Pricing—Addressing the Elephant in the Room

Pricing—Addressing the Elephant in the Room
August 2, 2017
Translation pricing hasn't changed from around 20 cents a word in two decades. Or with the advent of faster translation software, has it? Join us as we talk with Anne-Marie Colliander Lind and have one of the most important discussions we've ever had on Globally Speaking.
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Michael Wow, so we’re getting some help now on our introductions to our podcasts, Renato.
Michael So who was this guest that we had who is learning so much about pricing in localization?
Renato Well, that happens to be Luca Beninatto, my son.
Michael Ahh, so he’s a podcaster in making.
Renato Yes, and he’s a frequent listener—involuntary frequent listener.
Michael Involuntary…I think our children fall into that category as they listen to us. So, Renato today we look into a topic, it’s one of those topics where people in their field, there are things they dislike, like a doctor goes to a cocktail party and all his friends are saying, ‘hey, can you look at this mole on my back…
Renato It’s like the lawyer, who has…’do I have a case, can I do a lawsuit around this’, and the problem with us is that when we get into a meeting with the localization people, especially LSPs, the first topic they want to talk about..
Michael Is price.
Renato ‘Hey, don’t you feel like pricing’—it’s like a joke, ‘have you heard the one about the prices going down in the industry? Well, listen to this podcast with our special guest who is going to introduce herself soon.”
Michael Listen to this conversation with over 40 years of industry experience in the room and come to a conclusion for yourself about what is happening regarding pricing in our industry.
Anne-Marie My name is Anne-Marie Colliander Lind. I am based in Sweden. I’ve been in this industry for many, many, many years and I know that people know me from my various positions that I’ve had. I am a business consulting, running my own consulting company called Increase and what I primarily do is help typically mid-sized translation companies in their change challenges that they might have if they want to grow or they want to enter a new market or look into technology. That’s the typical kind of engagement that I have. But, I’m also the founder of NTIF, the Nordic Translation Industry Forum that I run together with Cecilia Enbäck from Translator Scandinavia.
Michael Who I hear, also, listens to the podcast.
Anne-Marie Oh, she is your biggest fan; I guarantee that.
Renato Well, give her a shout out in Swedish.
Anne-Marie Cecilia [Swedish greeting].
Renato That is fantastic. I have no idea what you said!
Michael Neither do I!
Anne-Marie You have to ask Cecilia.
Renato But anyway, hi Cecilia, it’s great to know that we have fans that promote our podcast so much as you do. In any case, the conversation that I think we need to have is a topic that keeps popping up in every cocktail, every congregation that we have of people in this industry is this whole discussion about price. I was just at a conference of translators in Brazil, they talk about price. You go to an event for LSPs, they talk about price. And why is price such a problematic thing, do you have any idea, Anne-Marie?
Anne-Marie I don’t know. Well, I have ideas. I don’t’ have the solution to it. But, I do think that we are an under-valued service to many global brands who put a lot of money into a lot of other things. It seems like the industry itself is afraid of asking for money for their services. It’s like the “excuse me that I entered a room; may I stand here in the corner please?”
Michael Afraid is an interesting word; why would you say afraid, what is driving fear?
Anne-Marie I don’t… driving fear, that’s an interesting question for me. I don’t really know but when you… all these people that are entrepreneurs in this industry, they are typically linguists, they are proud of what they do. They love their work, they are passionate about languages. And it’s almost like it’s an arts form, which it is, from many angles. Therefore, because my mother is an artist, so I’m brought up in a family where you would never ask for money for the things that you actually produced yourself. So, she was always scared to death when it came to the fact that she actually had to sell something to make a living, the things that she created. And it was never good enough, so why would anyone pay for it? I think it’s a little bit the same with translators and linguists that they are so proud of the product and it’s so close to their heart that how can you ask money for that?
Renato It’s an interesting point. It’s an inferiority complex. We’ve been in events and organisations where we usually draw these two stick figures, a big person and a small person…
Michael I’ve used this a number of times, I love this illustration.
