How Do We Compete For Contracts Being Won At Ludicrously Low Rates?
In short, you don’t! No manner of marketing can change your fixed costs so discounting to take on non-profitable contracts is a one-way road to ruin.
In the marketing sector they’re known as ‘suicide contracts’ with extremely low rates for services such as PR, SEO, Graphic Design and Photography etc. and are usually taken up by companies with under-utilised staff that are desperate for work to cover their wage bill or those that are just starting to trade and need to build up a client base to become established. Whilst this is completely understandable, it’s sending out a signal, internally as well as externally, that you only value the skills of your team or your equipment at this low rate and it will be extremely hard to ever get beyond that rate, whilst if it involves manufacturing or adding value to other materials you’re selling, then it’s plainly economic suicide to take on a contract on which you’re making no profit.
In a recession, whatever the underlying cause, it’s generally assumed it becomes a buyers’ market with more companies willing to supply products and services than are actually required so classic economic theory would tell you the price therefore goes down. Yet, looking at the prices charged by resilient brands over time shows that this simply doesn’t happen, indeed, part of the individual brand’s strength is its confidence and ability to differentiate its services or goods by quality rather than by price.
As one wise person once said, “Any fool can discount…” and it’s so easy to look at an under-utilised resource, whether this be a van, a marquee, a digital printer or a skilled graphic designer and be tempted to discount the rate you charge out for the service to increase your turnover. But, by so doing, you are sending out a signal to your customers that this is the price at which your goods or services can be purchased and it will be incredibly difficult to increase this price to a rate profitable for yourself.
Of course, an alternative strategy is to look at how your competitors can charge such a low price and see if there are lessons to be learnt so that you can lower your own costs and offer lower prices but still at a profitable rate for yourself. The wave of low cost disrupters in recent years across a range of diverse sectors, whether this be retail, travel, manufacturing or professional services, has led traditional companies to re-examine their own operations but it’s only really new entrants into a sector with even lower cost structures that can compete with these price warriors – established companies that slash prices usually simply slash profits too…
All I can offer is to relate our own experiences of pricing in that, like all agencies, if they’re equally honest, we have in the past lowered our prices in exceptional circumstances, usually in relation to assisting retained clients through difficult patches, but we have also consistently refused to take on work at lower prices that we charge existing clients. There are two main reasons for this. Firstly, it’s not fair on our existing and loyal clients to offer our experience, which their fees have helped develop over the years, and our services at a higher price than that which we offer new clients.
Secondly, people that try to buy our own and other professional services based on price only, don’t usually know what they need and don’t really appreciate what we offer or what we can bring to their business – a relationship based purely on price will inevitably end in tears as they try to drive costs down even further, so we’ve found it better to decline in the first place. Clients that have bought marketing and PR services before understand how an agency can help them and have a realistic budget for the services and experience we offer.
We have never tried to differentiate our services by becoming a low cost provider as we have fixed costs and there will inevitably be another provider somewhere who can offer cheaper prices. We set our offer out at a price that we believe is fair to both the client and ourselves and would recommend this to other companies for a long term sustainable strategy.
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