When Your Clients Talk to Each Other
Your clients are far more likely to talk to each other when you have vertical positioning. Blair has observed both good and bad things arising from this.
Links
“How to Ask for Referrals” 2Bobs episode
Transcript
David C. Baker: All right, Blair. We have talked quite a bit over the years about pricing the client. We're going to talk about that, but dive deep in one particular element of that, and that's, okay, if you do this, what happens when clients talk? If you're going to price the client, what if they're talking? We're just going to deal with one particular thing. This might be more relevant if your positioning is vertical, and one of the things you say in here is your clients are more likely to talk. This will be interesting. I'm going to dive really deep on something we've talked about generally, too.
Blair Enns: Yes. I don't want to just talk about pricing, too, because if I say to the listener, "Hey, I hear your clients were talking to each other," you would probably have some visceral response. Some of it would be good, and some of it would be bad, and there is the good and the bad of your clients speaking to each other. I have a few points I want to hit on this. The first one is pricing because the reaction, if you are following this rule that I laid out in Pricing Creativity, that probably shouldn't be a rule, it should be a strong recommendation of price the client, not the service.
If you're following that rule and you're vertically specialized, so you work in a vertical market segment, then you're probably going to run into this issue of your clients talking to each other, and then they could compare prices. That seems horrible to people. I'm sure there are many listeners who deal with that fear and have actually dealt with the reality, not just the fear of having a client call up and say, "Hey, I just talked to so-and-so and they said you're paying a different price."
David: That's the visceral reaction you were talking about. I always feel so weird interviewing you about this topic. Why? Because I don't price the client. I'm at the opposite extreme of that. Not only are my prices the same for everybody, but I tell everybody what my prices are. I always feel like, "Oh, man. Am I really missing the boat here? Should I listen to this episode differently than normal?" Because I'm like, it's hard for me even to ask you some of these questions because I don't do any of this. I have my own very specific reasons for it, which probably make sense for me not to, but it always feels weird to interview you about pricing the client because I don't do any of it.
Blair: I've actually written on this recently. I don't think there's enough material to cover it in a podcast, but it's basically the case for selling cost plus or the case for pricing the service instead of the client. We did do an episode on this recently to standardize or customize. We talked about standardizing or customizing along the delivery domain and along the pricing domain. Standardizing along the pricing domain often means that you put prices on the services themselves, not on the clients. This principle of price the client, I think it's a really valuable principle.
Now it's downgraded in my mind from a rule to a principle. You think about it, there are obvious and non-obvious reasons to price the client. The obvious reason to price the client is if the service that you're offering, whatever it is you're doing for the client, if it's more valuable to some clients than others, then it makes sense that you should be able to capture more of that value, therefore, the prices should be different. Now, the flip side of that is with your smaller clients, it's less valuable. Does that mean you should be charging less? Yes, if you're following that rule.
David: I don't like that half of your rule. I'm just going to go with the first half where you charge more. [laughs]
Blair: You wouldn't be alone on that. Here's why people would not be happy with the idea of charging less to clients for whom you're creating less value. It's because they're thinking of a discreetly packaged service that does not change depending on the client. If you take those three words, price the client, the focus for most people is on price. The point I'm trying to make here is you should have as much focus on the client. What I mean by that is not all of your clients value the same things. You should be more creative and customized. Now again, let's back up. There's a caveat here.
I'm not talking about fully productized services business, but in a traditional creative firm, and we covered this in that episode on standardize or customize, in a historical business model of a creative firm, it would be a largely customized delivery model. What that means is that what you're doing for client A is often quite different from what you're doing for client B. I've written a post on this. In the post, I'm imagining I'm getting on a plane.
I've paid whatever I paid for my airfare. There are 150 other people on that plane. What I'm not going to do and what almost nobody on that plane is going to do is to turn to their seatmate and say, "What did you pay for your ticket?" Everybody understands that the prices paid are all different. In fact, quite different in some examples, right?
David: Yes.
Blair: We intuitively understand, even though most of us haven't thought deeply about this, that the reason the prices are different is that in addition to the core value driver of getting from, in my case, Phoenix to Vancouver, there are all of these other things that I might value and be willing to pay for and some that I might not value and I don't want to pay for. Each of us has bought a bundle of services or a bundle of value drivers. The bundle is different for most of us, not all of us, but it's different for most of us, and we paid a price we were willing to pay for that bundle of services.