Renato You ask, “who is the client and who is the translator or LSP?” 100% of the time the answer is that the small stick figure is the LSP and the big stick figure is the client. Then, you reverse the question and say “your car breaks down; you need a mechanic; who is the mechanic and who is you?” Then that same person that felt that the client was big, now they are the client, they need the mechanic, the mechanic is big. So, the supplier is big. There is this inferiority complex of service and I think you bring an interesting point of the craftsmen mentality into it. But, I want to bring something to the table people are not necessarily in agreement. It’s the fact that prices in this industry have been, for the most part, stable, no change over the last 15 years at least, if not more. If you ask a person, a final buyer, if you had to do a back of the envelope calculation for a project into multiple languages what would be the price per word that you would use to do that big picture calculation? I just a survey recently and the majority of people say 20c per word. And it has always been 20c per word.
Anne-Marie It’s funny that you’re saying that because I joined this industry in 1990 as a product manager for a translation company – the biggest translation company at the time – in Stockholm, Sweden and that was the price per word, or 1 krone 80 öre In Swedish currency. That was the average price. That’s many, many, many years ago and it’s still about the same.
Renato Yes. So, this is the price that the final client pays. Of course, there are the different levels of the client-based 20, the LSP based-10, the translators get five but in general the ratio is the same. What we have, what has changed is the productivity so you have, now, these bands of 100% matches and we can talk a bit more about that because you sold translation memory software in the past, didn’t you, Anne-Marie?
Anne-Marie I did for a few years, like, almost a decade but it’s also a decade ago so a lot of things have happened since. But, we’re talking about the price on services that we deliver. What we have really seen the change in decreasing pricing is for the software itself. So, that’s the big change as far as I can see. But, for the services side, yes, we can produce much, much, much more in less time than we could do 25 years ago and we’re still charging pretty much the same. So, that must mean that the prices have increased, right?
Renato Michael, you talk to the final buyers, every day, that’s your job so how is that negotiation, what is driving the conversation in price on the buyer side?
Michael I do think from the buyer’s perspective, they see an industry in fear. What you said earlier, I think. Fear becoming a commodity if they are not one already. And when you change the conversation to value rather than commodity, all of a sudden, I think Seth Godin the writer, said “price is the determining factor when all options are equal” then you go with the cheapest. If you have two mechanics who are equally talented then you are going to say “okay, I’m going to go with the cheapest”. But, as an LSP or as a translator, if you’re bringing a unique set of skills to your work you can’t commoditize that. So, how we communicate about ourselves, maybe not as an industry at large but as the work we do as individuals is very important. So, I see buyers respond well to that rather than saying “hey, I’ve got good French and I’ll give it to you 20% cheaper” if I can say “what’s happening with French, in the market in France for you; what is your product doing?” It changes the conversation and you can begin to add value for what buyers need.
Anne-Marie And this is what I have been saying for many, many years in workshops and trainings with my customers; we have to stop talking about translations. We’re not selling translation; we have to talk about what is going to generate the service that we are going to sell to this client. We have to understand their needs and answer their questions.
Anne-Marie But, I hope to see when we talk about pricing more innovative models that can suit customers better. We’re talking about continuous delivery, continuous localization. Why don’t we have that in our services as well; what about a subscription model? The customer can calculate in the beginning of the year “this is going to be the cost”. There might be losses on that but I think it would be easier for a lot of companies to sell on that. And, especially for the companies, I mean customers, who are not the Big Five, not the super mature localization companies. But, for many others it’s a model that they can understand.
Renato That model works if you have in-house translators, for example, that you have fixed costs that you can calculate and an average type of volume that is constant. The interesting thing is that it takes…it’s very hard to change the mentality of people and the concept of subscription has been a tactic. There are companies doing that today in the market but it doesn’t scale. It works on the small scale but doesn’t work on a large scale.
Anne-Marie But, we also have loss leaders, right? So, you have to gamble a bit. If you can deliver a value and you can convey the message of the value to your customer, I’m certain that they will pay the price that you will ask for it. And, yes, you might lose money on Swedish because it’s a ridiculously expensive language to buy, but then you can make that up on Chinese or Spanish or any of the other more affordable languages.
