Differentiate then customize: the key to higher agency profits

July 25, 2011 | Author: Tim Williams

When you consider the range of services provided by agencies, some are exponentially more valuable to clients than others.  Propulsion has covered this topic in many previous posts about Magic and Logic.  But here’s another useful way to think about the relative value of the services your firm provides and their perceived value.

There are really two major dynamics at play that affect perceived value, and therefore determine the price you can charge for various services:

Differentiation: The degree to which your services are different from what other firms do.

Customization: The degree to which these services are customized to an
individual client.

It stands to reason that the more customized the solution, the higher price you can charge.  Differentiation also produces this effect.  But the strongest price position of all is created when you deliver a service that is both differentiated and customized.  Items that fall in Quadrant 1 fit this description.

Quadrant 2 contains services that are many be somewhat unique to your firm, but do not require a high degree of customization.  For example, some specialist agencies have a suite of “off the shelf” products and services that are quite different from what’s available from general market agencies.

The services in Quadrant 3 are individually customized for each client, but fall in the realm of widely-available services that can be obtained from most any agency.  Creation of a television spot or print ad would fall in this category.  (Note: This isn’t to say that the quality of the creative output or the strength of the concepts is equal from agency to agency – that’s actually part of the “differentiation” piece.  Some agencies are in fact truly differentiated by the primo quality of their work, but this is only 5% of the agencies on the planet).

In Quadrant 4 we find the truly “commoditized” services in our industry: print production, banner ad resizes, etc.  These services are necessary, but because they have such a low perceived value it’s wickedly difficult for most agencies in first-world countries to provide these services at a profit.

Now develop a list of services, products, and solutions you provide for your clients and plot them on the chart below.  Do it as a “heat map” showing the frequency with which you provide these services as follows:

Green - We provide this service frequently

Yellow - We provide this service with moderate frequency

Red - We provide this service fairly infrequently

If you have a lot of “Green” services in Quadrant 1, you’re undoubtedly earning healthy margins.  On the other hand, if your most frequently provided services show up in Quadrant 4, you’re probably experiencing some pretty intense profit pressures. 

Differentiating your offerings is the first and most important thing you should do to increase your perceived value to clients.