Let's move on...I will be talking a little about economic theories and maths. Sounds gross??? I find some of you leaving... Hey wait... stop... It isn't boring. Believe me... You will have fun... I did...
So this is how it all started... I was keeping an eye on the growing and prospering agencies to get the secret recipe out. With binoculars and covert cameras, I started keeping an eye on every single move - small or big. A pattern that appears very clearly in the moves of my subjects (here the prospering online marketing firms) is how their defined the business they are in.
None of them would say we create websites or we do content marketing, what they instead reinforce is that they add value to their customers business by doing whatever they can within their domain.
Adding or creating value is the word!
Taking a deeper look at why every subject under observation would swear by creating/generating value for the customer, I was exposed to the fact that the value creation exercise gave power to the agencies to price big and improve margins.
They kept it simple, create value for the customer and capture a small portion of the value created. The client won't mind because that's exactly what they hired the agency for - creating value and increasing the value being created. Simple isn't it?
In essence, this philosophy created a transparent win-win situation for both the agency and the client.
The agencies were determined to create greater value for their client because this process directly affected their margins. A direct relationship between value generated for client and revenue made (value captured) by the agency was established.
You may be wondering, why the other agencies were murdered by the pricing policy. They too created value. Did they not? Well they did but the way they defined value was very old school and agency focused instead of being client focused.
Remember the agencies saying, "This is what it costs me to create a blog and I add a margin of x%, so here is my price." The client was at the end of the value chain.
This is the second most important thing the prospering agencies understood. They knew they are delivering value and they also knew the value is subjective. Each client associates different value to the agency services.
An Interesting and Funny Story that teaches the value of value based pricing:Let me narate a story I read in Huffington post some time back. It was about two men who went door to door offering wall painting services. These guys carried the paints, the brushes, etc. in a van and went all around the suburbs, knocking every door and asking if the household requires any painting job.
The way they priced their services was interesting and intreguing too.. It wasn't based on the no. of walls being painted or the quality/ color of paint being selected. It was based on the car owned by the housefold and whether or not they employed a chauffeur. I mean their prices where based on how fancy the client's car was!
I am not joking. These guys actually did this. One of them when asked about the rationale behind their pricing model said that they don't offer painting services. The actual value they generated for the clients was the time saved.
Simply put, these guys helped their clients save time which otherwise gets wasted on painting job. The household who has really fancy car naturally values time more than the household who doesn’t.
Please share with your friends collegues and let me know if there is something you want me to narate here....