Updated: Sep 4, 2020
How To Respond When Clients Say, 'Your Price Is Too High'
Our Content Editor takes a walk down the memory lane of this thorny issue, while the research team share valuable tips offered by a renowned expert on how to price marketing services appropriately.
Even when the repercussions are obvious, many people will prefer a rowdy, disorganised business atmosphere to an orderly one. Especially when it may involve expending some valuable resources to get things organised. The prize is that sleek opportunity to cut corners and make some gains.
If you don't mind, for the purpose of an experiment, please just drop your car for some hours of the day and join any public bus in Lagos to any location. One thing is always obvious. From the main park, all through various bus stops, the bus driver are always on the look-out for any opportunity to dodge the payment of fees representatives of transport unions are stationed at various locations to collect. The fees collectors of those union, popularly known in local parlance as 'agberos' know clearly that the drivers of those vehicles and their assistants ( also called conductors) are always up to something. So they must device ''purposeful" means to effect compliance. They will jump on the doors, pull out the seat or side mirror or make other disturbing moves that will compel the vehicles to make payments. I saw this scenario when I went round Lagos for the first time almost 30 years ago. If you go out tomorrow, the difference will not be clear. And I have asked anyone who cares to listen, is it not possible for the transport Unions and the drivers to agree on a specific fee that can be paid seamlessly without so much theatrics and hullaballoo?
Why this rather crass choice of an analogy you might ask? Now, let us look away from this regular experience in public transportation in Lagos. If you think this scenario is limited only to the hoi-polloi of plebeian life, then perhaps you need to take a look at the marketing communications sector in Nigeria. The issue of pitch rejection fee in Nigeria most probably has existed all long as the Agbero/\/Drivers daily drama in the country. I have covered the issue from the first day I started brand journalism well over 22 years ago. I can recall in the months and weeks leading to the 40th anniversary of the AAAN, in May 2013, pitch fee surfaced as one of the most controversial industry issues. Practitioners at the media parley heralding the celebration frowned at the attitude of clients to full implementation of this key element many professional agreed could help sanitise the business and the profession. At that media parley, I recall that the President of the AAAN at that time, Mrs. Bunmi Oke, lamented the awkward position of advertisers on the issue. She lamented that some advertisers reneged on the payment of fees to those who participated in various pitches at different levels.
Apart from the associations, agencies within the sectoral groups were largely silent on the matter at that time. It was discovered that some clients assemble several ad agencies sometimes up to 16 at a time, but end up not selecting any of them, even while their ideas are appropriated and subsequently implemented with impunity. One could also recall that a former AAAN President, Rufai Ladipo had complained at that period that "there is a conspiracy of silence surrounding pitch fees. Nobody wants to talk about it. Over the years, AAAN has laboured on this issue to no avail. The question is; why is it difficult to enforce and ensure full compliance? The answer is simple: double standards".
Where the big boys -Advertising and PR agencies- have glossed over things for decades, a "younger" association, the Experiential Marketers’ Association of Nigeria (EXMAN) has decided to tackle the challenge frontally. At the end of their AGM meeting few weeks ago in Lagos, the association declared that all organisations inviting experiential marketing agencies for any pitch must be prepared to pay N500,000 as rejection fee to each agency not picked.
EXMAN said it arrived at this resolution considering the level of research, creativity and funding that goes into the ideas presented to clients. Some members alleged that some organisations use some of the ideas presented at a pitch without giving them credit or paying for it.
Now listen to EXMAN President, Tade Adekunle, “When you invite 17 or 18 agencies to come and pitch for a piece of business they will only take one or two agencies and thereafter you will start seeing some of the ideas that some of the rejected agencies have given. Also, when agencies go for pitch they incur cost on research, creatives and others. “So, our association has decided that clients can ask for the profile of the various agencies, and then they can say this agency is good enough to work for us instead of calling 20 agencies to come and pitch.”
Tade stated that the association came up with the resolution that “If you are inviting any EXMAN member to come and pitch be ready to pay rejection fee of N500, 000 for those not picked”
He explained further that if organisations write back that they can’t pay rejection fee, no EXMAN member would partake in such pitch, stating that “If corporate organisations champion corporate governance, then it will be unethical to ask agencies to waive rejection fee.”
Tade equally stressed that it is mandatory for members to inform the association secretariat that they are invited for a pitch, then the EXMAN secretariat would write the client who must have agreed to pay the fee before the pitch process can be cleared.
However, he stated that members are not permitted to say they don’t want the rejection fee from client, If such happens they would have to face the disciplinary committee. “For our members, the resolution taken here today, is that you can’t push that right and say I would not collect rejection fee. The association is saying you cannot waive that right. If you don’t collect it , then, you will face the disciplinary committee of EXMAN,” he revealed.
Even if all segments of the Marcom industry in Nigeria - AAAN, PRCAN, MIPAN, OAAN, EXMAN, ADVAN, etc., want to collectively create a document that will guide all stakeholders in this, there are samples of best remuneration agreements in different economies along with clear payment systems that they can easily lay hands on to understudy to create an appropriate template for Nigeria.
Even after this, the issue may not be settled, just as a research done three years ago in economies where appropriate payment systems have been entrenched reveals. A survey in America and Europe posted on www.adweek.com revealed that nearly half- 49% - of agencies in America reported they rarely or never get any compensation from clients after a pitch in the last 1 year. In Europe, 56% of agencies however said marketers and brand owners offer remuneration for new business pitches. The pitch compensation structures varied depending on the economy- from a flat fee of about $5000 from one to a fixed percentage of the contract amount in others. In others it is not uncommon for the pitch process to extend into a number of ‘hoop jumping’ phases. Phase 1 could be as many as 21 agencies at the pre-qualification who would only submit their credentials for consideration . Phase 2 would be a shortlist of up to seven finalist agencies that would then be required to research their pitch concept for final consideration. This is the phase where pitch rejection fees are considered. Phase 3 would involve the lucky final three agencies being left to fight it out with the client’s procurement department.
