RESEARCH PROJECT REPORT

ON
PRICING STRATEGIES IN CONSULTING
SERVICES

Under the Guidance of:

PROF. DR. RAVI SHANKAR

Submitted By:
MEENAKSHI JARYAL
Roll No.: IM 17

INDIAN INSTITUTE OF FOREIGN TRADE

NEW DELHI

TO WHOMSOEVER IT MAY CONCERN

This is to certify that the research project titled Pricing Strategies in

Consulting Services done by Ms. Meenakshi Jaryal, Roll No. 17 IM

was under my supervision and guidance and is the original work of the
researcher.

Prof. Dr. Ravi Shankar

ACKNOWLEDGEMENTS

A lot of effort has gone into this project and my thanks are due to many
people with whom I have been closely associated. First of all, I gratefully
acknowledge the continuous assistance and inspiration given to me by Prof.
Dr.Ravi Shankar

Finally, I would like to thank my family for providing me monetary and non
monetary support, as and when required, without which this project would
not have completed on time.

Meenakshi Jaryal
Roll No. 17 (IM)

TABLE OF CONTENTS

S.No.

Particulars

Page No.

EXECUTIVE SUMMARY..................................................................................................5
1.

INTRODUCTION........................................................................................6

2.

LITERATURE REVIEW..............................................................................9

3.

RESEARCH OBJECTIVES.......................................................................39

4.

SCOPE OF THE STUDY...........................................................................40

5.

RESEARCH METHODOLOGY................................................................41

6.

DATA ANALYSIS AND INTERPRETATION...........................................43

7.

FINDINGS OF THE STUDY.....................................................................53

8.

CONCLUSION...........................................................................................57

9.

RECOMMENDATIONS............................................................................59
REFERENCES............................................................................................60
ANNEXURE - QUESTIONNAIRE...........................................................61

EXECUTIVE SUMMARY

Setting and maintaining consulting fees can be quite complex for any business, and it can
be especially difficult when pricing consulting services because theres so little publiclyavailable information on going rates. Even once you set the base price for your services,
dealing with price negotiations and discounts is often uncomfortable. Here are a few
things to keep in mind to make your pricing decisions, especially those around
discounting, more effective.
New entrepreneur consultants tend to undercharge for their services. The mistake is
understandable. First, its difficult to know the going rate because most consultants
vigilantly guard their prices. Aside from not being able to pay the electric bill, the other
big problem with low-balling out of the gate is that it makes it hard to up the fees later
when problems inevitably arisewithout rubbing clients the wrong way. To be sure,
consultants fees vary depending on location and target industry. But there is a common
methodological framework for arriving at an attractive pricing structureboth for the
consultant and her customers.
One of the most powerful strategies available to any professional service firm is pricing.
Regardless of the service, the reputation of the provider, the sophistication of the buyer,
the quality of the service or any other aspect of a firm's position in the marketplace, price
plays a significant role in a client's decision to purchase a service. And, of all of the
factors affecting profitability (price, utilization, leverage and margin), price is the only
one that does not have a directly adverse impact on some other factor when it is
increased. As a result, small adjustments in price have a major effect on net profit.

INTRODUCTION
In the current economic context, the consulting has as main target to help a company
manage home and foreign resources to cope with the problems and changes finding the
best and innovative solutions. When a company preparing to launch a new product or
service it is imperative that it gets the price right the first time and that is based on useful
data from the marketplace; the value perceptions of the buyers, their willingness to pay,
and expected price elasticity and demand curve
To address these issues is very useful resorting to specialized consultants. In the
consulting field, one of the greatest variations is in pricing. Pricing is never just a number.
It is a complete strategy for harvesting the highest possible profit from the value created
for customers. Finding the best pricing strategy is extremely important to a companys
competitiveness. It can be appreciated that that pricing is a management decision with a
large marketing input
Pricing Of Consulting Services
In the narrowest sense, price is the amount of money charged for a product or service.
More broadly, price is the sum of all the values that customers give up in order to gain the
benefits of having or using a product or service. Historically, price has been the major
factor affecting buyer choise. In recent years, non-price factors have gained increasing
importance. Nevertheless, price still remains one of the most important elements
determining a firms market share and profitability. One of the most significant
developments in the global economy context is the constant expansion of services
activities. In this respect, we can consider that the services role in socio economical
development refers both to their contribution to the economic growth and to life quality
improvement. Nowadays the services quality represents a common subject, an ongoing
concern of the world specialists, producers and traders, in order to conquer the national
and international markets. The quality means more than a positive view on purchased
services revealing the entire organization quality, the rendered services accuracy and the
staff skills as well. In this regard consulting services play an important role in increasing
6

the competitiveness of firms in the market. Prices in the consulting field are wide-ranged
and all too often determined without any sense or sensibility. But is essential the
importance of creating prices in the context of clear strategic marketing objectives. In the
market, pricing decisions are dominated by cost-based and follow-the-leader approach.
For this, marketing managers have an important role in decision making process
a) Ability to deliver results.
In consulting business field, perception is everything. Perceived value depends on how
the prospects are evaluated. Relevant aspects in this direction are:
Industry reputation
Reputation of the firm in consulting practice
Testimonials and referrals
b) Benefits of the consulting firms.
The benefits of operating a successful consulting practice take into account items such as:
Salary/income
Operating expenses
Gaps between assignments
c) What the market will bear.
What clients will pay for consulting services depends on factors such as:
The industry served
The perceived value of the services
Competitors consulting fees
The position of the decision/maker
7

New entrepreneur consultants tend to undercharge for their services. The mistake is
understandable. First, it's difficult to know the going rate because most consultants
vigilantly guard their prices. Second, despite the seemingly small barriers to entry, firsttime consultants usually don't have the strong relationships with clients. Finally, many
consultants simply underestimate how much a business will cost to run
Consultants' fees vary depending on location and target industry. But must be a common
methodological framework for arriving at an attractive pricing structure--both for the
consultants and its customers
Practically, there are various types of fees for consulting services:
Hourly
Daily
Weekly or longer term commitments
Project fees
Payment for results

LITERATURE REVIEW

General Introduction about the sector

Human resource is the most precious resource for any organization. Recruitment of right
person on the board of a company is indispensable for success of the organization.
Human resources solution providers consist of dedicated team of experts which provides
its clients with workforce solutions like hiring right candidate (temporary and permanent
nature) to streamline the human resource processes at the clients end. Staffing industry
works in an increasingly dynamic business environment today and has seen utmost
transition in recent years. It has emerged its status from only replacing absentee
workers to become strategic partner for its clients by providing entire gamut of
employment solutions like providing corporate training, pay-roll processing, recruitment
process outsourcing, etc.
The staffing industry in India is highly fragmented and provides services in varied
streams such as Finance, Sales, Engineering, Information Technology and Management.
Recent developments on the economic front like opening up of various segments like
retails, aviation, etc. for FDI is also a boost for the segment as this will lead to increase in
hiring activity. Growth economics shown by India has also attracted large MNCs to set
their foot in the nation and ride the growth tide.
The Indian recruitment industry is driven by a number of factors including the growth of
key client industry, large conglomerates entering into new business domains, entry of
multinational companies in the Indian markets among others. Indian economy has been
growing at an attractive rate backed by growth in its key customer industries like IT,
ITES, retail, banking, health care and hospitality among others. Also the industry is
characterized by the increasing trend of private equity transactions and a number of
mergers and acquisitions. Also, a number of companies have started outsourcing their
recruitment processes to third party recruiters.
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Over the last two decades, Indias image as a land of snake charmers has changed rapidly
to that of a power house of human resources. Our greatest resource today is our people,
be it our entrepreneurs or our large, young and vibrant working population. Indias
human resource industry, dominated by talent acquisition in the form of recruitment,
temporary staffing and executive search, has been growing be an estimated CAGR of
21% over the last four years and is now estimated at more than INR228 billion. Many
global players have entered the Indian market over the last decade and some are poised to
make the quantum leap. This market is rapidly moving from a highly fragmented and
unorganized sector to a structured and organized industry.
While there is no uniform definition for the HR solutions industry, for the purpose of this
report, we may define it as the rewards derived from any decision on buying services for
any part of the human capital value chain. The HR solutions industry can be broadly
divided into two main functions permanent recruitment of executives and
professionals, and temporary recruitment, specializing in professional and general
staffing. HR solutions are being increasingly viewed as a distinct industry with the role of
HR consultants evolving with changing market dynamics.
Large Indian companies are diversifying into new sectors and prefer candidates with
relevant experience.
However, since their HR function find it difficult at times to source candidates from the
large and geographically dispersed talent pool, companies are increasingly looking at
external help. This change in approach and mindset has made sourcing a relatively
complex activity, resulting in companies increasingly partnering with recruitment
consultants with a global footprint or access to global databases to source the right
candidates.
The service industry is a people-driven one and is clocking double-digit growth. The
service industry has a large manpower requirement, which facilitates the need for a large
HR function to fulfill its growing needs. Since recruitment is not a recurring activity and
is a function of economy and a companys growth plans, companies prefer to partner with
10

