Why ‘price creep’ is always a flawed new business strategy – and what to do instead

Katie Tegtmeyer

The new business pitch is imminent. Having spent time considering the needs of the prospective client, you believe that price will be one of their key decision criteria. So where do you nail your price? Trim your rates to secure the business or stick to your guns with the higher rate you actually think you’re worth?

Many agencies quietly admit to using a ‘price-creep’ strategy as a third way. As strategies go, it’s a basic one: put in a cheap price now and then add more services later to boost the revenue once the relationship is underway. There’s no doubt that this has worked in the past and has been considered a valid account acquisition strategy for many agencies.

But there are some obvious problems.

For one thing, clients don’t like it and it’s likely to damage your relationship very quickly.

Secondly, your attempts to extend your involvement may be rejected by the client, leaving you with an unprofitable, low-yield bit of business.

Thirdly, your additional services may be accepted but at an equally unprofitable price, adding more damage from the acquisition of the account.

Finally, if your clients are expert at mission-creep, they might beat you at your own game, resulting in you providing the extra services but not getting any more money at all.

The antidote to all of this is to become much better at pricing, i.e. truly understand how pricing drives your business and how your prices are perceived by others.

Paul Williamson was the lead on the pricing for the London 2012 Olympics, which achieved over £600million of tickets sales, literally hundreds of millions ahead of target. As one of the UK’s foremost thinkers on pricing strategy, we at The Drum recently asked Paul to apply his knowledge and pricing expertise to growing agency businesses.

As a result, Paul will be sharing his insights at Pitch Perfect, our upcoming one-day conference focused on the acquisition of new business for agencies. Taking place in London on 28 September, this is one presentation that those responsible for pricing agency services really can’t afford to miss.

Click here for more details and to secure your space at Pitch Perfect.

DY