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Friday, May 29, 2009

Pricing Wars - Agency/Client Dialog

This one, "The Vendor Client relationship - in real world situations", has been making the rounds. I've already heard from several colleagues that they've seen it and have even used it as part of internal, agency meetings. If you haven't viewed this, it will make you laugh and cry.



For any clients reading this: Please keep in mind that on the agency-side, we realize these are caricatures. And further, a spoof that could be produced on the many agency-side foibles related to pricing would similarly generate laughter and tears - (e.g. 2 weeks to generate a $10,000 high-level estimate).

However, determining pricing and managing expectations and scope as it relates to pricing are some of the most charged areas of agency/client relationships.

Like so much else in a partnership, clear communication up front and some organizational empathy can help avoid scenes like the ones depicted in this clip. Often issues surrounding pricing have more to do with poor communication and expectation-management than one party trying to pull something over on or unduly squeeze another - although there's certainly a bit of that floating around, especially in this pressured, economic environment.

A few things for all to keep in mind surrounding pricing include:
  • It is impossible to tell how much time and money it will take to develop even a modestly complex project prior to receiving a proper brief. For a long range/complex project, even once the brief has been given and a broad solution determined, time & money can't necessarily be accurately predicted - and yes coming up with a viable, broad solution also takes time and money.

  • The most accurate way to price a project is through sequential estimates that gain fidelity as insight is uncovered and actual phases of development approach. (See my posting: Letter of Agreement (LOA) - Getting paid from the beginning for more on this topic.)

  • All parties need to understand that there are both activities and deliverable that need to be funded and that sometimes seemingly simple features and functions are very interconnected to other issues and take a lot of thought to execute effectively and efficiently - Right, like one of those Tiger Woods ads: 75% Preparation / 25% Execution.

  • There is a wide range of variables that affect pricing of a seemingly simple scope of work, including: quality of briefing, state of assets, state of brand/style guidelines, condition of technical environment, timing pressure, client's internal structure/relationships and 3rd party involvement.

  • Any agency worth its salt should be able to clearly articulate what is known and what is not known and the basis for their pricing.

  • When bids come in with gaping discrepancies, more often than not, there are not shared assumptions about the scope of the project.
So, here's to hoping that collectively agencies and clients can bring "getting what you pay for" and "paying for what you get" a bit closer.

6 comments:

  1. Very nicely, and sensitively put, Mr. Thaler. I too thoroughly enjoyed that video and i think you did a great job putting it all in perspective. The most telling part of the video though, for me, was when the clerk at the video store suggests the customer try the discount rack and the customer says, no, i want this one. Clients have their own concerns as we know. Often they are reacting to their own budgetary challenges as well. However, that moment in the video relates to a direct abuse of the relationship and a sense of entitlement, which is 'my pocketbook says i can afford to go to mcdonalds but i don't care...i want Sardi's anyway.' In fairness, that's most of America and why we find ourselves in a recessionary crisis. But the bottom line is, if clients can't afford to support the larger infrastructure of the big agencies, they should adjust their expectations and demands and look for a boutique agency that can deliver quality and affordability...like mine. ;-) My two cents. 'Nuff said.

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  2. Thanks, Rob.

    There's a lot of motion out there. Like the post .bomb era, the pendulum is swinging towards small shops again. As opposed to then, boutiques are now being run by some seasoned talent. Should make for some interesting relationships - good luck on the quality and affordability fronts.

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  3. Oddly enough, that's how all you agencies treat your vendor / suppliers as well... ;)

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  4. Wow, that's a pretty broad/harsh statement. Appreciate the passion and willingness to engage. Granted there's a fair amount of crap that flows downstream from agencies (upstream from vendors as well at times).

    However, not only is your statement not true as broadly as you state, but I and other PM leaders go to great lengths to partner with our, and our clients' vendors with mutual respect that aims to find a win/win/win. Further, we train our staff specifically to maintain these relationships out of honor and good business practices.

    I for one am active in various industry organizations (e.g. IAB, AdMonsters)and have conducted trainings and spoken on panels to promote the health of the overall ecosystem (inclusive of vendor / suppliers)

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  5. Great post jeff, but lets be direct and talk about the core point in the video, which is portion that is spoofed on and hits the mark -- clients will innately and purposely try to get as much service (which is the equity value of an vendor) as possible until they bleed that vendor to death or move on to another suitor that hasn't felt the ill effects of the previous relationship.

    Unfortunately, as vendors, we fall into this cycle by offering and giving away as much as possible to land new clients, and snag from their current partners. This teaches the Client to take as much as possible.

    As they say in the web, once you give it away for 'free', its hard to charge afterwards (hello NYTimes.com).

    http://blog.plusfactory.net

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  6. Thanks for the comment, Warren.

    No doubt the vid hits on an unpleasant reality. I try to resist over-generalizations and apply this to all clients. Many recognize the nature of a partnership, that the only real win is a win/win, and that chewing vendors up and spitting them out is immoral and ultimately unhealthy for their own business.

    From my vantage point, I like to focus on what can be done that is in my control. I think we're on the same page here based on your point that vendors can fall into or even initiate this cycle by low-balling.

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