Some who commented on the survey had these to say; "I'm increasingly starting to pitch without getting paid. It's a big problem." Henry Mark "For ad agencies, it's easy not to pay a pitch fee." Solomon "That's the nature of the job. It's an arbitrary, random, strange industry. If you want job security, pick another career” Bolton. "If you do a few pitches for free and you don't get the job, at least you're still gaining experience and making contacts.". This survey shows that even in more developed communications industries, brand owners sometimes do not pay pitch fees to agencies after a pitching exercise.
So what does the agency do when the client comes back saying that perhaps you were dropped because your price was too high? Here is an excerpt from a recent interview with
Ian Altman an author, strategic advisor and respected keynote speaker on integrity-based sales & business development
After a recent Immersion Workshop, someone asked: “What do we do when the customer comes back saying that we were not selected because our price was too high?” Excellent question! It’s pretty common for clients to give price as their reason for picking one vendor over another. So what should you do about it? Let’s start by understanding what the client might really mean when your client says “Your price is too high.”
What Could Be Going On?
There are two potential scenarios to consider.
First, you might actually provide the same thing as another vendor for a higher price. Unfortunately, you need to recognise that rarely will another vendor offer the exact same solution as you. Unless you are selling a drop-shipped commodity, there is always room for differentiation.
Second, the client has another reason why they selected the other vendor; however, they thought saying, “Your price is too high” would be more polite than telling you the real reason.
Imagine this example: You have a new project at your company. Several vendors bid on the project, including your friend’s company. The selection committee picks another company because they thought your friend’s presentation was horrible. Your friend asks you, “What happened? Why wasn’t I picked?” Not many people would say, “We thought you sucked.” Alternatively they might say to the friend, “We selected another vendor who the committee thought was a better value.”
Many a “white lie” has been said to spare the vendor’s feelings. It feels better as the seller to say, “They undercut us” than it feels to say, “They outsold us.”
What If It Actually Is About Price?
I’m covering this section just to be polite. I promise that it is almost never about price. But, if it is, here is what probably went wrong. You jumped to what you were selling instead of focusing on the issue they needed to solve. You failed to engage the customer in a discussion about their past experiences in similar projects. You did not share stories about issues other clients faced that you helped to solve. In short, you did not do anything to help you stand out from the competition. So, you reinforced the customer’s initial belief that you were just selling a commodity.
In many cases, the seller is the one who frames the discussion about price. You might ask your potential client how much they are paying their current provider. At that point, many sellers will say, “Maybe we can get you a better deal.” What if instead you asked “0-10, how happy are you with the current provider?” You can either provide a better outcome, or a better price. Without a better outcome, why would they switch to you other than price?
You might be thinking, “But it is a bidding situation. We didn’t have access to anyone.” When your organisation was making a recent purchase with a bid process, did each member of your team have a ‘favourite’ vendor? The one they hoped would win? Of course. Your customers do, too. If you are not the one they are hoping will win, someone else is. Ask yourself what percentage of deals you win when you don’t have a chance to discuss the project with the customer in advance. If the number is less than 10%, then make a decision to not bid those projects unless you can have a conversation with the customer. If you think the number is greater than 10%, then you might be kidding yourself. In most cases, we discover that companies win less than 5% of pursuits they chase without prior customer interaction.
How Can You Improve The Odds?
Fight for that opportunity to speak with the customer. Can you provide the best advice to them if you have to respond without any additional information? Of course you cannot. It is in both your best interest and your clients that you ask thoughtful questions to determine if there is a fit between their situation and what you offer. The key, however, is to make an honest assessment. You just might learn that you are not the best alternative. In that case, let them know: “In this situation, we may not be the best solution. Would you be upset if we declined to participate?” You might be surprised at how quickly you get invited to the party for the next opportunity. See, clients are used to vendors insisting their solution is the best, even when it isn’t. Your candor will get noticed, and in most cases rewarded.
Demonstrate that you are always looking out for the client’s best interest. Make it clear that finding the right fit is more important that making the sale. If you do these things right, you just might become the vendor they all are hoping will win.
Watch More from Ian Altman: Same side Selling
It would be very interesting in Nigeria to see how EXMAN follows through enforcing this web of requirements and expectations. Probably the association will need a monitoring and enforcement committee. Whatever the success of the efforts, EXMAN has taken a purposeful step. Enforcement, just like what happens in other climes might be another issue. Effectively tackling and pushing this ageless pitch rejection fee issue to the back burner is germane if the industry wants more relevant issues like Artificial intelligence to take the front burner. Story by Ntia Usukuma
PURCHASE YOUR COPY OF OR BEST PRACTICE GUIDE ON HOW TO NEGOTIATE AND MANAGE MARKETING SERVICES AGENCY REMUNERATION.
A critical assessment of the 12 key remuneration methodologies which are used individually or in combination by agencies around the world with the pros and cons
A detailed review of job cost analysis & agency JOB BAG templates
A review of Value based pricing models and how to make the transition
A Ten Point checklist to take into your next negotiation
1 YEAR Login Access to a proprietary/confidential online industry rate card for price benchmarking
FEE: N20,000 ONLY
Click Here To Order: TOOLKITS