Michael Do you think it’s just an issue of the pricing model? Is that the only challenge there?
Anne-Marie Yes, because by the end of the day we are comparing cents per word and that’s not what we do; we’re not selling words.
Renato Well, in an agile environment where you are having these scrums and you have to deliver whatever there is in a certain period of time if you don’t have time to finish you don’t finish, you leave it for the next scrum. The key factor is not cents per words, it may be hours worked or percentage of completion might be another metric in a situation like that, that you do 80% of the content that was developed during that week and you publish that 80% and you get paid for 80% instead of 100%. I don’t’ know. But, there is definitely a change dynamic in the delivery but it’s not a replacement, it’s something that co-exists with…
Anne-Marie You always have to be flexible and have combinations of offerings. This is, again, coming back to the fact that you need to adapt to how your customer wants to buy your services. It’s not how you want to sell them. It’s about how they want to buy them.
Michael One thing you mentioned loss leader or certain convincing. Allowing a buyer to experience the service and how it can improve their business in some manner. One thing I’ve seen be successful is when someone has been a start-up and used an auction, for instance, to get their translations done. Therefore there are some limitations to that model because it’s different freelancers, you don’t have the consistency, maybe you don’t have the translation management tools in the back end. To come in and do a quality audit and start catching some of those bugs that may have entered the system, do that whilst also tracking the business data related to that language or that locale. And then see if there’s a customer response. All of a sudden, the marketing manager is going “wow! Our website reads better; therefore, we can now not just invest in fixing the problem after it’s happened but maybe invest in the front end.”
Renato Well, it has always to do with the frame of references. I always tell the story of a client that I had in the past that needed $2 million to translate their marketing material into Japanese and the marketing manager said that in Japan they didn’t have the budget and that they couldn’t do it because it was too much money. Then, somebody in the company made a survey and asked the Japanese sales people how much time they spent translating the content to share it with their customers because their customers didn’t speak English? And it was something like 30% of the time of a salesforce of 1,000 people in Japan. So, when the information was given to the VP of sales he could increase his sales force by 30%, that’s like 300 people…
Michael Yes, the opportunity cost there.
Renato The opportunity cost was amazing and then those $2 million appeared all of a sudden.
Anne-Marie But I think, and this is interesting, this is how we sold terminology tools at the time, just the first server based terminology tools on the market, with exactly an example that good. How much time do the support department have to spend explaining to the customer because there is no consistency in the terminology used within the company? And the survey was made, I don’t remember by whom, it’s too long ago, but they came up with similar numbers. Eight support people x five minutes x how many days. And simple math. So, suddenly an investment of 10,000 euros, or 20,000 euros, or whatever it was; it was peanuts in comparison to that money spent.
Renato Let’s bring the elephant into the room. The other reality is that we are an invisible product in the big scheme of things. The buyer of translation services is a fourth level buyer in the company. It’s not a C-level executive, it’s not a VP-level, it’s not a director level, it’s usually manager or assistant. So, these titles usually don’t’ have budgets. They don’t’ have negotiating power. They need to get approval from somebody else. This is where this price negotiation happens. It’s because the person who needs the translation, who understands the process, understand the problem, doesn’t own the budget to do that. They need to bring it to one level up, or two levels up. Then, it becomes a proxy sale. You are selling through somebody else and you get to a certain point where the boss just says “yeah, this sounds to high; get a 20% discount and then I’ll approve it.” And then it becomes this negotiation game that ends up generating this impression that prices are going down.
Michael I think what I find, though, is the 20% race down doesn’t even come from the buyer’s boss. It comes from the other companies competing in the process. They just are immediately jumping to price. You’re having a first conversation and instead of saying “well, on average the per word rate is 20c per word” and talking about general, you can go on the internet and find out a price-list for the work we do. But, all of a sudden, companies are saying “we want this so badly we’ll just count whatever it takes. How low do we need to go to get this?”
Renato And this is great if you, our listener, is a localization buyer. But, if you are a sales organization in China, they say “hey, I have this translation company and here is my price list”. That’s the first conversation that they want to have because that’s the way the Chinese buyers buy also. You contact that Chinese company and the first thing that they do “send me a price list.” Which means “I don’t want to do business with you”!
