​

Hi there,

Welcome to the first message of our Rethinking Growth Advice email series. Today, we’re going to explore what are credence goods, what are the unique challenges of marketing them, and why all of this matters when it comes to growing your micro consultancy.

Basic strategy principles apply to all kinds of businesses. These are things such as using your vision to inform goals, clarifying your target market, and narrowing your marketing positioning. But what exactly makes consulting different?

This is a valid question. If there were no fundamental differences, we would see many B2B professionals helping consultancies create effective growth plans. But what we hear (from hundreds of founders) is the opposite. Generic marketing and business development advice is the rule, not the exception.

A good starting point is to look at the nature of what consulting clients buy. You are probably aware of the many differences between products and services. But we can go much deeper than that.

When planning for growth, it's incredibly helpful to understand what credence goods are.

Credence goods are part of the SEC, a classification of goods and services that economists and professional marketers use. At its core, it's all about information. The SEC classification is based on how easy or difficult it is for consumers to get or evaluate information.

The name "SEC" is an acronym for the three kinds of goods it includes:

• Search goods: These are products and services that can be evaluated before purchase or consumption. They are mostly commodities like clothes, water, or a standing desk for your office. When people buy these, they know what they want, it's easy to see and measure the difference between specific attributes, and they know what to expect from them.
• Experience goods: These are goods whose price, quality, or some other attribute can only be discovered after the purchase. When you go to a restaurant, hotel, or hairdresser, for example, you can only hope you'll be satisfied later. If you want to avoid surprises, you will need to rely on other people's reviews or platforms that aggregate information from customers.
• Credence goods: These are goods whose quality is difficult or impossible to assess, even after their purchase. This happens because the consumer doesn't have enough expertise to make an accurate evaluation. Examples include expert or high-end services like medical and legal services, mechanics, and of course, consulting.

To illustrate the particularity of credence goods, think about the last time you went to a car repair shop.

It doesn't really matter if your car was showing troubling signs or if you just took it for a periodic review. You go to the shop. The mechanic takes an initial look at the vehicle, and says to you:

What do you do? You are not a mechanic. You have no idea what bumper damage is. And even if you google it, you will probably not be able to perform any checks before hiring a professional inspection.

This information asymmetry is one of the reasons selling consulting is a lot like selling legal advice, medical support, or technical mechanic services even though our capabilities are very different from those of a car mechanic. In all of those markets, even when the success of doing the work is measurable, clients often don't know how much of the service was needed and how much was actually performed.

Do you know if that car piece needs to be completely replaced or not? Do you know if the mechanic will take 2, 10, or 20 hours to do the job? The client neither.

This means that to sell credence goods such as consulting, clients always have to trust the provider implicitly.

What’s the natural response of someone when buying a service they can’t assess or understand? Uncertainty. Skepticism. The goal of your marketing and business development initiatives is to overcome these barriers.

The trust element explains why:

• The most effective ways of picking up new consulting clients are personal referrals (40-50%, depending on the survey). And the second place in most niches almost always goes to strategic alliances with referral partners. Consulting clients rely heavily on recommendations from those they know.
• 81% of consulting buyers say the quality of 1:1 conversations makes them somewhat or much more likely to hire a provider over another. Marketing alone can only take you so far. You (and any of your partners) need to be able to differentiate in your sales conversations, or else you’ll win much fewer projects.
• When asked what tips the scale when selecting a consultancy, an existing relationship comes always in first or second place - buyers often consider it more important than subject matter expertise and past performance.

We will talk about visibility, trust, consultative conversations, and the importance of relationships in the next emails of this series. For now, it’s helpful for you to really internalize the idea behind credence goods and how it affects your marketing and business development initiatives. While the following points are not always true for other industries, they certainly are for consultancies:

• Your price signal matters: Your price is one of the elements clients will look at to come up with a first estimation of your service value. We've seen countless cases where a price increase led to increased perceived value. Of course, it must be backed by actual value - you must deliver what you've sold. But your price does send a powerful message to the marketplace.
• Your reputation matters: In credence good transactions it is hard for clients to value quality. The expert, after all, knows more than we do, both about our problems and how to solve them. That’s why reputation also stands in as a proxy for quality.
• Your client relationships matter: Switching costs are higher for consulting clients due to the difficulty of finding good alternatives, and you can capitalize on this. Selling to existing clients is 5-25 times less expensive, and twice as fast as acquiring new clients. That’s why seasoned consulting partners nurture client relationships and invest in account planning - often a large part of the growth comes from upsells.

These characteristics, among others, are why you need to think beyond generic marketing strategies when it comes to growing your micro consultancy.

After each email in this series, we will provide you with an assignment to help you clarify your situation and/or put ideas into practice. Today, we can start at the basics.

If you want to stop wasting time, money, and energy with growth initiatives that don’t work, it’s better to check if you have the right fundamentals in place. Click here to complete a free online scorecard. You get a personalized report with actionable steps on how to address potential blind spots.

See you tomorrow,

Don't want to get from this series anymore? Click here to receive only the newsletter.
If you want to unsubscribe from all of our emails, click here.