consultants to source the right candidates as and when required, and have their HR
function focus on the core and strategic activities of selection, planning and retention.
Temporary staffing is a growing human resource trend and the phenomenon is finally
catching up in India. While industry experts estimate employee leasing to be a US$140
billion business worldwide, the domestic staffing industry has yet to witness large
figures. The scenario is however set to change as companies are increasingly partnering
with consultants, and experts expect that in the near future, 2.5%-3%1 of the workforce
in the country will be hired on a temporary basis.
The human resources industry has taken on many roles and dimensions, especially in the
last few years, owing to the ways in which companies have diversified their range of
operations, requiring hiring of specialized employees from specific talent pools.
In recent times, one of the many faces of the evolving HR industry has been the HR
solutions segment, which has emerged as an industry in itself.
As explained last week, while no uniform definition for the HR solutions industry exists,
the study by Ernst & Young (E&Y) and the Executive Recruiters Association (ERA)
namely: Human Resources Solutions Industry: Stepping into the next decade of growth,
defines it as the rewards derived from any decision on buying services for any part of the
human capital value chain.
This industry can be broadly divided into two main functions: permanent recruitment,
spoken about last week, and temporary recruitment, relating to specializing in
professional and general staffing.
We will now look at temporary recruitment, which is a massive segment within the HR
solutions ambit, accounting for a market size of Rs 167-170 billion. Temporary
recruitment, along with permanent recruitment, is estimated to contribute 86 per cent to
the overall market size. But, temporary recruitment (staffing) has the largest share at 73
per cent of the market, since it includes pass through salary costs, the study says. The
study explains, Temporary recruitment takes place when a temporary work agency finds
11

and retains workers, while other companies in need of short-term workers enter a contract
with the agency to send temporary workers on assignment.
Temporary employees are generally used in industries that are cyclical in nature and
require frequent adjustment of staffing levels, the study further informs, stating that the
temporary recruitment market can be broadly classified on the basis of the skill set of
temporary workers. They are as follows:
Professional staffing:
A staffing company provides temporary skilled professionals on their payrolls to large
companies that typically operate in the IT and engineering sectors. These are technically
proficient workers such as web developers, planners, etc.
General Staffing - white collar:
A staffing company provides temporary skilled labour on their payrolls to large
companies operating in the ITeS, retail and telecom sectors. These may be people with
basic training for generic training such as front-ending a retail store, BPO employees and
so on.
General Staffing - blue collar:
A staffing company provides a large number of temporary employees to factories or
plants, which typically include workers.
Of the total temporary recruitment market estimated at Rs 172 billion, professional
staffing accounts for Rs 53 billion and general staffing Rs 119 billion, the study says.
The steady growth of professional staffing market, with companies having high margins
of 30-35 per cent, can be attributed to the rapid growth in the IT and engineering sectors.
The Indian market for IT products and services is expected to consolidate the growth it
achieved in 2010 and increase from $19.7 billion in 2010 to $41.2 billion by 2015.

12

The study says that the Indian IT companies have been pioneers in temporary recruitment
and are presently involved in increasing their temporary staff in non-core activities and
services (where the revenue flow is not recurring) to focus more on core activities and cut
down on costs to withstand competition from other emerging markets and become more
competitive. What has been rated as a leading HR trend worldwide, temporary staffing, is
finally catching up in India.
Meanwhile, the countrys engineering sector is the largest of all industrial segments in
India and accounts for about 12 per cent of its GDP.
Experts assert that there appears a change in the staffing model too. While industry
experts estimate employee leasing at $140 billion globally, the domestic staffing industry
is yet to witness significant figures.
However, this scenario is set to change, given the fact that in the near future, 2.53 per
cent of the countrys workforce is likely to be hired on a temporary basis, the study says,
adding, The IT industry, being a pioneer in staffing, is expected to witness a large
percentage of such hiring in the next few years, with the penetration of a temporary
workforce in the segment being expected to increase from 10 per cent to around 20 per
cent.
Alongside professional staffing, there exists the larger, general staffing industry, which is
estimated at Rs 119 billion with around 890 thousand employees staffed through
organised players. General staffing can be broadly divided into blue collar and white
collar recruitment. The latter is generally at the graduate level, while the former consists
of labourers and workers.
General staffing is growing at a rapid pace thanks to the development of many key
industries. Growth in key user industries such as retail, ITES and telecom, and the large
companies shifting from unorganized to organized players is expected to contribute
towards the growth of general staffing, the study adds.
So why has temporary recruitment become so important in the overall HR industry scene,
even as the economies witness hard times? The study reiterates, Temporary recruitment
13

companies are growing with organisations that are gradually increasing their share of
temporary staff in their total workforce to withstand the economic downturn, recognizing
the merits of having temporary staff.
Challenges for the Industry
The staffing industry today works in an exceedingly dynamic business environment,
perhaps the most transformational the industry has seen in the 50 years of its evolution. It
no longer functions solely in the capacity of replacing absentee workers with temporary
ones, but has slowly emerged as a strategic partner for its clients by providing an entire
gamut of employment solutions and services.
The staffing industry has seen a huge swing towards recruiting professionals from varied
streams such as Finance, Sales, Engineering, Information Technology, and Management
While this trend provides myriad opportunities for growth, it has also bought a set of
unique challenges with it. Hence the growth challenges are Customer Retention &
Serving new industries, Applicant loyalty, soaring operational cost due to disintegrated
systems in usage, high percentage of manual effort involved in the process of matching
the right people with the right job there by prohibiting a quick response to the customer
for an order & integration of the business processes across geographies. These challenges
needs to be addressed by a Go-To-Market solution that provides a real- time visibility
into opportunities and resources, finding, bringing and retaining the best talent across the
globe, managing clients, applicants & orders from a single source, fully integrated to
manage both the front office and back offices seamlessly and inculcates the best industry
practices so as to deliver the high quality service thereby adding more value to the
customers while reducing the costs and maximizing profitability.
Deregulation
The regulatory framework of labor markets in individual countries is a significant
influence on the staffing market size and growth rates. There is a direct relationship
between the regulatory framework of labor markets and staffing market size - more
flexible labor markets lead to higher penetration rates for staffing. UK, one of the most
14

liberal labor markets, also enjoys one of the highest penetration rates of around 4.5% in
temporary staffing. Other countries such as Germany, Spain, Italy and Japan have all seen
an increase in opportunities as a result of labor market liberalization in recent years.
Economic environment
Demand for HR services is sensitive to changes in the level of economic activity. In good
times, when GDP expands, demand for temporary employees increases. In a downturn,
companies tend to reduce their quota of temporary employees before permanent staff,
resulting in lower revenues for the staffing business, with a negative impact on
profitability and the financial position.
Given the opacity of the staffing business, it is important that management at country
level is aware of economic developments in order to adapt the cost base to revenue
trends. Corporate and regional management need to maintain an active dialogue so that
capacity can be adjusted as and when necessary. Close monitoring of monthly results and
updated forecasts ensures a rapid response to business developments.
Client attraction and retention
The Staffing firms business potential and long-term profitability depends on attracting
and retaining clients. Client satisfaction breeds loyalty and leads to consecutive
assignments. Failure to provide this is a business risk.
Staffing firms can conduct a global & local Client Satisfaction Survey with managementdefined short-term targets. The results will help to draw up local sales action plans,
support salespeople, and gear the services to client needs. In addition, staffing firms can
also continue to review the delivery models and optimize sales processes.