Michael Or, I do my best to not fear that level of engagement, especially at the beginning because people need to budget. They need to find some parameters in which they can go to their boss and say “hey, I think this is going to cost this much” so it provides it. Then, you can say, they come back and they’re like “you’re way too expensive”. Well, “how, why, is it productivity, is it the language set you chose?” We have so many variables that we can adjust to find something that works within your budget but what are your priorities to get there?
Renato So, Anne-Marie, if one of your clients comes to you and says “how do I position myself in terms of pricing; how do I present pricing to my clients?” What would you say?
Anne-Marie Never go in too early with the price. Don’t go the Chinese way. At least not here in Europe and I’m assuming, Michael, it’s the same in the US.
Michael It’s fairly similar.
Anne-Marie You don’t just send a price list. So, that’s rule number one, don’t post your prices online on your website unless you are targeting a very specific audience of, let’s say, multi-language vendors that you work with on a regular basis and they just need to check what’s out there and you have the same price for all customers. Well, fair enough.
Anne-Marie In terms of pricing, again, it depends on who you are selling to and what is the problem that they are facing, what is the problem that you are going to solve with the services that you are going to provide to them. So, it’s basically we are a people business and people buy from people; we all know that and we constantly say people buy from people; people buy from people that they like and that they can remember. So, it’s all about building up a relationship; building up trust to make sure that this company will trust that I can deliver the services that they are going to ask for.
Renato Sales theory says that you shouldn’t talk about price until the deal is done. If you agreed about everything that you are the best solution and you agreed that you can and you understand and you are a perfect fit, you have a specialty and knowledge and capacity and all that stuff. Then, you start negotiating price when the client has made the decision to work with you. Of course, sometimes this sounds romantic, right? How many times has it happened to you?
Michael Yes. I would say that’s the general rule and if price comes up early, to not fear it. The major exception I see to that rule is when there is an emergency. But, oftentimes you can charge more because you are solving a problem. If you find out that you have termites in your house and they’re eating away your foundation you’re going “my largest personal investment is about to be destroyed; whatever the price is, just get someone in here to fix it and get the termites out of here.” We rarely end up in those circumstances in our industry; occasionally.
Renato We heard the keynote speaker at Localization World in Barcelona, Adreas Ekström. He gave a good example of the accessories for Apple computers that you pay $79 for a charger for a Mac laptop and that’s a lot of money. If they charged $19 people would shop and try to compare and find alternative solutions but it’s so expensive, $79 for a piece of plastic that you can buy for a PC for $12, and you’re obliged to pay $79. You don’t care anymore because you are part of that…
Renato It’s the only Martha Stewart story. I love this story of how Martha Stewart, this famous American – how would you describe her?
Michael She does crafts and how to take care of your home and entertain well. She’s now doing a thing with Snoop Dog so it’s very relevant. Martha Stewart and Snoop Dog are collaborating.
Renato So, the thing about Martha Stewart is that she was a single mother and she was selling cupcakes in a shopping mall and she was selling the cupcakes for $2 each. Nobody bought it and it was the end of the day; she had stayed there the whole day and spent money to put a stand in there; and she was desperate. She had nothing; she changed the price to $20. They disappeared in minutes.
Michael Pricing is so important.
Renato It’s so amazing how it varies and I like to tell this story. I don’t know if he’s listening, Lee Starling was a colleague of mine when I was at Berlitz and this was the guy who could sell Japanese for a lot more than all the other sales people. He could sell Japanese for 50% more than all the other salespeople that we had. I asked him, “how do you do that?” “Oh, I just show them how Japanese translator needs to work on the keyboard. It’s not easy; it’s not like us that you type a letter and the letter shows up. You have to go by the sound; you have an American keyboard and then it converts into the Japanese and Chinese characters…” and he would show this to the client and the client would say “oh! That’s much harder than translating into Latin languages; it’s worth more”. So, it’s just a matter of creating the perception of value that
Anne-Marie I think, coming back to your question about how you position yourself when it comes to pricing. You have to walk into the situation with confidence and this is, I think, coming back to the craftwork. Who am I to say that I made a beautiful painting and asking 10,000 euros for it? I can ask 1,000 maybe. If that is your attitude you already put yourself in a position where you give the opportunity to your client to start negotiating on price but, if you are confident that it’s the most beautiful painting of all and it’s worth 10,000, you will probably be able to sell it for 10,000.
