Posted , in Business model
Reassuringly expensive: why German clients are willing to pay more
If you bought a shirt from Primark, you wouldn’t be too annoyed if a button fell off or a seam frayed. After all, shirts from Primark cost about €5.
On the other hand if you bought a shirt from Tom Ford (a brand for which a single shirt tends to be priced between €500 and €1,000) then you’d be pretty unimpressed with broken buttons and frayed seams. You’d expect a perfect shirt, you’d expect to look fantastic in it, and you may even expect random (and, obviously, very attractive) strangers to walk up to you in the street and tell you as much.
But what if Tom Ford started selling shirts for €100? What would that do to your expectations?
Clients in Germany are used to paying Tom Ford prices for their consultants – they’re some of the most expensive in the world. So it was pretty surprising to find German clients telling us that they’d actually like to pay more for the services of leading consulting firms. And that’s despite almost one in five clients saying they’re disappointed with the quality and the value added by consultants.
All of which is quite perplexing, until we take into account the impact that price itself has on client perceptions.
The most striking example of price influencing clients’ opinions seems to concern the Big Four firms. The proportion of clients describing the quality of the Big Four’s work as ‘high’ or ‘very high’ quality was down, compared with last year, in almost every service. Areas that the Big Four usually excel in – financial management and risk, existing technology, business transformation – saw the biggest drops. And yet, almost half (48%) of clients say they want to pay more for them.
Are the Big Four suddenly slacking off when it comes to quality? Very unlikely. But our research of the German consulting market suggests that the Big Four have been heavily discounting, offering Tom Ford shirts for €100.* They’ve had some success in doing so – the Big Four were the fastest growing firm type in 2014 – but it’s making clients uneasy. Are they really getting Tom Ford quality for bargain prices? Or is it a bit like finding something at an outlet store (“€90 down from €4,000!”) that just sounds too good to be true? Was it ever worth that much in the first place? Doubts creep in.
While bargain prices may just tip a cash-strapped client into kicking off a project, many are sceptical of the quality it’s possible to offer at that rate. There may be short-term gains, but it’s a risky game: clients aren’t likely to entrust their greatest challenges to a cheap firm, no matter how established the name is, and the Big Four risk damaging their reputation at the high-value end of the market. It raises an important point around reassurance: clients want to feel satisfied that they’ve paid enough to get the right result, and they worry that cut-price services lead to corners cut elsewhere. They’re used to prices that are reassuringly expensive, and are prepared to keep paying for the peace of mind.
*Just to be clear, to the best of our knowledge the Big Four aren’t selling shirts.