Beware the Off-The-Shelf Consultant

When meeting with potential new clients, I am occasionally struck by their “what can you do for me?” or “how much do you charge for an evaluation?” approach to hiring consultants. There is a fundamental flaw in this line of questioning that can doom a foundation-consultant relationship from the start. The approach is backwards, because those foundations are essentially scanning for an expertise that they may be able to use, or assuming a one-size fits all approach, rather than thinking about what they really need.

If you have a program or initiative or planning project that feels incomplete or not quite what it should be, it’s tempting to look around for off-the shelf answers. And there are many pre-packaged consulting methodologies that may or may not be the right fit. Keep in mind that solutions or methods that worked perfectly for one foundation rarely fit as perfectly at another. Because every philanthropic enterprise has different personalities, policies, cultures and priorities – the talents and skills required to address challenges or supplement grantmaking efforts will be different as well.

But be warned that many consultants lead with their methodology. They provide “diversity training” and therefore pitch training as the solution to your needs. The smarter approach is to find consultants who spend more time asking you questions about your actual needs than they do promoting their own methods or models. If you aren’t sure what you need, a good consultant should be able to help you explore the situation, whether through a conversation over a cup of coffee or a more substantial fact-finding engagement or needs assessment.

Here are three ways to protect yourself from off-the-shelf consultants:

  1. Trust your instincts. If a consultant keeps pushing a methodology or program that feels wrong, it probably is. Even if other foundations have used it successfully, you will have the best insights on whether their solution will work for you.
  1. Instead of asking “what can you do for me?” or “we need a strategic plan, what do you charge for that?” say “this is what I think I need and why.” Share your needs as you perceive them. If you are unsure about what you really need, say so. A good consultant will ask the right questions to help you determine your objectives and then give you their honest opinion about whether or not their skills, expertise and focus are the right fit.
  1. Be part of determining the solution. Your relationship with a potential consultant is just that: a relationship. You need to be engaged in determining your needs and the best approach to addressing them. In fact, good consultants welcome your input and ideas in crafting their proposed approach. They may have objectivity and key skills, but you know your organization best. This ultimately makes for more clarity about the expectations of your consulting agreement.

When you approach consulting engagements from a philosophy of “what I need” instead of “what can you do?” you can save hours of time and thousands of dollars, and your philanthropy is much more likely to enjoy greater impact, both from your consultant engagement and in the work you do.


Loyalty Programs: A Difference Against New Competitors

The following case study is a composite made up of the actual experiences of several companies that have adopted loyalty based pricing programs. It has been written to provide an example of a successful program while maintaining the confidentiality of the companies involved.


 The XYZ company, a dominant force in the high technology industry, was facing the entrance of a new competitor. At the time, there were two other significant players in the industry, and while XYZ enjoyed a 75%+ market share, some customers were showing signs of dissatisfaction. Complaints that XYZ’s dominant position in the market had led to arrogance and an inflexible attitude were becoming more frequent. Indeed, many buyers made no attempt to hide their enthusiasm for the impending entry of a new competitor for XYZ. Against this backdrop, XYZ began to search for a pricing strategy to defend itself from possible market share erosion while maintaining profitability.

The Loyalty Program

 In its search for a defensive pricing strategy, XYZ explored the feasibility of implementing a loyalty program. While management was wary of the amount of time and resources that would go into implementing a loyalty program, they also recognized that a loyalty program might be their best defence against the new competitor, for several reasons.

 For starters, a loyalty program would send a strong signal to customers that XYZ was prepared to recognize and reward their loyalty in the face of new competition. This was an especially important message to communicate, given XYZ’s reputation for arrogance and inflexibility.

 Management also realized that a loyalty program could be a tactic where pricing details would not be readily transparent to competitors. A loyalty program would thus be unlikely to incite immediate price retaliation from the new entrant. In addition, if successfully executed, the program would provide a long-term competitive advantage to XYZ by discouraging customers from diverting business to the new entrant. Finally, management concluded that if they did not implement a loyalty program, the new entrant might. The advantages of being first in an industry to implement a loyalty program are usually enormous. Once a customer has made a commitment to a particular program, it is often difficult to dislodge the customer’s loyalty. (Consider how often members of a particular frequent flyer program go out of their way to fly with ‘their’ airline.)

Designing the Program

 One of the first steps taken by XYZ in designing the loyalty program was to hold a brainstorming session with the sales force to determine what products or services offered by XYZ were highly valued by its customers and, at the same time, not replicable by any of its competitors. During the brainstorming session, the group identified XYZ’s breadth of product offerings as key to implementing a successful loyalty program. In essence, XYZ was the only significant supplier of a full systems solution, encompassing both hardware and software. By leveraging off this dominant position, XYZ management felt it could also promote customer loyalty.


