As a digital agency, how many times have you heard your prospects say, “I don’t have the budget for this”? Digital media management is costly, and agencies price their digital solutions too high in order to cover their costs and capture the best return on investment. Price is one of the most common objectives your clients will have regarding their digital media management. Of course, on the other hand, no marketer wants their solution to bring to mind words like “cheap” or “economy.” So where you can you find the middle ground that ensures you cover your costs but doesn’t break your clients’ marketing budget (or at least their perception of that budget)?
You’ve done the market research and know that you have priced your digital solutions appropriately. So why does high-priced digital media management pose a challenge? Some agencies sprint to discounts and price slashing in the beginning, but that can lead to more churn later in the relationship. Commencing a relationship with a client at an artificially low price means unreasonable expectations further down the line. This can be a good model if you are confident you can prove you are essential to the business right from the beginning, but can also lead to them viewing your normal prices as inflated. So, how can digital agencies overcome the pricing challenge?
The Challenge with Digital Media Management
Local businesses are notorious for small digital budgets, with the average spend coming in under $200/month (Search Engine Land). There’s not much wiggle room to support a set of digital tools, especially when SEO/SEM tools average $250-500 monthly (Moz).
Studies show that agencies who offer digital solutions below $100/month had an average annual customer churn rate of 28%, while those above $100/month had an average annual customer churn rate of 50%. Every $100 increase above and beyond that resulted in an 8% rise in churn (LSA Insider).
When a prospect objects based on cost, we like to bring the conversation back to ROI. Proving value through detailed reporting is one way to counter the price argument. The value you bring to the table in digital media management needs to be inherent in the analytics. Aside from detailed reporting, there are other options to help local businesses recognize they need your product.
In the 1940s, Williams Sonoma found a solution to this problem, that has since been popularized by the book, “Yes!: 50 Scientifically Proven Ways to Be Persuasive.” Chuck Williams founded Williams Sonoma in 1953 in Sonoma, California (hence the name). Originally a hardware store, Williams transitioned Williams Sonoma into the niche of French cookware. Williams travelled to Paris in the late 50s, and was intrigued by French cooking equipment, in particular the bread maker. He introduced the bread maker to his American audience via a catalogue. And it didn’t sell. Sat on the shelf collecting dust in its intricate machinery.
Eventually, though, Williams introduced another bread maker at 50% higher cost. Immediately, the original bread maker began flying off the shelves–it was now a bargain. Itamar Simonson, a decision researcher, found that when consumers consider a particular set of choices for a product, they tend to favour alternatives that are “compromise choices”—choices that fall between what they need, at a minimum, and what they could possibly spend, at a maximum (Google Books). What does this mean for you? Introduce a higher priced product and your clients will begin seeing your other services as a middle ground. The higher priced product will also appeal to plus spenders, increasing your options for attaining premium clients. Even juries can fall into this trip when lawyers ask for unreasonable settlement options. Settling for $1.5 million seems reasonable when the original ask was $7 million. Or does it…?
Another simple option is dicing up time periods, without actually changing your product price. Instead of charging $1000/year, you can charge $80/month. An old technique, you probably recognize this from years of television consumption (or maybe you were outside playing, but you likely still know what I’m talking about). Comparing digital media management to something tangible is another way to make it easily relatable. This is especially effective if the item you compare it to is something people want to eliminate from their lives. Many people see buying a latte as a superfluous expense they’d rather not partake in, so you can play on their guilt and frugality. Did you know you can have our basic software package for less than the price of a carmel macchiato soy chai tea latte a day?! Boy, specialty coffee surely is an extravagant cost! 😉
Another way to reduce customer churn and accommodate your clients’ budgets, is to experiment with lower-priced bundles and/or a subscription-based pricing model under $100. Separate your digital media management offerings so clients can choose them a la carte, giving them time to factor you into their marketing budget. They can scaffold, beginning with foundational products and eventually working up to large digital products. This also provides a chance for them to recognize the need for the services you provide.
Ensure this model supports a comprehensive set of digital tools, including SEO/SEM. In addition, seek out a full-service digital solution provider that improves your scalability and provides you with tiered pricing structures that reward client growth.
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