External Talent attraction and retention

15

The successes of the Staffing firms depend on their ability to attract and retain external
talent who possess the skills and the experience to meet clients staffing needs. With
talent shortages in certain sectors and intensive competition for skilled individuals,
providing suitably qualified candidates is both a challenge and a risk. The continued
success of staffing business depends in part on the ability of the staffing firm to offer
attractive conditions to retain colleagues.
A key to retaining external talent is to offer consecutive assignments and competitive
wages. The Global Client Satisfaction Survey can also address external and internal
colleagues while helping the offices around the world to identify their needs.
Front to Back Integration
Disparate systems create multiple versions of information that impede the ability of a
staffing firm to manage the business efficiently. Decentralized information prevents your
employees from having realtime visibility into available resources, open orders, and
client requests. And it prevents you from having realtime insight into your pipeline, cash
flow, and business trends.
The Staffing solution completely integrates the front and back-office systems to provide a
consistent, centralized data source for clients, applicants, orders, projects, and billing
information. Your employees can easily view and share the same data directly from a
Web browser. By connecting employees throughout your organization to a single source
of information, you can dramatically increase efficiencies, reduce errors, and eliminate
redundancy.
Powerful Search and Match Capabilities
One of the most important tasks for a staffing firm is to find the best resource for a job.
Even with an enviable pipeline of job orders and a top-notch pool of resources, staffing
firms may not realize the full potential for profitability unless they efficiently and
effectively match the resource to the job profile.

16

The Staffing Front Office solution delivers the extensive search and match capabilities
that make it easier to find the right person for any job based on skills, location,
availability, and billing rate from a single labor pool. It not only increases the operational
efficiency but also reduces the risk of losing business to competitors
High attrition rates
It however cautions that such companies face high attrition rates with clients absorbing
temporary staff, pressure on their working capital and compliance with laws applicable to
permanent staff.
But certain critical factors have contributed to the success of temporary recruitment
companies, whose mantra has become one of the most important trends in the HR
industry at large.
Factors such as a pan-India presence, network of client relationships and quality of the
sales team have gone a long way in sealing the success of temporary recruitment, the
study says.
Besides, permanent and temporary is a host of other segments with a market size of Rs
33-38 billion, which also contributes to the HR solutions industry. One of its facets
includes Recruitment Process Outsourcing (RPO), wherein the provider acts as a
companys internal recruitment function for all or part of its recruitment activities.
As a service offering, RPO has not yet evolved significantly in India, but consultants
expect companies to adopt the outsourcing model to withstand competition during a
downturn.
Another facet, Payroll Outsourcing, largely involves analysis of organisational data,
computation of gross salaries, TDS, allowances, reimbursements of expenses and filing
of TDS.
With payroll being a complex and non-core activity, companies generally tend to
outsource it. The space is dominated by large MNCs due to concerns relating to sensitive
17

personal data sharing and the ability to provide end-to-end solutions, the study says,
mentioning Online Job Portals and Employment Training as the other facets.
The study adds, Organizations are fast realizing the benefits of outsourcing non-core
activities and focusing on enhanced value-added activities. Outsourcing of non-core
activities enables HR professionals to move away from routine administration to a more
strategic role.
As a result, the number of companies outsourcing HR activities is expected to continue to
rise and the scope of outsourced HR activities to expand.
The study concludes that the HR solutions industry seems poised for interesting times;
with 11 deals in the last three years, the overall sector is expected to keep innovating and
evolving toward exponential growth.
Pricing strategy, a major component of the 4 Ps of marketing mix (product, price,
placement, promotion), is vital because it directly produces revenue, whereas other
marketing functions represent expenses and price must support them. Most pricing
decisions can be implemented relatively quickly, whereas product, promotion and
distribution changes usually take longer and cost more to complete. Pricing strategy is
also built upon a solid understanding of the 5 Cs of pricing: customers, competition,
costs, capacity and business cycle. When planning pricing, marketers first must determine
what this strategy is intended to achieve, given the marketing, financial and societal
objectives they have set. They also need to investigate the various external influences
(customers, competitors, channel members; legal, regulatory and ethical concerns) and
internal influences (costs and break-even; targeting and positioning strategy; product
strategy; and other marketing decisions) that can affect pricing decisions. Marketing
decisions must be consistent with the total organizational objectives. Pricing decisions are
just one of the marketing decisions. Obviously, if the organization has a targer return on
investment, we can see the link to pricing. Pricing decisions can have important
consequences for the marketing organization and the attention given by the marketer to
pricing is just as important as the attention given to more recognizable marketing
activities. It is important to know that pricing policies are critical depending on the type
18

of market structure to avoid the business failure. So, it is relevant for a select market
structure to choose the optimal pricing policy to insure that the firm is able to be
successful and earn long-term profit. Pricing is a dynamic process. Companies in the
consulting field design a pricing structure that covers all their services. Pricing strategies
usually change and adjust to the market.
For consulting firms, the biggest deterrent to cost-plus pricing is determining an
accurate and acceptable cost calculation. Like most businesses, consulting firms have
both fixed and variable costs. But most costs are tied to the number of lawyers the firm
has. That is, when a firm adds a lawyer, the lawyer needs an office, a portion of a
secretary, a computer, etc. But the costs necessary to support a lawyer rarely arrive in
single lawyer increments. Instead, costs are only indirectly variable and reflect the
addition of groups of lawyers. For example, a firm rarely can add offices one at a time
and, at some point, adding lawyers requires an increase office support staff. Indirect
variable costs are common in all businesses. But the unique aspect for many large firms is
the rate at which the firm grows in "fits and starts" with little planning or predictability.
Consulting firms tend to add lawyers both in response to the availability of work and in
anticipation of work. This process includes bringing in large classes of first-year lawyers,
which must be decided a year in advance, and bringing in lateral acquisitions, which is
largely reactive to the availability of an individual or group. Predicting the volume of
legal work poses a problem because volume, which represents the necessary divisor in
establishing that cost calculation, is a highly unpredictable figure.

