How Will You Respond to Pricing Pressure?

Not All Profit Is Created Equally

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Phil Johnson Phil Johnson
Every other Tuesday, the senior management team at PJA meets for an hour to review the state of the business. In the early days of the agency, the meetings were somewhat free-form and an opportunity for a handful of us to get together and divvy up the work. Now, with a staff of 50-plus, and two offices, we need a lot more discipline. I usually try to keep the focus on the status of our 2008 plan and a handful of key initiatives for the coming year. This past Tuesday, we talked about pricing and its effect on profits. I was surprised at the range of themes and the intensity of the conversation.

We all want to make a profit. It's the lifeblood of a business. It supports our growth. It pays for our raises and our bonuses. It funds new positions. The trick is that not all profit is created equally. You can increase profits by working people harder, cutting corners and delivering less. That's a surefire way to lose staff and clients and produce bad work. The better way to increase profits is by making sure that you price the work accurately and design processes so that people can work efficiently. In our management meeting last Tuesday, pricing collided with process and we saw the effect it had on profits.

Given the recent downturn in the economy, we're increasingly running into a price-sensitive market. Both clients and prospects feel pressure to produce dramatic results, often with smaller budgets. It's not because clients are unreasonable. They're just feeling the effects of the economy on their end. While we heard a lot of different opinions from our management team, we all agreed on one point: When the agency starts to feel pricing pressure, the first thing to suffer is the agency process. With good intentions, everyone tries to redesign the process to accommodate the smaller budgets. People may try to eliminate steps, or assign a smaller team without a key contributor. That might work once, but on a regular basis, the process falls apart and the agency becomes less productive and less profitable.

We discussed a whole range of options for dealing with the pricing pressure while also protecting the way we operate and the quality of the work. Some people argued that we should always stand by our original pricing. Others argued for setting strict limits on what we deliver. Neither approach really solves the problem or honors the most important principles of our business: great work and great client relationships. The conversation has continued throughout the week, and we have identified a handful of strategies that we could all get behind.

Above all, pricing pressure drives you back to the most fundamental rules of the agency business. What's the client's marketing problem, and how can an agency help solve it? If someone wants a website but can't afford it, is there another program that will achieve the goal? That should always be step one.

We also agreed that when we have a pricing conflict, we're most successful when we bring in the creative directors to help resolve it. Quite often, given tight budget limitations, the creative team finds the most innovative answer. Recently, we had a client who wanted to launch a new print and online campaign but only had about half the budget we had estimated. Our creative team came back with a video-based program that created content for the client's website and for some community-based sites. We'll also have assets for some rich-media banners, if we decide to go that route. The client loved the direction and is staying well within her budget. We've got the resources to do some interesting work without squeezing our margins.

New media channels definitely help us with the price pressures we're seeing today. By focusing on developing content-rich programs and deploying them on publisher sites and social-media sites, we've been able to maintain a strong brand presence for our clients with smaller media budgets. That's something both clients and the agency can get behind.
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