Summary
A global management consulting firm with a presence in more than 50 countries and providing services across M&A, Transformation, Operations, Digital, Strategy, and Corporate Finance wanted to understand a competitor’s pricing strategy across two key European markets – UK and Germany. They wanted to exclude typical tech consulting projects and focus on traditional consulting, speaking to senior level executives including Partners and Managing Directors.
Challenge
The main business challenge was to understand how a competitor is pricing their services specifically for new clients and the tactics they are adopting to win in the white spaces (clients not currently being serviced by anyone).
Objectives
The key objective of the research was to conduct a deep dive into the following areas:
- The main strategies employed (discounting, free diagnostics, deferred payments, payment in stock payments etc.) in winning new clients. Which ones are most commonly and frequently used as part of negotiations with potential customers, and in what circumstances?
- What changes occur in the pricing strategy after completion of the first project with a new client.
- The role played by volume discounting and reduced fees for certain types of projects when framing pricing for established clients.
- Different pricing tiering for different types of customers, including bundle pricing, milestone based-pricing agreements, or profit-sharing arrangements.
Why Phronesis?
The client chose to work with Phronesis based on our:
- Strong existing relationship with the client.
- Expertise in assisting projects involving competitive intelligence.
- Experienced team familiar with the business approach of consulting firms.
- Technical know-how in reaching out to very senior professionals in targeted firms.
- Deep understanding of the pricing model of professional services firms.
Approach
The project involved conducting multiple in-depth, qualitative interviews in the UK and Germany. To ensure the standardization of the pricing data, some hypothetical questions were included in the discussion guide, probing participants to consider deal scenarios and estimate the pricing based on the hypothetical size of those deals. This helped to standardize the data collected from all of the interviews.
Examples included:
- A 12-month deal including 5 weeks of diagnostics and providing advice on the market entry strategy for a new product.
- A 6-month deal advising on cost reduction in supply chain processes across global locations.
Results
Based on interviews with key stakeholders, we uncovered some interesting findings including:
- A significant shift towards Milestones based on a performance-based pricing model.
- Non-cash forms of payment are not being adopted by larger consulting firms, however, some of the smaller consultancies have recently started to follow this approach.
- New clients often get discounts on their first project, but the discounting range varies by region. Based on our findings, we realized that this competitor generally offers 15-20% discount or in-kind services at the time of onboarding a new client in Europe and North America. However, in Asia markets, this reduces to 8-10%, indicating a completely different approach in their pricing model based on location.
How it helped the client
The insights we presented are being used by the consultancy to redefine their pricing strategy, specifically when targeting new clients and exploring white space opportunities. The findings also helped the firm to understand how they should use different pricing models to increase their success rate. For example, deferred payments, in-kind services, and volume discounting were some of the instruments the client was able to introduce into their current pricing strategy to win more clients and compete with their competitors in areas which were not previously explored.
Based on our findings, the firm was also able to make changes to the way their projects are sold. Previously, projects were sold at a flat fee, but the firm has now adopted different models such as milestone-based or performance-based pricing, and discounting differently in North America, Europe, and Asia.