19

Figuring cost per hour is much less complicated at the end of the year (as a reporting
function) than at the beginning of the year (as a pricing function). But even if a firm gets
the math right, other difficulties emerge in translating cost into hourly rates. Basically, the
problem is that cost-plus pricing is internally focused. For pricing to be effective, both the
buyer and seller must accept the price. Yet clients could care less about a film's costs.
Clients view price in comparison to what competitors charge, by how much they can
afford and what seems fair. Even more importantly, cost-based pricing produces abovemarket prices when the market is weak and below-market prices when the market is
strong. That is, cost-plus pricing completely ignores the market variables of competition
and demand. The method is unresponsive to changes in the competitive environment.
But for most consulting firms, the concluding issue is that cost-plus pricing produces
wacky results in comparison to traditional law firm pricing schemes. Law firm billing
rates tend to be highly linear. They reflect a reasonably straight line from the most junior
lawyer to the most senior lawyer, relating to experience. But the cost of a lawyer varies
tremendously over time. This is most noticeable at the extremes. Most firms charge
below cost for young lawyers, choosing instead to make their profit on senior associates
and young partners. At the high end, the profit attained from a senior partner requires a
subjective decision: how much of a partner's compensation is attributable to work
performed and how much can be attributed to other factors like business development
and capital at-risk? If a firm applied cost-plus pricing to a senior partner with high
compensation and relatively low billable hours, that partner could end up with a billing
rate of several thousand dollars per hour.
Competitive Pricing
In a "mature" market, what competitors charge is an important factor in establishing
price. That's because in a mature marketplace, industry leaders can establish market
pricing, and buyers are well aware of how much that price is. The good news for
consulting firms is that the practice of law, even at its most sophisticated levels, is highly
immature. In fact, it constitutes what may be the last cottage industry left in the modem
world. The legal marketplace is populated by small market share providers and incredibly
20

unsophisticated clients. It's true. In India the total market for legal services is just below
$200 billion, and no law firm can claim anything even approaching one-half of one
percent of that market share. Firms appear even smaller when viewed on a global basis.
And, while we may pretend that buyers of legal services know what their competitors are
paying, the combination of antitrust laws and Byzantine legal department accounting
systems makes it tough for any client or law firm to effectively compare pricing. Some
firms may glean insight from bankruptcy filings and anecdotal evidence picked up when
partners from competing firms have lunch, but observing prices in the legal marketplace
is similar to blind men touching an elephant.
What the Market Will Bear Pricing. Given the vagaries of the other two methods of
setting prices, it is not surprising that most firms use their clients as the arbiter of
acceptable pricing. But just how does a law firm know what the market will bear? I know
one managing partner who believes in the "gag threshold" method. That is, when a client
opens a bill, the dollar amount should be high enough to cause throat muscles to
constrict, but not so high that the bill gets tossed in the trash. Indeed, for many firms,
judging what the market will bear involves a game of brinksmanshipthe firm raises
rates until the client screams or, in the worst case, takes their legal work elsewhere. As an
alternative, lawyers could simply ask clients how much they're willing to pay. But this
strategy typically fails, not so much because the client lies (although the question begs for
a low ball answer), but because most clients are simply unaware of how much they're
willing to pay. Again, as one of the last cottage industries, consulting firms continue to
customize services in a manner that makes it nearly impossible for any but the most
astute client to compare prices among competitors. Not surprisingly, the result is often a
level of sticker shock for the client that reaches or surpasses that "gag threshold". For the
law firm, all of this adds up to inefficient market pricing. That is, because firms lack any
effective means of measuring the acceptable client price, they consistently fall prey to
overcharging in weak markets and undercharging in strong markets. When a firm charges
more than a client is willing to pay, the client will either complain or take their business
elsewhere. In either case, the firm is offered immediate feedback of their price being too
high. But, no such feedback exists when the price is too low. Most consulting firms,
21

being the risk-averse organizations they are, safely react to this situation by preferring to
charge too little, thereby avoiding the risk of offending or losing a client. Worse, many
lawyers routinely train clients to seek discounted fees. Most consulting firms have
established a standard billing rate for each attorney (equivalent to the manufacturer's
recommended price for a product). At many firms, though, partners regularly provide
clients a discount from this rate, eventually reaching a point where charging "full rates" is
a rare accomplishment. Clients are quick to figure out how to play this game.
Price Sensitivity
If consulting firms intend to charge clients based on what the market will bear, then they
need a mechanism for figuring precisely what, in fact, each client is willing to pay. This
involves understanding each client's unique circumstances in the marketplace and setting
the firm's price in appreciation of those individual circumstances. To do this, firms must
first determine the client's level of price sensitivity. To start with, four basic types of
clients exist, each with their own level of price sensitivity

Price-based Clients
There are no purely price-driven clients. All clients understand to some degree that "you
get what you pay for," i.e., they recognize some differentiation among the quality of
22

lawyers and legal services. But for the extreme pricesensitive client, the driving
consideration in selecting counsel is price. After the completely unqualified lawyers and
consulting firms have been screened, price is what it's all about. Of course, the best
example of the extreme price-sensitive client is the insurance company. Insurance
companies are in the business of assessing risk and, clearly, they have determined that
above a certain level of quality, the difference among firms in affecting the actual
likelihood of a successful outcome is insufficient to justify anything but the lowest
possible price. Extreme price-sensitive clients are easy to spot. Price is the first thing they
ask about, and price is the dominant feature of any conversation.
Relationship Clients
At the other polarization of price sensitivity are relationship clients. These are clients who
enjoy a special relationship with their attorney or law firm. They place such value on that
relationship that, as long as they don't believe they're being gouged, they are essentially
blind to price. Often the relationship involves a personal bond between the lawyer and
client, but it can also involve the client and the firm. For example, when a client hires a
pre-eminent firm or attorney, they are essentially saying, "Look at who is representing
me!" They pay to create a relationship where none previously existed. Relationship
clients tend to be sensitive and selective about who in a firm will actually do their work,
and they rarely address price as an issue.
Convenience Clients
For these clients, the driving issue is making problems disappear. Convenience may take
many forms, ranging from handling a transaction in Santiago with minimum hassle, to
defending a TRO at a 9 a.m. Monday morning hearing. Often, convenience is a function
of urgency. Convenience always involves the client's ability to move a problem away
from their desk and onto a lawyer's desk. Not surprisingly, convenience clients are
willing to pay the price for their urgency. They are not price sensitive (but bill them fast
because they may be a few months later).
Value-based Clients
23

All clients are value-based to some extent. They make rational decisions about pricing
based on what they believe they will receive in return for their investment. Then they
compare this to competing firms in the marketplace. Clients may place value on the level
of client service, the success of the outcome, or a variety of other perceptions. Often,
value is actually driven by price. Clients have very little information on which to base
price decisions. Outside of a commodity-type service that a client may have used before,
it is difficult to compare prices or gain insight into what legal services should cost. For
this reason, clients may place greater value on expensive services and less value on
inexpensive services.
Pricing Strategies
The first reaction of most consulting firms is that they should charge as much as possible.
But, like most products and services, pricing influences demand. At the broadest level,
high prices will cause highly price sensitive clients to rule out a firm. But to a client who
equates price with quality, those same high prices make the firm even more attractive.
Even so, a high price/high value strategy must be compatible to the legal services offered.
For example, the client must care about quality in order to justify a high price; therefore,
such a strategy would likely fail with routine commodity-level legal services. By the
same token, a highly competitive pricing structure appeals to a broader marketplace but
produces less revenue. In this situation, low pricing must support a strategy that
anticipates attracting a high volume of work or a service delivery strategy that permits a
firm to perform work at a lower cost than its competitors. There are several specific
pricing strategies that firms may employ:
Overpricing the Market
A firm can pursue a strategy of enhancing the value of its services by positioning itself as
the highest-priced provider. Firms use a high-price strategy to call attention to themselves
in the marketplace and create a basis for differentiation. This "were expensive, but were
worth it strategy effectively supports several other possible practice and client-based
strategies:
24

A strategy focusing on newly emerging or high growth industries or practices

Instances where the firm's client base is made up of or is targeting convenience clients or
relationship client
The objectives of charging fees substantially higher than the market is to convey
exceptional value to clients who base both their buying decision and their evaluation of
performance on factors other than price
The high-value service provider recognizes that it will not compete for substantial
portions of the marketplace but will compensate for losses in volume through exceptional
profit margins. To achieve a high-value strategy, a firm must be prepared to address three
tactics:
1.Understand clients' needs (including unexpressed needs) better than competitors,
2.Develop a marketplace reputation that is consistent with high value clients' needs and
3. Create a means of consistently delivering the fulfillment of the clients' needs.
It is important to recognize that a client's needs may involve a variety of factors beyond a
high level of service. A high value client may seek a firm with the ability to win difficult
cases, close complex deals, influence government decisions or enhance business through
its reputation.
Under Pricing the Market
Consulting firms also can build an effective pricing strategy based on their ideal clientele.
For example, a firm that wishes to pursue price-based clients must build a strategy that
combines pricing, market position and the operation of their practice. Price-based clients,
by definition, make their purchase of legal service almost entirely based on price.
Therefore, even to participate in a market with price-based clients, a firm must adopt the
strategy of charging a price less than or equal to its competitors.