David: I bought a first-class ticket because I didn't want to sit with people like you. It's different things. [laughs]
Blair: I bought an economy ticket, but a high fare level. I paid more for the fare level so I could change my flight if I wanted to change it, and I could use my upgrade credits. I did change my flight the day before. I flew home two days earlier than I had planned to. I've changed the flight at the last minute and I got upgraded at the last minute. Yes, we pay different prices for a different bundle of services. Now, when people bring up this issue of, "Oh, my clients are going to talk to each other and they're going to find out that what I charge them is higher than what I've charged somebody else," I want you to think about that as the airline example.
I've completely stolen this airline example from one of Ron Baker's books, who elucidates this beautifully. It really was the example for me that drove home that it's not just the core service. We all get trapped into thinking it's the core service. When I say there's too much emphasis on price and not enough on the client, what I mean by that is the different bundles of ancillary services that you bundle and unbundle into the package to make, at the very core of what they're purchasing, the entire experience is different from what the entire experience of another client is purchasing. Does that make sense?
David: It does, but it also brings up a point that I've been thinking about in a different context. I'm going to insert it here. You made a statement a few minutes ago about how, in that statement, we concentrate more on the price than on the client. In other words, the price that clients pay should be different because what the clients want should be very different. What strikes me sometimes about some of the margins in our industry is that, yes, the client relationships look very different. I want those client relationships to look different because you are leading the client based on what the client really needs.
What I fear is that those client relationships look really different, not because of your leadership, but because you are getting ordered around by the client. There are some other ways to solve this, but that's one thing I don't want to let go. If you are really leading your client relationships, by God, they better look very different. When they look very different, that doesn't mean you're leading the client. It could mean that you're just simply taking orders, and the diner wants something different in this case. We want your relationships to look different. We want them to look different because you're leading the client in different places.
Blair: Now, the exception to that, again, it's worth restating, is when you've completely bundled up your services and you've chosen to price those productized services. There's some nuance here, and we have to hold multiple ideas in our mind at the same time. I'll also point out, sometimes just the fact that the value is greater is enough. You don't have to go out of your way to find ways to make the experience different for the client, just because you are imagining justifying the price difference when your two clients speak to each other. That's not the reason you would do this.
I would encourage you, if you're not fully productized or standardized or productized on the service domain, then you really should be packaging together solutions for clients that are different based on the value drivers that are important to them. The only way you do that is you have a meaningful value conversation, which we've talked about many times before. That is the outcome of the value conversation. You uncover all of the raw materials from which you will put together a proposal. Typically, in this example, it's a fairly bespoke solution. When your clients do talk and the numbers are different and you get that phone call, as I did one day, then you have some leverage to push back on.
David: Wait, the clients told you that they had compared prices and they had a question for you or prospects?
Blair: Back in the day, I happened to have three clients who were all in the same peer group that you put together.
David: Oh, a roundtable. Okay, got it.
Blair: Yes, a roundtable.
David: Oh, I want to talk about that in a minute, too. I want to talk about how roundtables terrify me, but go ahead and finish your story, yes.
Blair: These guys get together. I forget how often they met. They had a meeting. I got an email from all three of them.
David: Collusion too.
Blair: Then a fourth person who was not a client, but I was friendly with, who said-- The fourth person emailed first, they weren't a client, "Heads up. I shouldn't be letting you know this, but in our latest meeting, three of your clients talked about hiring you, and they compared the prices, and they all paid different prices, and there was an interesting discussion, so you might be hearing from people." Then over the period of a couple of days, all three of those clients emailed me with the same thing. Now they all said, "I'm okay with this, but you should know-- Don't tell anybody I emailed you, but you should know this conversation came up."
David: Wow.
Blair: What did I do? I checked the invoices, looked it up, and then I sent all three of them an email at the same time, everybody in the same thread. I said, "Each of you has sent me an email saying that you were talking about the prices you paid me and that those prices were differently." I have two points to make. Point number one, I set the price. It's my prerogative to charge whatever I want to charge. Your decision is to pay it or not pay it, period. That's how this works. Point number two--
David: [laughs] I love pissed off Blair.
Blair: [laughs] I ended it with a note of graciousness and appreciation for everybody. Point number two, I just checked the invoices, you all have horrible memories. You paid the same price. Now one person paid slightly more because they bought something else in addition. They bought an audit in addition to the training service. I ended it on that note, and I thanked them for their business. Everybody was okay. It was a fun moment. It wasn't me going ballistic, but I was taking a bit of a firm hand. I really wanted to make that first point. It's like, "Hey, it's my prerogative to charge you. I get to put the price on it. You get to decide to pay or not pay it." I guess you could negotiate it. Look, here's what I'll do for you.