Anne-Marie I can see the same thing. You are an expert; we are the experts. We come into a situation where we need to solve a problem and if I’m confident that my services can solve that problem, I should put a price to that and I’m sure that the customer will be willing to pay for it.
Anne-Marie I recently consulted a European-based translation company who has the attitude of not changing or decreasing the prices. We had a long conversation and I asked them, “so, what if a competitor comes and wins the business from you because they have a better price, what would you do?” He looked at me and said “if they do that, they are probably not a client for us. They found a better vendor that fitted better into their budget.” So, there was no way that he would say “oh, we’d go after it, we’d discount; we would decrease the price”. No way.
Michael Each company needs to know their identity to be able to do that. You have PC makers, and you have Apple and they have different value propositions. Both are important. Markets are filled with multiple vendors.
Renato And as a former VP of sales, one of the things that I talk to my teams, essentially, when it comes to price is every company publishes price lists and the sales people believe that the price list is the maximum price. No. the price list is the minimum price. A price list is a price that you don’t want to discount. So, how would you tell, what would you tell a sales person, to work with a price list?
Anne-Marie The price list, yes, you are absolutely right, Renato, because the price list is just a minimum price. So, you just increase the price to start off with and anything that they negotiate down will still be a win as long as you don’t go below the minimum price. You also need to know where you are selling, in which country, what is the culture around negotiating. I was running the Trados Scandinavian office for many years and we had exclusivity on the Nordic market. Many people think that the Nordic market is just one big market, expensive in our industry, expensive languages, small languages.
Michael Ae you saying it’s not?
Anne-Marie Expensive? It is, but it’s not one market. It’s five individual markets with five totally different cultural and ways of buying and ways of negotiating. We knew that selling to the Danes would always end up in a long cumbersome negotiation on the price. You just know. So, what we did was we increased the price by 25%, we agreed on a 15% discount and we were all winners, especially the procurement manager.
Michael I often say horse trading still exists and I love the idea of “this is my first and best offer to you” but buyers do not exist in a reality where they can accept that. And so it’s generally not a good practice to provide that first because they need to prove to their boss “hey, I got that 15%.”
Anne-Marie Yes.
Renato Part of our audience, here, we have translation company owners and we have sales people that work for translation company owners. Strategically, the way to approach this is you have a price list that you publish and this is the price list where you have your margin, your desired margin. The sales people need to get a price… I usually recommend a start by adding 20% to your price because the client is going to negotiate. If you negotiate a 10-15% discount, you don’t need to get approval from your boss because you are within the approved price list. If you start high and negotiate down before you get to the minimum price list you are gold, you are ready to go. And that’s a behaviour that people struggle. They start with the price.
Anne-Marie That brings back your confidence in the situation that you can do that. So, you walk in with authority to your client and you know that you’re the good guy here; it’s like “yes, I can approve that; we have an agreement”. Instead of, the first thing you have to do is “I have to call my boss”.
Renato I hope you enjoyed our conversation today with Anne Marie, where we discussed several aspects of the pricing challenges in our industry and opportunities also.
Michael There are plenty of opportunities. We have been in this game long enough to see not a lot has changed related to pricing. There are a lot of ideas out there about it. So where we go, whether the bold moves…we’ll see.
Renato So thanks for listening, and we’ll see you next time.

End of conversation

Anne-Marie Colliander Lind

Anne-Marie Colliander Lind is a recognized force in the European language industry landscape. She has spent more than 20 years helping multinational organizations solve their language issues by serving in executive sales and management positions at leading service, technology and market research companies. Currently, Anne-Marie is the CEO of Inkrea.se, a management consulting company based in Sweden that assists companies in their growth and development strategies.

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