25

A low-price strategy can work effectively for consulting firms capable of accurately
defining service levels and managing costs. To use a basic example, a firm that
strategically specializes in a specific area of insurance defense is capable of surviving and
prospering in a crowded and competitive marketplace. In fact, a firm that defines itself to
this market and develops an operating procedure and cost structure to this market will
eventually drive competitors out of the practice. But a price-based strategy can be
dangerous for the firm who is uncommitted to the strategy. There is no room for second
place in a price based market. By definition, clients will migrate to the lowest price.

The firm must have accurately identified its clients as priced-based,

The client base must be large enough to permit profitability through volume,

The firm must have management both willing and capable of putting operating
procedures and cost controls in place to permit profitable operation, and

The lawyers must be prepared to, in conformance with ethical standards, manage
cases on the basis of profitability

For many firms, competitive pricing simply serves as" a default. These firms are unable
to establish a practice area expertise or capability that justifies overpricing the market.
They also are unwilling to go head-to-head with other firms in a pricing battle. Still,
competitive pricing can be a highly credible strategy in support of other client-based
strategies. The best use of competitive pricing is in situations where a limited number of
firms serve a specific industry or industry segment. Logic predicts that the more focused
a firm's client base, the more likely they are to have knowledge of standard charges
among competing firms. While competitive pricing may, in effect, limit the maximization
of profits through higher pricing levels, it also prevents pricing from deteriorating if new
firms attempt to serve the market or if a particularly aggressive client attempts to
inappropriately reduce legal fees.
For example, in the real estate practice, both developers and lenders anticipate legal fees
to be approximately two percent of the value of a transaction. The primary objective of
26

both clients is to close the deal. As such, these clients will tend to be suspicious of a law
firm that dramatically under-prices the market, even if it is viewed as a credible firm. By
the same token, in the eyes of clients, there is little a firm can do to bring exceptional
value to the engagement. Therefore, a firm attempting to price above the market would
quickly be eliminated from competition. Competitive pricing accomplishes what open
marketplaces are designed to accomplish it creates a rational pricing base that reflects
supply and demand. In professional services, markets tend to be fairly inelastic to
changes in demand, i.e., when there is a recession and corporate transactional work dries
up, corporate lawyers typically dont reduce their hourly rates. As a result, the entire
marketplace takes on a stability that works to firms advantage. By comparison, when a
firm prices itself over or under a market, its price strategies deal with a limited number of
clients and will, therefore, immediately feel changes in demand. Low-price strategies
serve clients who are seeking any justification to achieve price concessions.

Adjusting Price to Volume

This strategy pioneered by firms specializing in commodity-level work (such as
residential real estate conveyances and insurance defense litigation), attempts to control
cost by carefully adjusting price to match volume. That is, if the volume of work exceeds
the firms capacity to perform the work, the firm will increase its rates for new work
before it hires additional attorneys. If the work continues to come to the firm at the higher
rates, the risk of increasing capacity is justified. By the same token, the firm can attract
additional work by reducing rates, if its attorneys are working below their capacity. While
adjusting price to volume makes sense in economic theory, it does not seem to work in
practice. Although price clients are drawn to the lowest price, volume based price
reductions and increases are rarely significant enough to justify the client undergoing the
disruption caused by changing firms. Worse, the lower rate now becomes the benchmark
and a return to the previous rate is viewed by the clients as a rate increase and a reason to
move work elsewhere. One area where adjusting price to volume may work is in the

27

increasingly popular trend, particularly among high regulated industries, to pre-qualify a

number of firms as a panel and bid legal work among the panel members.
For example, health care institutions pursue this means of obtaining counsel with
purposefully small chunks of work, it would permit bidding firms to reflect their current
level of busyness in their price.
Price Strategy is Hard
Creating a pricing strategy is difficult. For many firms it is unseemly that a client's
decision to retain a lawyer would be impacted by something other than experience,
quality of work and personal relationship. Yet, as clients become increasingly aware of
comparative pricing levels in the marketplace, pricing may be among the most important
decisions a firm's management can make in a strategic planning process. What makes
pricing so difficult is that, while it is a free standing strategy, just like focuses on practice
areas, geographic locations or industry clusters, it also cuts across all of a firm's
strategies. The pricing strategy employed for each of a firm's locations and practice
groups may be completely different. Pricing becomes even more complex as firms deal
with global markets and emerging practice areas that blur the boarders of what constitutes
the practice of law. The downside to strategic pricing is that a firm can end up with a
hodgepodge of pricing scenarios and, in the worst case, have strategies for different
strategies neutralize each other.

28

Professional services leaders at Acme Systems believed that the prices they were
charging for installing and integrating software packages were too low.
This is an important issue at software companies because professional services revenues
on any given engagement can be 2-5X the price of the software alone. Historically Acme
employed cost based pricing for its professional services, but found this approach was not
permitting the firm to achieve desired margins. An industry benchmarking study revealed
that professional service prices at the firm were below the norm relative to peer
organizations. In response, Acme leaders raised their prices and used the industry data to
justify the move with sales. Despite the efforts at justification, this sales force had been
accustomed to lobbying historically low prices even lower. So this price increase
genuinely felt like an impediment to closing deals. In ensuing months, business leaders
observed the gap between list and realized prices growing, and discovered more frequent
efforts to bypass formal approval processes. How much was the dysfunctional pricingsales relationship costing the firm? Using conservative assumptions, investigation
revealed that lost revenues exceeded 4%, costing the firm 18% of its professional services
operating margin.
29

Contribution margin-based pricing

Contribution margin-based pricing maximizes the profit derived from an individual
product, based on the difference between the product's price and variable costs (the
product's contribution margin per unit), and on ones assumptions regarding the
relationship between the products price and the number of units that can be sold at that
price. The product's contribution to total firm profit (i.e. to operating income) is
maximized when a price is chosen that maximizes the following: (contribution margin
per unit) X (number of units sold).
In cost-plus pricing, a company first determines its break-even price for the product. This
is done by calculating all the costs involved in the production such as raw materials used
in it transportation etc., marketing and distribution of the product. Then a markup is set
for each unit, based on the profit the company needs to make, its sales objectives and the
price it believes customers will pay. For example, if the company needs a 15 percent
profit margin and the break-even price is $2.59, the price will be set at $2.98 ($2.59 x
1.15).
Creaming or skimming
In most skimming, goods are sold at higher prices so that fewer sales are needed to break
even. Selling a product at a high price, sacrificing high sales to gain a high profit is
therefore "skimming" the market. Skimming is usually employed to reimburse the cost of
investment of the original research into the product: commonly used in electronic markets
when a new range, such as DVD players, are firstly dispatched into the market at a high
price. This strategy is often used to target "early adopters" of a product or service. Early
adopters generally have a relatively lower price-sensitivity - this can be attributed to:
their need for the product outweighing their need to economise; a greater understanding
of the product's value; or simply having a higher disposable income.
This strategy is employed only for a limited duration to recover most of the investment
made to build the product. To gain further market share, a seller must use other pricing

