It is no secret that price competition for Phase I environmental site assessments is intense.
Six week into 2013, many environmental professionals are starting to see their Phase I environmental site assessment project pipelines increasing at least modestly, but despite the uptick, pressure to lower fees is still an issue. And in some cases, it is intensifying. Lenders, in particular, are passing along to their consultants the pressure they feel to get due diligence done as cheaply and quickly as possible. “How much will it cost?” or “how fast can you do it?” are all too common. As one lender said at a fall Due Diligence at Dawn workshop, “If I can go to my higher-ups and tell them I got our environmental due diligence done faster and cheaper, I look like a hero.” So where does that leave an environmental due diligence firm looking for a reasonable profit margin on Phase I ESA projects?
In a piece titled “Respond to Fee Pressure,” the Zweig Letter offered some valuable food for thought and strategic tips for combating fee pressure that are summarized here:
1. Find the cause of the fee pressure
Pricing pressures are due to a number of factors. One is that consulting firms are bidding projects at low Phase I ESA prices just to win projects, even if it means a low- or no-profit margin. This practice unfortunately creates “a lower-price consciousness in the market and among clients.” Fee pressure also stems from a client who does not fully appreciate the value of the service being offered.
If your service is viewed as a commodity, winning work at a fair price is harder. Commoditization is the process where a service is viewed as indistinguishable from another in terms of attributes (uniqueness, brand, etc.). These services become simple commodities in the eyes of the market or clients. To avoid your firm’s services from becoming commoditized, answer some hard questions:
- Are we setting our own fees? Or are our clients or competitors?
- Can I clearly describe how my firm’s services are different than my competitors? Are clients willing to pay a premium for that difference?
- If we were no longer able to service our clients, would they easily find a firm to replace us?
2. Master how to provide the most value for clients in their eyes
If a client is clear on the value proposition, it becomes easier to avoid decisions based solely on price. The focus should be not just on the service you offer, but on making the client feel good about doing business with your firm, in particular. Take a good hard look at your firm and think about what competitive edge that you uniquely offer, then work hard to help prospective clients understand why your firm is the best one for meeting their unique due diligence challenges. Cultivate a culture at your firm of going above and beyond through communication (alerting them to environmental issues early on in a project, unlimited access to your staff, customized reports, etc.)
3. Don’t overlook the emotional aspects of the decision
In preparing a bid or proposal, many firms focus on the quantitative elements like hours and cost estimates or turnaround time. It is important to understand the client is choosing technical experts, people with professional experience that can be brought to bear on the project. Think about how to “WOW the client” and stand out from the rest by focusing on the emotional elements of selling services.
4. Out-care the competition
Winning firms today understand that this is a relationship-based business which means they are proactively reaching out to prospective clients. They focus on these interactions over lunch or coffee to make sure technical expertise comes through, that they learn something valuable from the time together.
“Caring is the game changer… I might not get the business the first time, but if a client feels that I really cared about him or her, I can guarantee you that I’ll be invited to work on another project with them in the future.”
Environmental due diligence are innovating in a number of ways and it is a great way to stand out from the pack. It could take the form of being an early adopter of technologies, investing in greener office space, streamlining operations to improve turnaround time or designing new solutions for their clients. Innovation not only serves as a morale booster for your staff, it is an effective strategy for combatting fee pressure. We are now in the “experience economy,” which is characterized by a process in which businesses must orchestrate memorable events for their customers, and that memory itself becomes the product -or the “experience.” The process essentially “combines a service and an experience for a more complete and fulfilling client solution.” An “experience business” charges for the feeling customers get by engaging it and are less likely to deal with intense fee pressures.
The haggling mentality that accompanies recessionary conditions is no surprise—and price competition for Phase I ESA services is unlikely to lessen even as the market recovers. Clients are under their own pressures to improve efficiency, do more with less and get the job done quickly. With practice, however, environmental firms can take steps to avoid the pricing wars by focusing on the value proposition, their unique competitive edge and the client experience.
NOTE TO READERS: EDR Insight wishes to acknowledge the contribution to this brief by The Zweig Letter, December 31st edition (Issue 988).