Pricing: Communicating Value and Customer Retention

Dear Coach Alan,

I have a customer who has asked me to do more work for his company but refuses to pay more for the additional work.  This customer is on a contract for a specific number of hours per week. When I asked for more money for the additional work, he responded that I should not increase my price but manage the work more efficiently. He even told me that I needed better time management on his job. I would like to retain this customer but not at the current fees he is paying.  His fees are well below my normal fees for similar service. What should I do?

Sam

Well, Sam, this problem has many facets.  I am not sure whether your customer truly believes you are not delivering valued service for what he is paying you or whether this is just a negotiating tactic to keep costs down.  What is clear is that you are struggling to retain a customer who is demanding more service than you feel are warranted under the current fee arrangement. It seems that you have two choices if you want to retain this customer.  The first choice is to restructure the pay agreement to reflect the extra work.  This does not seem to be working. The second choice is to redefine the work to meet your current pricing model.  In other words, offer a reduced service at the customer’s current fee arrangement.  To accomplish this, you may be able to remove services that the customer does not want to pay for.

There is a larger issue here.  You pride yourself in offering a high level of service and bill accordingly.  Not all customers are willing to pay for this level of service.  You must choose between how to retain a customer who wants a lower price and firing customers who do not want to pay what you feel is fair. It is not possible to satisfy all customers with one level of service.

But, here is your real dilemma:  you have stated that you want to retain this customer.  You also state he is reluctant to pay you what you believe is the market price for your services.  There seems to be a gap between how you value your services and how your customer values your services.  Is it possible that this customer cannot differentiate between what you offer and what some competitors offer?  If your customer perceives no difference in service between your company and competitor companies, then he will likely go for the lower price.  Your task is to clearly differentiate your service from your competitors.  If the customer wants less than what you offer, you can choose to offer a lower level of service at a reduced price and retain this customer.  Or, if you choose not to reduce your level of service, you might consider suggesting the customer hire a competitor.

From a coaching perspective, it is important to ask the right question.  Sam is emotionally involved and sees his dilemma as a customer who is cheap or does not appreciate the high level of service his company provides.  He has a problem stepping back and viewing the situation more objectively.  This is where coaching matters.  By probing and reframing the situation, Sam will be able to decide among several options: whether to attempt to educate his customer to appreciate his company’s high level of service, reduce his level of service and lower his price, or suggest the customer move his business to a competitor.  These are strategic alternatives that depend on how Sam wants to run his business. Once Sam is clear on these alternatives, he is in a much stronger position to resolve his dilemma.