30

tactics such as economy or penetration. This method can have some setbacks as it could
leave the product at a high price against the competition.
Decoy pricing
Method of pricing where the seller offers at least three products, and where two of them
have a similar or equal price. The two products with the similar prices should be the most
expensive ones, and one of the two should be less attractive than the other. This strategy
will make people compare the options with similar prices, and as a result sales of the
more attractive high-priced item will increase.
Freemium
Freemium is a revenue model that works by offering a product or service free of charge
(typically digital offerings such as software, content, games, web services or other) while
charging a premium for advanced features, functionality, or related products and services.
The word "freemium" is a portmanteau combining the two aspects of the business model:
"free" and "premium". It has become a highly popular model, with notable success.
High-low pricing
Methods of services offered by the organization are regularly priced higher than
competitors, but through promotions, advertisements, and or coupons, lower prices are
offered on key items. The lower promotional prices are designed to bring customers to
the organization where the customer is offered the promotional product as well as the
regular higher priced products

Limit pricing
A limit price is the price set by a monopolist to discourage economic entry into a market,
and is illegal in many countries. The limit price is the price that the entrant would face
upon entering as long as the incumbent firm did not decrease output. The limit price is
often lower than the average cost of production or just low enough to make entering not
31

profitable. The quantity produced by the incumbent firm to act as a deterrent to entry is
usually larger than would be optimal for a monopolist, but might still produce higher
economic profits than would be earned under perfect competition.
The problem with limit pricing as a strategy is that once the entrant has entered the
market, the quantity used as a threat to deter entry is no longer the incumbent firm's best
response. This means that for limit pricing to be an effective deterrent to entry, the threat
must in some way be made credible. A way to achieve this is for the incumbent firm to
constrain itself to produce a certain quantity whether entry occurs or not. An example of
this would be if the firm signed a union contract to employ a certain (high) level of labor
for a long period of time. In this strategy price of the product becomes the limit according
to budget.
Loss leader
A loss leader or leader is a product sold at a low price (i.e. at cost or below cost) to
stimulate other profitable sales. This would help the companies to expand its market
share as a whole.
Marginal-cost pricing
In business, the practice of setting the price of a product to equal the extra cost of
producing an extra unit of output, by this policy, a producer charges, for each product unit
sold, only the addition to total cost resulting from materials and direct labor. Businesses
often set prices close to marginal cost during periods of poor sales. If, for example, an
item has a marginal cost of $1.00 and a normal selling price is $2.00, the firm selling the
item might wish to lower the price to $1.10 if demand has waned. The business would
choose this approach because the incremental profit of 10 cents from the transaction is
better than no sale at all.
Market-oriented pricing
Setting a price based upon analysis and research compiled from the target market. This
means that marketers will set prices depending on the results from the research. For
32

instance if the competitors are pricing their products at a lower price, then it's up to them
to either price their goods at an above price or below, depending on what the company
wants to achieve.
Odd pricing
In this type of pricing, the seller tends to fix a price whose last digits are just below a
round number (also called just-below pricing). This is done so as to give the
buyers/consumers no gap for bargaining as the prices seem to be less and yet in an actual
sense are too high, and takes advantage of human psychology. A good example of this
can be noticed in most supermarkets where instead of pricing at 10, it would be written
as 9.99.
Pay what you want
Pay what you want is a pricing system where buyers pay any desired amount for a given
commodity, sometimes including zero. In some cases, a minimum (floor) price may be
set, and/or a suggested price may be indicated as guidance for the buyer. The buyer can
also select an amount higher than the standard price for the commodity.
Giving buyers the freedom to pay what they want may seem to not make much sense for
a seller, but in some situations it can be very successful. While most uses of pay what you
want have been at the margins of the economy, or for special promotions, there are
emerging efforts to expand its utility to broader and more regular

Price leadership
An observation made of oligopolistic business behavior in which one company, usually
the dominant competitor among several, leads the way in determining prices, the others
soon following. The context is a state of limited competition, in which a market is shared
by a small number of producers or sellers.
Psychological pricing
33

Pricing designed to have a positive psychological impact. For example, selling a product
at $3.95 or $3.99, rather than $4.00
There are certain price points where people are willing to buy a product. If the price of a
product is $100 and the company prices it as $99, then it is called psychological pricing.
In most of the consumers mind $99 is psychologically less than $100. A minor
distinction in pricing can make a big difference in sales. The company that succeeds in
finding psychological price points can improve sales and maximize revenue.
Target pricing business
Pricing method whereby the selling price of a product is calculated to produce a
particular rate of return on investment for a specific volume of production. The target
pricing method is used most often by public utilities, like electric and gas companies, and
companies whose capital investment is high, like automobile manufacturers.
Target pricing is not useful for companies whose capital investment is low because,
according to this formula, the selling price will be understated. Also the target pricing
method is not keyed to the demand for the product, and if the entire volume is not sold, a
company might sustain an overall budgetary loss on the product.
Time-based pricing
A flexible pricing mechanism made possible by advances in information technology, and
employed mostly by Internet-based companies. By responding to market fluctuations or
large amounts of data gathered from customers - ranging from where they live to what
they buy to how much they have spent on past purchases - dynamic pricing allows online
companies to adjust the prices of identical goods to correspond to a customers
willingness to pay. The airline industry is often cited as a dynamic pricing success story.
In fact, it employs the technique so artfully that most of the passengers on any given
airplane have paid different ticket prices for the same flight.
Value-based pricing

34

Pricing a product based on the value the product has for the customer and not on its costs
of production or any other factor. This pricing strategy is frequently used where the value
to the customer is many times the cost of producing the item or service. For instance, the
cost of producing a software CD is about the same independent of the software on it, but
the prices vary with the perceived value the customers are expected to have. The
perceived value will depend on the alternatives open to the customer. In business these
alternatives are using competitors software, using a manual work around, or not doing an
activity. In order to employ value-based pricing you have to know your customer's
business, his business costs, and his perceived alternatives. It is also known as Perceivedvalue pricing
Nine laws of price sensitivity
1. Reference Price Effect buyers price sensitivity for a given product increases the

higher the products price relative to perceived alternatives. Perceived alternatives can
vary by buyer segment, by occasion, and other factors.
2. Difficult Comparison Effect buyers are less sensitive to the price of a known or

more reputable product when they have difficulty comparing it to potential

alternatives.
3. Switching Costs Effect the higher the product-specific investment a buyer must

make to switch suppliers, the less price sensitive that buyer is when choosing between
alternatives.
4. Price-Quality Effect buyers are less sensitive to price the more that higher prices

signal higher quality. Products for which this effect is particularly relevant include:
image products, exclusive products, and products with minimal cues for quality.
5. Expenditure Effect buyers are more price-sensitive when the expense accounts for

a large percentage of buyers available income or budget.

6. End-Benefit Effect the effect refers to the relationship a given purchase has to a

larger overall benefit, and is divided into two parts: Derived demand: The more
35

sensitive buyers are to the price of the end benefit, the more sensitive they will be to
the prices of those products that contribute to that benefit. Price proportion cost: The
price proportion cost refers to the percent of the total cost of the end benefit
accounted for by a given component that helps to produce the end benefit (e.g., think
CPU and PCs). The smaller the given components share of the total cost of the end
benefit, the less sensitive buyers will be to the components' price.
7. Shared-cost Effect the smaller the portion of the purchase price buyers must pay

for themselves, the less price sensitive they will be.

