I was leaving early last Saturday morning to head out to Kolkata to present to the students of IIM Calcutta (my alma mater – Calcutta was changed to Kolkata but the name still stands with the institution) the career options available with Maarga. My cab trip to the airport provided some interesting insights into how our own pricing works with our customers. I had called NTL Taxi, one of the newer and more professional operators in Chennai. While the older operators operate their fleet on time, NTL has added a few niceties that makes their cabs a very worthy alternative – including credit card billing, a smoothly functioning call center, clarity in billing etc. There is a nice twist in their billing that I noticed today.
On confirming my cab reservation, the agent read out the terms to me … and curiously there was a small waiting fee (around 20 cents) for every 5 minutes. Now, there is some overcapacity in the cab industry at this time of the day, so waiting was typically not charged in the earlier days. However this small piece of info revealed to me made me a whole lot more conscious about making it on time to the cab. It is not as if I would have taken a lot more time without this factor, but the sheer concept of paying by the minute for waiting made me a lot more aware of the time by which I got out of the door. It was a little stressful too, as it hung on my head as I made sure I had packed all that I wanted. After gaining a little perspective I realized that even the cost of an hour’s waiting is insignificant as an absolute amount in the overall trip .. however this awareness does not remove the stress.
As is my wont, I was quick to draw similarities to our own pricing models and engagements with our customers.
1) We might have patchy utilization at times, but that cannot (and should not) prevent us from charging a uniform pricing model when our services are needed. In fact, one of the core benefit we bring is having the capacity when the business need fructifies. We have to price in the utilization load for projects. However, long term engagements do not incur this load, as a particular resource can be occupied full time in a customer’s engagement.
2) Paying for waiting is stressful for our customers. It is not as if the dollar amount is huge, but the sheer concept of paying for waiting is stressful for some customers, until they figure out that the service provider waiting for them is eventually less expensive to their business than they waiting for their service provider.
3) When the customer gets the business goal behind the engagement, the waiting costs and the assorted costs involved in the engagement look trivial. It is critical for us to engage in projects that are a huge value add for the customer rather than work on projects that are borderline business benefit scenarios. In borderline scenarios, even small increases in costs can bring the value of the entire engagement into question.
So, what is the solution? While outcome based pricing models stabilize, I feel we are still going to have the pay by the hour model in the IT services industry for a while to come. The first part of what I would strive for is to identify those projects that have a really strong business case. Secondly, I would add a certain “waiting time” into my base pricing – time needed for the customer to dot the “i”s and dash the “t”s when they wrap up a project without getting all stressed about it. Beyond that paying by the hour should kick in of course, for if we do not have value for our time we are not likely to add value to the customer’s business.