Being focused on price reduction instead of securing increased value is a problem across most industries. Purchasers celebrate at winning a negotiation but then pass the problem of "not fit for purpose" to the end user!
Recruitment is seen by many organisations as a cost to their business and the focus when negotiating with a partner is on price reduction. Hiring the wrong people can be the difference between your business being successful and not and so why would you view recruitment as a cold transaction? We have many inbound enquiries from companies looking to hire a critical senior role for their organisations and far too many start the conversation with "how much will you charge?" before taking any interest in who we are and the value we could add to them. Our conversation usually ends there as we are very aware that an aspirational client to Collingwood is one that starts the conversation around alignment of values, a focus on developing a collaborative partnership and how we will achieve success together. Our clients regularly wax lyrical about the knowledge and market insights they gain from us to enable them to make informed decisions about the critical roles we successfully appoint for them. They have lowered their attrition rates, created robust succession talent pools and accelerated the growth of their businesses by not viewing recruitment as a cold transaction.
We had a web enquiry this week from a rapidly growing c. £10 million business in the health sector that had created a new senior role on its board that was critical to its future success. A director of the business called us and was coldly looking for a recruitment firm to "put a bum on a seat". He had no interest in gaining any value from a relationship but did want to entice a high performing leader from one of their competitors. Whilst he said price had no part of their decision making process, two days later he informed me that they had chosen a partner because they had offered a very low price!! He said they offer the same service as Collingwood and yet he actually had not asked any questions to understand what we do!
All I ask is that you always think about the value any partner can add to your business and not just how cheaply you can get them to work for you. Recruiting the wrong person cheaply could cost you far more in the end.
Pricing is clearly a key profit driver; however most companies get it wrong. They base prices on costs or on competitor benchmarks. Of course both of these should influence the pricing decision, but they should never be top of the list. Conversely, only a minority of companies – between 15% and 20% – based their prices primarily on customer value (Hinterhuber, 2008). Substantial empirical research over the last few years has confirmed that value-based pricing is the only pricing approach that leads to higher profits (Liozu and Hinterhuber, 2013). By contrast, cost-based and competition-based pricing are likely to be detrimental to company profitability. So what do we mean by ‘customer value’? It is the willingness of the customer to pay and is the sum of the combined benefits that accrue to the customer as a result of purchasing a given offering. It can be calculated and quantified as “the price of the customer’s best alternative – reference value – plus the value of whatever differentiates the offering from the alternative – differentiation value” (Nagle & Holden, 2002).