8. Fairness Effect buyers are more sensitive to the price of a product when the price is

outside the range they perceive as fair or reasonable given the purchase context.
9. The Framing Effect buyers are more price sensitive when they perceive the price

as a loss rather than a forgone gain, and they have greater price sensitivity when the
price is paid separately rather than as part of a bundle
You often see the tagline "special introductory offer" the classic sign of penetration
pricing. The aim of penetration pricing is usually to increase market share of a
product, providing the opportunity to increase price once this objective has been
achieved.
Penetration pricing is the pricing technique of setting a relatively low initial entry price,
usually lower than the intended established price, to attract new customers. The
strategy aims to encourage customers to switch to the new product because of the lower
price.
Penetration pricing is most commonly associated with a marketing objective of
increasing market share or sales volume. In the short term, penetration pricing is likely to
result in lower profits than would be the case if price were set higher. However, there are
some significant benefits to long-term profitability of having a higher market share, so
the pricing strategy can often be justified.

36

Penetration pricing is often used to support the launch of a new product, and works best
when a product enters a market with relatively little product differentiation and where
demand is price elastic so a lower price than rival products is a competitive weapon.
Skimming involves setting a high price before other competitors come into the market.
This is often used for the launch of a new product which faces little or no competition
usually due to some technological features. Such products are often bought by "early
adopters" who are prepared to pay a higher price to have the latest or best product in the
market.
Distribution (place) can also be a challenge for an innovative new product. It may be
necessary to give retailers higher margins to convince them to stock the product, reducing
the

improved

margins

that

can

be

delivered

by

price

skimming.

A final problem is that by price skimming, a firm may slow down the volume growth of
demand for the product. This can give competitors more time to develop alternative
products ready for the time when market demand (measured in volume) is strongest.
If there is strong competition in a market, customers are faced with a wide choice of who
to buy from. They may buy from the cheapest provider or perhaps from the one which
offers the best customer service. But customers will certainly be mindful of what is a
reasonable or normal price in the market.
Most firms in a competitive market do not have sufficient power to be able to set prices
above their competitors. They tend to use "going-rate" pricing i.e. setting a price that is
in line with the prices charged by direct competitors. In effect such businesses are "pricetakers" they must accept the going market price as determined by the forces of demand
and supply.
An advantage of using competitive pricing is that selling prices should be line with rivals,
so price should not be a competitive disadvantage

37

RESEARCH OBJECTIVES

To identify the pricing strategy used by consulting services

To measure the effectiveness of pricing strategy used by consulting services

To identify the employees perception towards pricing strategy in consulting

business

38

SCOPE OF THE STUDY

This research identifies the pricing strategy used by consulting services. This study
measures the effectiveness of pricing strategy used by consulting services. This research
identifies the employees perception towards pricing strategy in consulting business

39

RESEARCH METHODOLOGY

Research Tool:
It is very much important to understand the research tools to be used in a particular
research before moving on to the research methodology. Research approach can be
defined in two different ways i.e. quantitative approach and qualitative approach. When
the data is collected in a structured format and the data analysis is done in terms of
statistical numbers and calculations, this type of data collection method is called as
quantitative research. Whereas the data collected in an unstructured format and the
analysis is done in terms of in-depth discussion is called as qualitative research. So as per
the definition and the researchers understanding this research will involve more of
quantitative information as compared to qualitative information, because the feasibility of
the business depends on the actual facts and figures. As a whole the research approach for
the new grocery store business will quantitative in nature. However qualitative approach
will be required to support the quantitative information in the research study. Within the
quantitative approach, the data can be collected either using primary or secondary
research or in combination of both.
Tools for data collection:Primary Data - The primary data are those which are collected afresh and for the first
time, and thus happen to be original in character. In the present study primary data will be
collected various methods as such like:
1 Personal interview: Under this approach we will conduct the face to face interview with
respondents
2 Telephone interview: Under this approach we will conduct the telephonic interview of
respondents. Question answer will be discussed over the phone
3 Questionnaires: With the help of questionnaire we will gather the primary data.
40

Secondary Data - The secondary data are those which have already been collected by
someone else and which have already been passed through the statistical process. In the
present study secondary data will be collected through various as such like:
1 Publications of the central, state and local governments
2 Internet
3 Newspapers
4 Reports
5 Brochures
Sample Size: 50
Data Analysis:Charts and Tables will be used to analyze the collected data.

41

DATA ANALYSIS AND INTERPRETATION

Q1. From how many years you have been working in consulting business?

45% respondents replied that they have been working in their organization from 2 to less
than 4 years but 25% respondents replied that they have been working in their
organization from less than 2 years.

42

Q2. Age

16% respondents were from 20-25 years age group however 21% respondents were from
31-35 years age group

43

Q3. Gender

89% respondents were male and rest were female

44

Q4. Finding the best pricing strategy is extremely important to a companys

competitiveness

27% respondents were strongly agreed however 14% respondents were disagreed with
the above statement

45

Q5. We always create prices in the context of clear strategic marketing objectives

23% respondents were strongly agreed however 18% respondents were disagreed with
the above statement

46

Q6. Pricing decisions are dominated by cost-based and follow-the-leader approach

29% respondents were strongly agreed however 16% respondents were disagreed with
the above statement

47

Q7. Ability to deliver results factor is very critical and important in pricing strategy

30% respondents were strongly agreed however 14% respondents were disagreed with
the above statement

48

Q8. Benefits of the consulting firms factor is very critical and important in pricing
strategy

32% respondents were strongly agreed however 15% respondents were disagreed with
the above statement

49

Q9. What the market will bear factor is very critical and important in pricing
strategy

31% respondents were strongly agreed however 12% respondents were disagreed with
the above statement

50

Q10. Pricing policies are critical depending on the type of market structure to avoid
the business failure.

28% respondents were strongly agreed however 14% respondents were disagreed with
the above statement

51

FINDINGS OF THE STUDY

There are many ways to price a consulting service such as:
Premium Pricing
This approach is used where a substantial competitive advantage exists and the marketer
is safe in the knowledge that they can charge a relatively higher price. We can use a high
price where there is a unique brand.
Penetration Pricing
The price charged for services is set artificially low in order to gain market share. Once
this is achieved, the price is increased. The companies need to increase the number of
their consumers in order to get people to sign up for their services. Once there is a large
number of subscribers prices gradually creep up
Economy Pricing
This is a very low price. The costs of marketing and promoting a service are kept to a
minimum. During times of recession economy pricing sees more sales.
Price Skimming
Price skimming sees a company charge a higher price because it has a substantial
competitive advantage. However, the advantage tends not to be sustainable. The high
price attracts new competitors into the market, and the price inevitably falls due to
increased supply.
Psychological Pricing
This approach is used when the marketer wants the consumer to respond on an emotional,
rather than rational basis. It's strange how consumers use price as an indicator of all sorts
of factors, especially when they are in unfamiliar markets. Price therefore may be an
indication of quality or benefits.
52

Service Line Pricing

Where there is a range of services the pricing reflects the benefits of parts of the range.
Service line pricing seldom reflects the cost of making the service since it delivers a
range of prices that a consumer perceives as being fair incrementally over the range.
Optional Service Pricing
Companies will attempt to increase the amount customers spend once they start to buy.
Optional extras increase the overall price of the service.
Captive Service Pricing
Where services have complements, companies will charge a premium price since the
consumer has no choice.
Service Bundle Pricing
Here sellers combine several services in the same package. It's a good way of moving
slow selling services, and in a way is another form of promotional pricing.
Promotional Pricing
Pricing to promote a service is a very common application.
Geographical Pricing
Geographical pricing sees variations in price in different parts of the world.
Value Pricing
This approach is used where external factors such as recession or increased competition
force companies to provide value services to retain sales. Value price means that you get
great value for money. In many ways it is similar to economy pricing but is a mistake to
think that there is added value in terms of the service. Reducing price does not generally
increase value.
53

