Making a series of business trips to Ireland recently, I was already familiar with Ryanair pricing (in which a sandwich & coffee cost 20% of your basic flight price) and, given that their flight times were by far the most convenient, quite happy with the service. What I hadn’t anticipated was the extent to which the whole country has ‘gone Ryanair’. Two days car hire “Only €34!”. Final bill: €167, including ludicrously expensive petrol and ‘servicing fee’. Dinner in a promising Dublin bistro: “Only €19!”. Add two glasses of house red? That’ll be €34 please – plus tip. Near undrinkable petrol station coffee from a vacuum jug? “Just €2.40!”. It’s enough to drive one to a Pete McCarthy-style ‘Singapore noodle’ rant.
Professional firms are not above following suit
Ryanair’s approach works because, even after the unavoidable extras and last minute premiums, they’re still cheap, convenient and, in my experience so far, bang on time. On my chosen route at least, there was no realistic alternative. So you play their game, but have absolutely no customer loyalty whatsoever. Given that the clients of most professional firms have lots of alternative providers, and that unlike an airline, giving the impression that you are not First Class eats up your brand capital faster than the speed of sound, you would have thought that no firm offering, say, legal or accountancy services would dream of adopting such a model. But some surprisingly big names (on which more in a moment) do, and their success throws up challenges for the rest.
The basic cunning idea is as old as the hills: offer seductively low rates to secure a major contract, then:
- charge as many extras as you can;
- have all work done by the lowliest, lowest paid people you can hire;
- schmooze the senior managers and…
- ramp up service levels in the run-up to the three year review.
With luck, you might then even persuade the client to stick with the devil they know. If not, you’ve had three fantastically profitable years and can probably secure a replacement contract, with a different client, on the same basis. There are always managers around tasked with driving costs down, and the credit for securing ‘great deals’ all comes up-front. Come review time, they’ll have had their promotion.
Competing with this approach is all the harder because it tends to be the larger name firms that do it. This happens either because a few divisions of otherwise strong firms will always trade on a reputation maintained by their colleagues, or because the whole organisation, like a famous but fading hotel, is resting on its laurels. Smaller name firms don’t have this brand capital, so cheap offers don’t smack of high efficiency, just desperation.
What can be done in the face of such cynical rivals? From personal experience and that of some clients, there are some defences which, whether pitching to gain or keep an account, I have seen succeed:
1) Influence the tender criteria
Often an opportunity when it’s an account you have and, if you’re in early enough, one that might be open to you even if it’s not. Your objective should be, in the most positive way possible, to educate the client in how to ask for information, such as actual average costs on a comparable account, which will make it difficult for the bidders to pull a fast one.
2) Be as open as you dare
I’ve seen firms lose major accounts because they are affronted at how much detail a client wants about their financial position and ways of working. But those I’ve seen who have also taken exception, then given up the information anyway, have invariably later wondered what they were making such a fuss about.
3) Accept the unacceptable – with an early review
A client coming out of a poor contract will, like a newly-spurned lover, be very nervous about getting taken advantage of again. This can prompt unreasonable demands. Don’t worry – accept them. But do so on the basis that, six months in, you can review pretty much everything. By that time, you’ll have proved your worth, the unreasonable demands will be quietly pushed to one side, you’ll have the business for another two or three years and, assuming you’re terrific, a lot longer than that.
Of course, if you’re not terrific, perhaps you should consider the “Only £X per hour!” line with the cost of the proverbial coffee and sandwiches hidden in the small print. Just don’t count on any repeat business.