David: I'm Blair, so don't bother negotiating. I know all the tricks. [laughs]
Blair: Anyway, so it has happened to me, and it was an interesting-- I wish they had paid different prices. Then I wouldn't have been able to fall back on that second point. I would have just had to double down on the first point. I suppose I would have said, "If any of you feel like you didn't get a decent return on your investment, I'm happy to give you your money back." I would go that far on a point of principle. If somebody had asked for their money back, I probably would have had a voodoo doll made of them and stuck it to death with pins for the rest of my life. Not that I'm vindictive.
David: I saw this great joke. I think I might've sent it to you last week. The spouse is upstairs yelling down to her husband, says, "Hey, have you ever heard about those voodoo dolls where somebody puts a pin in them and it hurts really bad? Have you ever felt that?" He yells back up the stairs, "No, I've never felt that." She said, "Okay, how about now?" [laughter]
Blair: Oh, that is good. You did not send me that. That's fantastic.
David: Clients will talk. One of the points you make is that clients are a little more likely to talk with a particular positioning that you have. You want to talk about that for a minute?
Blair: Yes. We did an episode on referrals. I forget what it was called. Referrals, maybe. Marcus will find it and put a link in the show note. Thank you, Marcus. In it, we talked about the different business types that are really open to referrals, where referrals are really powerful. It tends to be industries where there are some boundaries, where your clients know each other but don't compete with each other. It's funny. I had a call two and a half hours ago with a client of mine who brought up an example. He owns four businesses, and one of them is focused on Higher Ed. He said, "This business is 100% referrals." I said, "Oh, I'm not going to name any details, but I have to bring this up."
He said, "It's 100% referrals. They all know each other. They all go to the same conferences, but they don't compete against each other." That's what you want. If you have that scenario, then you want your clients talking to each other, assuming you do good work, because they refer constantly. He made the point, and he said, "That's where the term collegial comes from, from these colleges and the relationship that they have with each other." Now, I didn't look that up. I don't know if it's true. Seems somewhat suspicious to me, but I like the idea.
These people are collegial. They're friendly. They're in the same business. They don't see themselves as competing against each other. If that's the case, then you want your clients talking. You want them talking as often as possible. Now, the dark side is what we've already talked about. They're going to talk, they're going to refer, they're going to compare prices. You need to be prepared. How are you going to handle that phone call or that email when you get the email?
David: Yes. The way I would describe what you've just depicted is industries where, by definition, the work is delivered geographically. It's like healthcare or internet service or something like that. The other place that it comes up is anybody whose positioning is tied to a vertical in a ICS code. Not just because they talk to each other, but because most of the time when you follow one of your clients to their next job, it's because you are vertically positioned. In other words, they're not comparing with somebody else, they're comparing with themselves. They've already used you before.
It's sometimes harder for you to climb that ladder of sophistication because they've already seen what you did for them in the past and roughly what you charged, and they're assuming that's what it's going to be without recognizing that you have gotten smarter, you've hired more expensive people, you've got more IP that you've invested in all of this stuff. That can hurt you too, not just because of clients talking to each other, but clients talking to themselves because they're using you from one job to the next.
Blair: Yes, that's a great point. This idea that they refer, that's one of the good reasons, good things that happen when your clients talk. They compare prices. Let's call it bad for now. I'll come back to that at the end. It's one of the bad things that happen when clients talk.
David: What do you mean when you say that they compare for validation? What is validation? How does that relate to pricing?
Blair: It doesn't relate to pricing. It's just more under the banner of what happens when your clients talk to each other. You might think of this as a good thing, or if it's at the beginning of the life of your business, you might think of it as a bad thing. Now, the first example I ever heard of this, like clients looking around at others in the category-- Their competitors for validation of your services was the first firm I ever worked with that specialized in selling legal services. It comes up with almost everybody who sells into that space. It's a very conservative industry.
When you're trying to sell something relatively new in that industry, the first question is, who else are you working with? If you have not been validated by first working for another firm, and a firm bigger and more famous than the one you're selling to, then many of these firms will not consider you. It's not the same as a referral, but it is some recommendation, or implied recommendation, or validation. They want to know, "Hey, have you ever worked with so-and-so before?" If you're not working with their competitors, they get worried and think, "There's got to be a reason why you're not working for my competitors."