Also, on these issues, consulting firms can develop:

a) Low price strategy
Used to attract new consumers or to make an offer to existing customers;
Used short term to stop new competitors entering the market
Used to generate enough revenue to cover costs
b) High price strategy
Used to generate profits to cover launch costs, service may have a unique point of
different;
Used to grow profits
Used to maximize revenue in order to fund new projects
For many consulting services, marketers rely on fixed pricing, in which customers pay
the price set by the marketer; in other cases, marketers use dynamic pricing, varying
prices from customer to customer or situation to situation. From a customers perspective,
value is the difference between the total perceived benefits and the total perceived price
of a consulting service. Marketers care about customers price perceptions because they
influence the demand. Price elasticity, which indicates customers price sensitivity, is
calculated by dividing the percentage change in unit sales demanded by the percentage
change in price
Pricing is difficult and must reflect supply and demand relationship. Pricing a consulting
service too high or too low could mean a loss of sales for the organization. Therefore,
pricing should take into account the following factors:

Fixed and variable costs

Competition
54

Company objectives

Proposed positioning strategies

Target group and willingness to pay

Marketers should use value-based pricing rather than cost-based pricing to formulate a
strategy that satisfy company objectives and customer needs.

55

CONCLUSION
If putting the right people in the right places is the top priority, then delivering results that
exceed expectations is the second. Successful professional services firms recognize from
the get-go that they must build strong service histories to manage client perceptions, gain
references and develop favorable word of mouth communication.
Again, this is a natural fit for a value driven approach to pricing. Strong service histories
enable the professional services firm to effectively demonstrate and document value
delivered in monetary terms. This is the key to understanding the Economic Value
Drivers of the sale. In sum, the greater the economic impact the more the customer can be
convinced to pay for a service. The challenge, though, is the customer may not recognize
all the value being delivered with the service.
An understanding of both the symptoms and systemic causes of business problems is
necessary. When the customer does not recognize underlying systemic issues as causal
factors for the problems they are facing, it is more likely the customer will not recognize
the economic impact of the professional services firms work. Intensive communication
efforts are necessary to ensure the customer both understands the real issues it is facing
and the value of the professional service firms solutions.
Given an understanding of the clients price sensitivity and how they will derive value
from a solution, it is time to configure offerings. In the case of professional services, this
is some combination of differentiated resources, commodity resources and intellectual
property.
The objective of the professional services management team is to construct a menu of
offering choices for the customer. The menu provides real options with real value
tradeoffs for. A menu of options is critical in limiting price negotiations and discounting,
forcing customers to negotiate on value delivery rather than on price. Value delivery is
then quantified for the alternative options, and price points are set to provide a sufficient
economic incentive for the customers to buy.
56

Multiple offerings give the customers options that limit attempts to price deal and result
in higher margins for the professional services firm. Should the firm decide to offer any
discounts, discount policy is determined at this point. Only when the economic value to
the customer and price points are established does the team look at costs to assess
profitability.
The team determines the resources required to deliver the specified value, and costs are
estimated. In most cases the price points determined by this value driven pricing
approach will exceed those of the cost based approach
Professional services firms employing cost based pricing often fall short in convincing
customers they should pay for high value service delivery. By their own actions they are
inclined to increase price sensitivity among both sales people and customers, have high
levels of revenue leakage, have higher than necessary sales costs and end up selling the
skills of highly talented people at price-buyer rates to customers willing to pay for value.
The resulting costs can be sizable.
Value based pricing processes are a proven means to manage customer price resistance
and to deliver more profitable results. The process we have introduced here can be
integrated with existing professional services sales processes. Profitable, value based
pricing in professional services firms requires active management, but the process we
have introduced here can be integrated with existing sales processes without undue effort.
Active management includes the careful selection of customer segments, design of
offerings for each segment and pricing practices based on value delivery to target
customers.

57

RECOMMENDATIONS
Note that nowhere here has it been stipulated that value pricing must be fixed bid. The
value based pricing approach is not a specific pricing model. Rather it is a system for
setting and capturing a fair price, based on value to the customer relative to competitive
alternatives, with the objective of maximizing long term profitability. So a value price
may be high or low, and may be fixed bid, time and materials, or some combination
Increase price points, recognizing this reduces the clients incentive to purchase and
possibly increasing customer price sensitivity (price sensitivity increases as the firm tries
to capture more of its delivered value).
Add additional services (i.e., modify the service offering menu) with services that
increase value faster than costs increase, allowing higher price points and more profitable
offerings
Successfully capturing a value price depends on targeting buyers who benefit from and
are willing to pay for value. These are customers for whom the firm has the ability to
deliver differential value at competitive advantage. In the real world, however, some
buyers are value buyers and others are not. So the pricing process starts with price
qualifying the buyer based on price sensitivity. This price qualification drives the entire
pricing process. A price buyer, for example, is treated much differently than a value buyer
in sales approach, offering configuration and negotiation strategy
Pricing becomes even more complex as firms deal with global markets and emerging
practice areas that blur the boarders of what constitutes the practice of law. The downside
to strategic pricing is that a firm can end up with a hodgepodge of pricing scenarios and,
in the worst case, have strategies for different strategies neutralize each other.

58

REFERENCES

Adcock, D., Halborg, Al., Ross, C., Marketing. Principles and Practice, 4th Edition,
Pearson Education, 2001;

Bateson, J. E. G., Managing Services Marketing, 3rd Edition, The Dryden Press,
Harcourt Brace College Publishers, Florida, U.S.A., 1995;

Crciun, C. t., Managementul calitii serviciilor de consultan, Universitar

Publishing House, Bucharest, 2012;

Kintler, D., Adams, B., Independent Consulting. Your Comprehensive Guide to

Building Your Own Consulting Business, Streetwise Publication, Adams Media
Corporation, Avon, Massachusetts, United States of America, 1998;

Kotler, Ph., Keller, K.L., Managementul marketingului, 5th Edition, Teora Publishing
House, Bucharest, 2008;

Kotler, Ph., Armstrong, G., Principles of Marketing, 12th Edition, Pearson

International Edition, 2008;

Kubr, M., Management Consulting: A Guide to the Profession, International Labour

Office, Geneva, 2002;

Wood, M. B., The Marketing Plan Handbook, 2nd Edition, Pearson Prentice Hall,
2005;

59

ANNEXURE - QUESTIONNAIRE

Q1.

Q2.

Q3.

From how many years you have been working in consulting business?
Less than 2 Years

2 to less than 4 Years

4 to Less than 6 Years

More than 6 Years

Age
20-25 yrs

26-30 yrs

36-40 yrs

41 or more

Gender
Male

Q4.

31-35 yrs

Female

Finding the best pricing strategy is extremely important to a companys

competitiveness

Q5.

Q6.

Q7.

Strongly Agree

Agree

Disagree

Strongly Disagree

Neutral

We always create prices in the context of clear strategic marketing objectives

Strongly Agree

Agree

Disagree

Strongly Disagree

Neutral

Pricing decisions are dominated by cost-based and follow-the-leader approach

Strongly Agree

Agree

Disagree

Strongly Disagree

Neutral

Ability to deliver results factor is very critical and important in pricing strategy
Strongly Agree

Agree

Disagree

Strongly Disagree
60

Neutral

Q8.

Benefits of the consulting firms factor is very critical and important in pricing
strategy

Q9.

Q10.

Strongly Agree

Agree

Disagree

Strongly Disagree

Neutral

What the market will bear factor is very critical and important in pricing strategy
Strongly Agree

Agree

Disagree

Strongly Disagree

Neutral

Pricing policies are critical depending on the type of market structure to avoid the
business failure.
Strongly Agree

Agree

Disagree

Strongly Disagree

61

Neutral