Part 2: Pricing Model Usage – Some Conclusions and a Lot More Questions!

Since charging per word is the defacto standard in the language services industry across the supply change, I believe all Language Service Providers (LSPs) use this method to one degree or another for human and non-human translations.  The price points may be vaary, but the cost-plus method remains exceptionally prevalent. 

Many other services we provide such as engineering a desktop publishing can fall under a cost-plus scenario, as well, where direct costs are calculated vs desired margin to arrive at the sales price.

In my previous post, I pointed out that cost-plus pricing tends to lead us down a path to competitive pricing where we reduce rates to win the business, but compromise on profitability.  Why do we do this?  I think the reasons are varied and depend on several factors:

1. Poor selling skills, where the salesperson or business owner commoditizes themselves due to their inability to articulate the value of their service in terms that are meaningful to the client.  Quality and on-time delivery as a sales pitch just don’t cut it anymore.  This is assumed.
2. Exceptionally competitive language pairs such as English into Spanish, where competition is extremely high and customers pressure LSPs to reduce prices due to the availability of cheaper alternatives.
3. Production capabilities in low-cost regions of the world that enable an LSP to undercut the competition based in high-cost markets for project management, engineering, DTP, etc.
4. Clients who minimize the complexity and/or time involved in the translation process, availability of resources, etc. in order to knock a few cents off the price or are unable to distinguish between a great supplier and a poor one.

Value-based pricing is the ideal (IMO), but only works when the translation itself provides a lot of value to the customer.  It’s our job in sales to understand what the client gains from translation.  We need to understand what translation helps them achieve.  My business partner, Thomas Edwards, has accomplished this innumerable times with prospective customers.  In one case he discovered that time-to-market was the client’s key business driver.  He then showed them a way in which more efficient use of language technology would reduce time-to-market by huge percentage and help them make a LOT more money.  He THEN negotiated the price for this very high value solution.  He did not lead with quality, on-time delivery or lower price. 

Relatively new services also offer the opportunity to move away from cost-plus/competitive pricing.  Transcreation is a great example and these days many LSPs rely heavily on transcreation for revenue.  Before this became a service as such, we translated tag lines and brands using high per-word rates.  This made no sense given the effort involved and I know for certain the linguists I collaborated with on such projects spent a lot more time crafting these messages than whatever it was we paid them.  Now marketers are much more aware of the value of a well-crafted, transcreated message that motivates a specific audience to do or buy something.  I know for sure that transcreation creates a ton of value for some of the most well-known brands in the world.

At the linguist level I know a former IT translator who is exceptionally well paid on her ability transcreate highly targeted content for specific markets/languages.  She also creates original native-language content based on her deep understanding of the IT product, its purpose and target market.  The companies she works for value this service very highly and pay her very well for it! 

Enterprise LSPs, with a much broader array of technologies and services, are much better positioned to offer more value-based services than most, but not all, of their SLV counterparts.  Some regional MLVs and SLVs with very specific expertise have established their value over time, created deep partnerships and are also paid well for these services (I cannot reveal detailed information here).

Does value-based pricing lead to variant pricing across our industry?  I think the varied nature of our clients necessitate it, since companies can have many buyers who can have extremely varied linguistic needs, levels of complexity, technical requirements and variances in the value translation provides.  Once again, our sales people need to distinguish which of these buyers on which to focus their efforts and where needed, to explain the unique value of translation for each buyer.

This still leaves us with a number of questions.  Are salespeople and others applying the right pricing approach to the right projects?  Do we know how to distinguish between a value buyer and a commodity buyer?  Should we spend a lot of sales time selling less profitable competitive projects and erode already-thin margins?  Do we approach value-based sales with incorrect assumptions about what the customer might be willing to pay, because we don’t understand the value we actually provide?  

I wish I had answers to all these questions.  I think some are answered in part in the examples above above, but these are only start.  What do you think?