David: Right. I probably didn't introduce this really well at the very beginning, because really what we're talking about is this big umbrella of when your clients talk, and there's good and bad. Some of the bad might be they're comparing prices. Other is like, you want them to talk because they want to have heard that you worked with somebody else. It's a good and a bad thing. It's not all bad when clients talk. What about this idea of sometimes this creates new opportunities for you? This would be another of the upsides of clients talking.
Blair: Yes, this is a really interesting one. I feel like I almost shouldn't say this, because when Rory Sutherland shared it with Leah and me when we were doing the 20% of the marketing procurement podcast for a year, he was hesitant to even bring it up. Then when he brought it up, I thought, "Oh, I've seen this in action." There is an agency principal who coaches for us who pulled this off beautifully. Rory's point was, and I'm putting words in his mouth here, paraphrasing, but basically says, "We can actually reverse these power dynamics of multiple agencies pitching to one client. Why isn't it one agency pitching to multiple clients at the same time?"
I asked him for an example of that. I think maybe he was already working on this. This is the one he didn't want to talk about. It's a couple of years ago now. He said, "Think of automotive manufacturers that are producing electric vehicles. They all have the same problem in the market, and that is the range anxiety of a first-time electric vehicle buyer. Imagine that every one of these manufacturers is looking for a better marketing campaign to combat range anxiety. Imagine that they all are casting about looking for new agencies. They're inviting a bunch of different agencies to come in and pitch them on it.
If it's a category problem, why wouldn't you take the initiative and go to the category, try to roll up the category yourself, go to all of the OEMs, and try to make a case together?" I don't know if there's a universal-- There's probably a lobbyist group of all the large automotive manufacturers. This would be like herding cats. There are better categories. In his example, it would be, "Why not pitch the campaign to the entire industry? Get the industry together, and it's just you." Then I'll take that one step further because the example that came to mind was somebody I know, whom I just mentioned, created a certification product for the industry that they were serving.
There are two large players in the industry. They got them on board. With those two endorsements, this thing became real and valid. They became a third partner in owning this thing. They pitched it effectively to the industry by corralling the two largest players, and they became an owner in the product that they were now marketing.
David: Wow. I couldn't help but think of one of the most effective and efficient, inexpensive ways to market your firm is through what I call a private round table. The entire concept is built on this idea that you should get clients talking to each other.
Blair: Yes. I know exactly what you mean, to unpack it.
David: You should also invite prospects to it too. Just imagine you invite about 10 people, it's invitation only. Maybe three of them are your clients, and they're going to talk you up to the other seven people who are prospective clients. You pay some author that they've heard of that is famous in their world, pay them 5,000, or sometimes you get it for free and make a half-hour presentation. Then one of your team says, "Hey, these are the things we're noticing in the marketplace. We just want to give you an update on that."
Then you, as the principal, would navigate a discussion among each of them that says, "Okay, let's go around the table. What are you facing and how are you solving that?" It's not like you're shining a spotlight on these individual people. The fact that you have the spotlight is what's amazing because you have the power to bring these people together, and you're not afraid of when they talk together. That's a really powerful message to send to a marketplace.
Blair: I would go a little bit further and say, even that ratio of three clients to seven prospects, I think it should be reversed. I think you should have more clients in the room than prospects because the dominant conversation involves you. It just happens. They talk about the things they're doing with you. The first client I ever had that did this that I was aware of, she was talking about how powerful this is because she says at the break, she overheard a client talking to a prospect saying, "What do you mean you're not working with these guys?"
David: Yes. Selling for you.
Blair: That's a really powerful idea. Yes, I'm glad you brought that up. That's a great one.
David: Yes. The theme of all of this is you can assume clients are going to talk. That's probably more likely when your clients don't compete against each other geographically or when you're in a vertical focus, and you just need to be prepared for it. There are things that you need to understand about pricing, but a lot of good things can come from it too. Clients talking, anything else I've missed here?
Blair: Yes, I would say it's mostly good, and the one bad thing that people get worried about is them talking about the prices they paid. I would just have you do a little bit of homework to just think about, are you making enough individual changes to what you do on a client by client basis so that you can fall back on that, or do you only have one thing to fall back on which is, "Hey, we charge based on the value that we're creating. You can pay it or you can not pay it." It's not about others paid more others paid less.
David: There's reasons for it.
Blair: That's the reality.
David: Right. Great. Thank you, Blair.
Blair: Thanks, David.