of the customer… Month one you have a price increase. Then 3 months later you have another price increase. Then one month later you have another price increase. That inconsistency is what could plant some doubt in the minds of customers.

T: So there's the ideal world, kind of like fantasy land where the strategy is in place, and everyone's working from the same thing. And I'm sure that a lot of people experience this thing where something new comes into effect. Someone hears something from another company, or gets an idea somewhere that doesn't exactly stem from the strategy itself and someone is like: “Why aren’t we doing this?” and it's more of a tactical thing that comes out of left field. I guess there's different ways in terms of how you feel these things based on everything you said on those examples. But more broadly, how do people think about these like? If you’re a pricing leader and these things come in. What kind of questions should you be asking? What's your what's your approach as these things come up?

A: Love it. Tying all these tactics back to what should that broader pricing strategy by? That’s really developing a high level understanding of that pricing strategy. In some ways, getting back to the example of Southwest vs Frontier. What do we want to be strategically? And how does our pricing strategy reflect that? Do we want to be a high-value provider that is bundling offerings, and is playing in a certain market segment? And once you have that understanding of your broader pricing strategy, these more tactical type of things should be assessed on the extent to which they fit within that broader pricing strategy. Once you have that criteria and that buy-in throughout the organization, these questions that will inevitably come from various parts of the organization (in many cases for valid reasons, everyone’s trying to do the same thing and achieve some level of growth) those conversations can be a lot smoother.

A: Because you can go in and say, “This rounding strategy can be done for sure. But before we roll this out, let's take the time and figure out what our value is, and then we can get some potential additional upside via this rounding strategy.” The same could be said for a service fee. Once we have an understanding of what our prices should be, then we can have a debate on whether or not this service fee should be charged incrementally, or we're simply taking the value of that and baking that into our initial price. So it has to be this conversation that starts with this broader strategy and then gets to these tactics that can be in this kind of quick win type of a bucket.

T: Yeah. I think that's a good pausing place, because there's a lot. I think we should come back and talk about some of the components of the strategy, how that looks from a pricing perspective. And then, hopefully, as people start to navigate these more tactical things that come their way, I’m sure we'll hear about more, and we'll be able to share more examples and stories as we go along.