Do you lose consulting projects to low-fee competitors? How do you handle that threat to your business? Below are (almost) seven strategies to thrive when fees are taking a dive.
Paella Consulting Associates is an advisor to the world’s crustacean industry. (True story, though the name and market have been changed.) For over 20 years they’ve offered their expert services at a premium and the firm steadily brings in around $8-10 million per year. Not a bad haul.
But this year, a shrimpy, upstart company from Singapore started offering similar solutions and similar quality for about 70% lower fees. Yikes.
How can Paella respond to this international incursion that’s threatening their entire business?
7 Responses to Low-Price Competition in Consulting
Strategy #1: Recommit
(a.k.a. ”Don’t Change, Don’t Blink”)
With 20 years of reputation and relationships in the market, Paella could stick with their premium fees and ignore the bottom feeders.
Some prospects equate higher fees with higher quality, and Paella’s not in immediate danger of losing all their clients. This strategy works if you’re a little fish in a big pond. However, if there’s only enough room for a few players in your pool and your prospects are price-sensitive, Recommitting is a short term play.
Strategy #2: Release
(a.k.a. “Throw Back the Little Fish”)
Paella could politely walk away when a prospect makes it clear there’s a bidding situation and the Singaporians are in the mix. Why bother chasing low-margin projects?
Releasing is a viable long-term strategy if you’re a small fry swimming in a sea of opportunities.
Strategy #3: Retrench
(a.k.a. “Give In”)
In the face of a cost-focused prospect and aggressive competition, Paella could react by lowering fees. While this strategy is called Retrench, it could just as easily be named “Regret” since that’s where it invariably leads.
Retrenching is necessary at times if you’re facing cash flow struggles; however, it can cause a vicious cycle of more work for less reward.
Strategy #4: Refocus
(a.k.a. “Try the Shiny Lure”)
Many consulting gurus would admonish Paella to point their prospects to outcomes and value rather than inputs and costs. This would be sound advice if it frequently worked. But it doesn’t. Good luck refocusing prospects who immediately flip to the fee section of proposals.
For Paella, whose fees may be three times as high as an offshore competitor promising equivalent quality, simply stressing value is a fool’s errand.
Strategy #5: Reframe
(a.k.a. “Change the Game”)
If the Paella consultants are clever, they’ll fundamentally alter their prospect’s view of the problem and/or the necessary solution, so that competitive offerings no longer fit the bill.
Reframing is a sophisticated technique that takes preparation and practice. It requires consultants to smoothly wield compelling, epiphany-inducing models. Well-designed diagnostics help by encouraging prospects to reframe themselves into a world where low-fee solutions no longer make sense.
Consultants who are excellent at reframing can save about 30-40% of projects that low-fee competitors otherwise would have hooked. It’s not a panacea, but it’s one of the two best strategies available.
Strategy #6: Rethink
(a.k.a. Wake Up!)
Frankly, Paella had been asleep at the wheel. Since no firms had been able to match their quality for a couple of decades, they stopped innovating. Big mistake.
If you consistently dish up sizeable earnings, eventually a consultant is going to figure out how to match your quality (or exceed it) at a fraction of the cost.
The question Paella has to answer is, “How do we deliver the same quality as always, but cut our costs by 80%?” I’ve been around long enough to stop scoffing at that challenge because there’s always an answer.
Once the “impossible” efficiency challenge has been established, a determined team of bright consultants can find a way to meet it. Does it mean challenging assumptions? Absolutely.
In the long run, Rethinking your offering, your approach and your delivery is always the best, long-term strategy. Combined with Recommitting or Reframing, it also can deliver a hypodermic of adrenaline to your margins.
Strategy #7: ?
(a.k.a. “My Request to You”)
Is there a strategy I’ve missed? The six strategies above —or some subset—are what I usually present to clients facing Paella’s situation. I’m interested in your additions, though.
How else do you respond to low fee competitors?
Text and images are © 2020 David A. Fields, all rights reserved.