Pricing Consulting

Once upon a time way back in the late 1960s I worked for a “facilities management” company which had gone public in the first data processing bubble but had no facilities to manage.  This meant that the systems programming manager, me, had no systems to manage the programming of.  I was also the first person I know to have underwater options.

In an attempt to remedy all three of these problems, management decided to rent me out as a consultant.  I was cool with this (which may not have mattered).  One day the EVP of sales (who came from IBM along with most of our other founders) came back with great news.  “I sold a free day of consulting,” he said.  Apparently the oxymoron didn’t bother him.

A week later, off I went to the client – a Manhattan wholesaler.  When I got there as told at 9AM, no one knew why I was there.  An hour or so later someone who had a vague notion of why I might be there rescued me from reception and set me up in an empty desk.  An hour later I was still there.  No such thing as cellphones in those days so I went out on the street to a coin phone and tracked down the sales EVP which, of course, took another hour.

“No problem,” he said, of course.  Two hours later he still hadn’t reached the guy he “sold” me to.  At 3PM I had my first meeting.  It was with a sullen programmer who told me there was no problem and, if there were, I wouldn’t be able to help solve it.  At 5PM I had a “wrap up meeting” with his supervisor who wasn’t surprised that I hadn’t found the problem.  I think it was the first time I heard the description of a consultant as someone who borrows your watch, tells you what time it is, and sends you a bill.

When I complained about the assignment, the sales EVP offered to get me another day there to try to do better.  I revolted.  OK, he has another prospect.  This time I went with him on the sales call.

We met with the MIS manager of a Brooklyn retailer who had an interesting problem that I was pretty sure I could help with.  “How much?” he asked.  Before the sales EVP could say what I knew he was going to say, I hustled him out of the room for a conference.  I told him “free” was out of the question.

“Well,” he said, “IBM would charge $250/day for an engineer so it’s got to be something less than that.”

“No,” I said.  “It’s got to be more.  I think IBM may be a big part of the problem so the customer has to listen to me and not IBM when push comes to shove.  Let’s go with $300.”  (full disclosure:  I’d been recruited to the company by the CEO’s wife and system programmers were much in demand so I could get away with waving off the suggestions of an EVP.  Didn’t know much about rank then, either.)

Being expensive had its drawbacks as well as its advantages.  They sure were ready to use the time they were paying for when I showed up.  There were no coffee breaks and it was a working lunch.  I think they followed me into the men’s room.  The spiritual twin of the first grumpy programmer did start out by telling me that there was no problem and that I wouldn’t be able to help with it if there were and I heard the definition of a consultant as a watch-stealer for the second time but everyone had been ordered to make full use of what they were paying for so I got cooperation.

I saw what I needed to see; I won an argument with an IBM SE on the very good grounds that I was more expensive than him; my recommendations for system changes were implemented (grumpily) and some of them worked.  We got a much bigger consulting job after that which I’ll probably blog about some day because it’s an interesting story.

The moral for today is one that every maker of luxury goods already knows: price can create a perception of value.  As a consultant, you need high perceived value or no one will give you the time of day let alone their watch.  And, if you don’t have the respect you need to get information or to have your recommendations tried, you can’t succeed.

There are times when free is good.  See this post for examples and my biggest business mistake.

Comments

[candice]

I'm 24, and being the junior half of my first startup, and find myself wishing I could knock sense into my partner - we're very underpriced as consultants at the moment.

Thanks for the reassurance. ;)

[Tom Evslin]

Brian:

I think applicability of brand is the key to the question you ask. AT&T brand was dynamite for selling Internet access when we launched AT&T WorldNet Service. It was "OK" for selling credit cards. It was a dismal failure for selling content.

Buyers filter out "unnatural" brand extensions, I think.

Tom

[brian]

tom, how is it that sometimes this pricing strategy works and other times it fails? For instance, luxury goods maker Gucci can sell a handbag for $500 that probably cost not more than $50 to make and ship. Yet, if it tried to to sell a Dell-clone PC for $10K with just a Gucci label on it, no one would buy it.

[fred]

I learned about five things in business school. I'll blog them some day, maybe today.

This was one of them. The marketing professor told a stroy.

He had been hired to consult to a french producer of champagne (i suppose that's redundant).

They weren't selling very much of their champagne.

He recommneded they triple the price.

The customer listened and sales went through the roof.

[Patrizia]

That is the reason of the big success of most of the Chinese goods in Europe.
They reproduce things that have no intrinsic value (designer stuff) but whose price is normally high, and sell it for much less.
So you can show the same bag or the same watch somebody else paid a fortune for it.

That is:
Sometimes the real intrinsec value is so effimeral you can skip it...
And it applies to intellectual copyrights as well as designer's work.

Because people do not bother about the value, they bother about the price, or, the price makes the value...

Patrizia

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