Globally Speaking
Podcast 033
Pricing—Addressing the Elephant in the Room
MWow, so we’re getting some help now on our introductions to our podcasts, Renato.
MSo who was this guest that we had who is learning so much about pricing in localization?
RWell, that happens to be Luca Beninatto, my son.
MAhh, so he’s a podcaster in making.
RYes, and he’s a frequent listener—involuntary frequent listener.
MInvoluntary…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…
RIt’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..
MIs price.
R‘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.”
MListen 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.
AMMy 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.
MWho I hear, also, listens to the podcast.
AMOh, she is your biggest fan; I guarantee that.
RWell, give her a shout out in Swedish.
AMCecilia [Swedish greeting].
RThat is fantastic. I have no idea what you said!
MNeither do I!
AM You have to ask Cecilia.
RBut 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?
AMI 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?”
MAfraid is an interesting word; why would you say afraid, what is driving fear?
AMI 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?
RIt’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…
MI’ve used this a number of times, I love this illustration.
RYou 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.
AMIt’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.
RYes. 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?
AMI 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?
RMichael, 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?
MI 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.
AMAnd 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.
AMBut, 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.
RThat 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.
AMBut, 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.
MDo you think it’s just an issue of the pricing model? Is that the only challenge there?
AMYes, 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.
RWell, 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…
AMYou 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.
MOne 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.”
RWell, 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…
MYes, the opportunity cost there.
RThe opportunity cost was amazing and then those $2 million appeared all of a sudden.
AMBut 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.
RLet’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.
MI 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?”
RAnd this is great if you, our listener, is a localization buyer. But, if you are a sales organizationin 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”!
MOr, 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?
RSo, 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?
AMNever 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.
MIt’s fairly similar.
AMYou 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.