I’ve often wondered how participating in a market with a high number of options, like a service directory, affects pricing. My theory has been that it drives pricing down by de-emphasizing differentiation and emphasizing alternatives.
We just completed research using Clutch as a data source. Clutch is an agency directory that includes the project cost range and how clients found the service provider in its reviews. Many agencies will complete a project with a client and then ask them to review them on Clutch with the intent of building up their presence there.
We looked at 482 reviews and compared 312 of the reviews with larger groupings. We took averages of project minimums to get an idea of how the channel where the client sourced the work impacted the cost.
If a client found their agency through search or referral they would make 40 – 100% more than if the client found the agency through Clutch and 300 – 400% more than if they found their agency through UpWork.
This tracks with what I expected.
However, one of the smaller groupings at 5.6% was RFP’s. A request for proposal (RFP) is where a customer asks a group of service providers to compete with each other for a project. It’s like a horse race with a single fan in the stadium. It functions similar to a service directory in emphasizing alternatives.
Of 482 reviews, there were only 27 RFP’s. But those RFP’s dwarfed every other channel. RFP projects were 6x larger than Clutch projects.
Why does this occur? I don’t know. But my hypothesis is that when someone creates an RFP they are, by design, planning on making a larger investment. RFP’s are a vehicle for risk reduction for larger clients. Just the time involved in writing and planning a RFP is significant. The kind of client that creates RFP’s puts the project value in a different pricing category. In these contexts, lower pricing is commonly viewed as riskier (no one wants a bargain surgeon.)
If you’re an agency, I’d definitely think twice before focusing my marketing on directories.
For any business looking to grow, it’s worth thinking about how where your business appears affects the perceived value of your products and services.
Are you a commodity? Are you a solution to a specific problem? What kind of business buys from the markets where you appear?
Featured image is of the old city in Istanbul. The serpent column was a stolen relic made of melted Persian swords and armor from when the Greeks repulsed them in the second Greco Persian war. It was taken from the Temple of Delphi and used by Constantine the Great to decorate the center line of his horse races. The 2500 year old column is in Istanbul today. By Aubry de La Motraye (1727) used under Public Domain