 The program provided customer discounts based on three major criteria:

 Percentage of XYZ product bought relative to purchases from the competition

  • Volume purchased of a single product

  • Number of different products purchased.


 This loyalty program was a tremendous success for XYZ. Not only was the potential erosion of both margin and sales halted, but many current customers actually increased their purchases. Moreover, although other competitors – including the new entrant – attempted to introduce their own loyalty programs, XYZ had achieved the dual advantage of being first in the industry to implement a program, and designing a program based on features that were very difficult for competitors to copy.!Loyalty-Programs-A-Difference-Against-New-Competitors/c1t3q/56fec0480cf2f28d5dd4fdb3


Dressing to the Nines: A Pricing Dilemma

Price not only communicates transactional cost it also informs about product quality. Many retailers such as Wal-Mart use prices ending with the number 7, while others use prices ending with 9. While the use of such numbers may be common practice, the implications and meaning associated with such an approach may be more problematic than once thought.

The main purpose of this commentary is to provide insights about price endings and suggest that prices ending with the number 0 may have an operational advantage. Moreover, zero-ending products may be perceived as “better quality” than those with odd price endings.

Odd Pricing & The Magic Number 9

With the introduction of the cash register, storeowners found it easy to keep track of sales because each transaction was recorded. There was the possibility that the cash register clerk could pocket the money by not recording the sale. If, however, the clerk had to return some change to the customer, the cash register could not be opened without ringing up the sale.

In the decimal numerical system, numbers 7 and 9 are such that even when a customer buys 10 items of all the item prices end with 7 or 9, the clerk always must return some change when a customer presents paper currency.

The number 9 has an even more interesting feature. Suppose a customer purchases three items and all items are priced with an ending 9. The number of pennies the customer must be given back is equal to 10 minus the number of items, which in this case is three.

Although cash registers have been replaced with optical-bar-code readers or computer-based scanners, which provide information about prices, retailers have continued to use odd price endings such as 7 and 9. Moreover, sale taxes and other service charges in the current business environment may not meaningfully communicate odd or 9-ending prices. This is even more problematic in a business-to-business transaction where mark-up may create further distractions for the ultimate consumers. It also may create an operational nightmare for a store manager.

Consider an example of a typical grocery store that may carry as many as 15,000 Stock Keeping Units or SKUs. If the store puts 10 percent of its SKUs on sales promotion, the store manager must change 1,500 prices. If each SKU price has an average of the three digits, then the retailer must change 4,500 numbers. Finally, if the store manager has 99% accuracy in entering numbers, it is still possible he may miss as many as 45 SKU prices.

Consider now a situation where all prices end with zero. Holding everything else the same, the store manager is likely to make one-third fewer errors – a significant benefit in terms of customer relations and an excellent pricing strategy.

As retailers have continued over the years to use odd price endings, academic research has flourished as it attempts to explain why products are priced with 9 endings. A significant amount of academic research suggest that odd price endings, especially prices ending with 7 and/or 9 are perceived by consumers to be cheaper both in terms of transaction cost and quality than prices ending with zero.

Other academic research indicates there might be a small sales increase because the product is perceived to be cheaper. The increased sales, however, occur only when no other competitive products in the market have 7 and/or 9 endings. The effect of better product image, as well as better retailer image, however, is a longer-term benefit that is harder to achieve.

From the above discussion, it can be argued that retailers who use prices with zero endings may be perceived to carry better quality products and have a stronger image than retailers using prices ending with 7 and/or 9.!Dressing-to-the-Nines-A-Pricing-Dilemma/c1t3q/56f147760cf28bf0e6e9b94c


Don’t Under Value New Products and Services

Companies invest untold millions in innovation every year, lowering customer costs and improving revenue and margin performance.  But are those companies being paid adequately for that innovation?  In our experience the answer is no.  Looking across 30 cases, we have found that managers are inclined to under estimate customer’s willingness to pay for valuable new products and services by over 100%!  Here are a handful of examples.

If you are going to be paid well for your innovation, you need to be asking three questions.

  1. Which customers will benefit the most from our innovation?
  2. What attributes of our new offering drive the most value?
  3. What is the customer’s willingness to pay?

Answering those questions well can turn a $20M breakeven opportunity into a $50M, highly profitable opportunity.  This kind of thinking can be especially valuable in tech industries where the terms  “as a Service” and “profitability” don’t seem to belong in the same sentence.