Perceived Value

  • Posted by: George Varghese

At ET Marlabs, we say that a project is complete only when a customer is smiling.

Project completion should be a function of clients ‘perceived value’ rather than ticking items in a scope list. This can cause a positive ripple effect of client bliss rather than mere satisfaction.

One of our first clients was a large and reputed builder. We agreed on a scope of work and completed it on time. However, on delivery we realized that the client wasn’t smiling. The situation required a third vendor to develop an adaptor before they could use our system. The client did not pay our fees and we did not ask, keeping with our ethos of client bliss. We ended up chasing the third vendor (a large multinational) for nearly 6 months, and they eventually yielded to develop the adaptor.

Lo and behold, once done we went live, and the client was truly smiling, now that they would be deriving true value from our system.

It is that extra mile which counted and the client has remained loyal since. We have done a significant amount of work with them over the past 3 years. nIn a similar trail of thought, with respect to value and pricing, I have often wondered: “What determines the price of a product?” As is often said in the stock market, the price of something is what someone is willing to pay for it and that is once again a figment of perceived value.

This seems to be counter intuitive in the software industry as we still fill up detailed Excel sheets outlining line by line effort in man hours, adding a slice for Project Management, Testing, and finally an icing of a percentage for contingency. Multiply it with a rate card, and bingo, we have a price.

We can cloak this in a myriad of different commercial models and jargons called FP, T&M, T&M capped etc. Like it or not, it is then a question of spinning a story to match a clients’ budget, sales persons target, appetite for the deal and the competitor in play. Where is value in this equation? Can we explore another possibility, wherein price of a software service is proportionate to the business value perceived by the client. If that perceived value is zero then we don’t need to do anything and it goes from there. At ET Marlabs, we gently treaded on this experimental path, cautiously, but with a larger vision of getting there someday.

While putting together a proposal for one of the largest NBFC’s in India, we offered them a price that had two components:

  • 50% of the price was fixed, and if that is all we would make, we would be ending up with a loss on the deal.
  • The other 50% was on the client achieving agreed business metrics, and on that we would make a 27% profit, and somewhere in between lay our cost.

Though not 100% value based, our proposal was inherently not comparable to competition, and our proposition had an intent that aligned directly to the business value we promised during the sales pitch.

The client could see we were putting money where our mouth was.

Such value-based pricing should be the way of the future for software services and clients should demand this off their service providers. This would require a paradigm shift in thinking on both sides. It requires the client to have the baseline metrics for comparison while the service providers should be able to articulate their value proposition aligning to true business goals and metrics.

In summary, my strong belief is that whether it is customer service or pricing, the basic mindset as a service provider should be aligned to a client’s ‘perceived value’ rather than cost of service.

Author: George Varghese

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