In this episode, Chip and Gini react to a blog post from their friend Christopher S. Penn who writes and speaks frequently and intelligently on new trends in communications and technology. In his piece, Chris argued that agencies should review their business model and pricing structure in response to AI developments in 2023.
While the co-hosts see artificial intelligence as a force that will (and already is) impacting agencies, they’re not on board with a wholesale change to agency models as a result. They argue that the value pricing approach advocated by Chris is far more difficult to implement in practice and doesn’t necessarily address the fundamental changes that AI may cause.
Instead, Chip and Gini argue that agencies should be looking to better integrate AI into their own processes and understanding how it is transforming how their clients approach the challenges that agencies address. The path they recommend results in agencies evolving their solutions and delivery mechanisms rather than abruptly shifting course dramatically.
- Chip Griffin: “I think that it is certainly premature at best for an agency to say, I’m going to rethink my whole business model because of what AI is doing.”
- Gini Dietrich: “AI hasn’t created the death of the hourly business – the death of the hourly business has been here for a while.”
- Chip Griffin: “There are so many innovations that have made work more efficient and faster, and we’ve all figured out how to adapt to them, and it’s not simply by trying to figure out how do I protect my margins against a threat.”
- Gini Dietrich: “We have an expertise and we have experience. And those two things, along with the trust and the authority that we’ve built, are the reasons somebody is hiring us.”
The following is a computer-generated transcript. Please listen to the audio to confirm accuracy.
Chip Griffin: Hello and welcome to another episode of the Agency Leadership Podcast. I’m Chip Griffin
Gini Dietrich: and I’m Gini Dietrich
Chip Griffin: and Gini I think with all this AI thing, we need to change how we’re doing this whole podcast. Just throw it out and start over.
Gini Dietrich: Great. Let’s do it.
Chip Griffin: Right after this.
Now that I think about it, maybe that’s a little bit of an overreaction to AI. Maybe. Maybe I should take it in and figure out how to, how to use AI as opposed to just discarding our entire podcast and starting over.
Gini Dietrich: Or maybe we just let AI do it and we take the credit.
Chip Griffin: Well, that’s a good idea. I would love to see how AI would like…
Gini Dietrich: I actually, we actually should do an episode on that just to see. Put in props.
Chip Griffin: See if we can get Chat GPT to mimic an episode of the Agency Leadership Podcast.
Gini Dietrich: I love it. I think that’s a funny idea.
Chip Griffin: And then we’ll just, we’ll read our lines that it comes up with, that would be, I don’t know.
Gini Dietrich: Something, that’d be something.
Chip Griffin: That would be something. It would be something if it could even figure it out.
Gini Dietrich: Yeah, that’s true. We should do a test like that at some point. Not for a whole episode.
Chip Griffin: We have to be careful though, we don’t want this podcast to turn into actual work for us.
Gini Dietrich: That’s, that’s a really good point.
Chip Griffin: I mean, this is supposed to be, you know, we kibitz for a while, then we hit record and we just say whatever’s on our mind and we hit stop and then we turn it over to Jen.
She does all the hard work while we just get to have a little bit of fun.
Gini Dietrich: She does do all the hard work. And the best, the best is that she includes, I love that she does this. She includes like clips and stuff to other things that we’ve talked about, or she’ll include a meme or a couple of weeks ago, she included the, the link to the YouTube clip on or short on Tom using, yeah, using people as his footstool.
I was like, this is great. She’s great at it.
Chip Griffin: You know, she enjoys that part of it. I suspect there’s parts that she doesn’t enjoy, but I think she enjoys our references because it gives her an excuse to go and Google funny clips on the internet and call it work.
Gini Dietrich: And then she emails me with funny, snarky remarks, which I also love. I’m a big Jen fan.
Chip Griffin: So yes, I suspect at my expense. Not always. Anywho, so what we’re actually going to talk about today is AI and what it means for agencies and their business models, because this is something that came up recently in, of course, the Spin Sucks community.
Gini Dietrich: Yep. So our friend Chris Penn recently wrote an article on value based pricing and artificial intelligence, and it was shared in the community, and there was a lively discussion about it, including, From our friend, Chip Griffin, who talked about, you know, whether or not this is applicable to agencies, whether or not we can use AI and how it works for value based pricing.
And if AI is making us more efficient, should we be charging more because clients are getting the value of our expertise on top of the AI? Is that a nice way of putting it?
Chip Griffin: Sure. Well, needless to say, I found this post to be rather triggering because it, it, it had two of my current triggers, AI and value based pricing just in the, right, just right there. And, and so red alerts, you know, so if Chris was trying to trigger me he couldn’t have found a better way to do it. And I know he wasn’t looking to do that because I, I’m fairly certain that I, you know, I’m not on Chris’s mind every day when he wakes up and says, how can I, how can I, well –
Gini Dietrich: now he knows, now he knows,
Chip Griffin: now, now he knows if you, if he would like to trigger me, just talk about value based pricing and or AI or put them both together and my head will explode.
And look, I, I, You know, I will use the same disclaimer that I used in the community. Some version of, I think Chris is a smart guy. I love a lot of the stuff that he puts out. I follow, I used to sit there and watch him at his Saturday night data party on Facebook. You know, so, so clearly I am a Chris Penn fan.
That said, I am not a fan of this post at all. I, I think that it is certainly premature at best for an agency to say, I’m going to rethink my whole business model because of what AI is doing. And to think that the solution is to try to find ways to charge more for the things that AI allows you to do easier, I just, I, I fail to understand that rationale that feels much more like the way old school people look at how do they protect themselves when technology comes along, right?
And we have the, my point is that AI is just the latest in a series of technology. It’s cool. It’s great, but it’s, it’s not, it’s not something we haven’t seen before, right? There are so many innovations that have made work more efficient, things get done faster, and all that, and we’ve all figured out how to adapt to them, and it’s not simply by trying to figure out how do I protect my margins against a threat.
Gini Dietrich: So I would say, yeah, I would say a couple of things. You know, one of the first things that he talks about in the article, and we’ll link to it in the show notes, is that AI has created the death of the hourly business, and I don’t think that that’s true, because the death of the hourly business has been here for a while.
I can’t tell you, that’s actually not true. I was going to say, I can’t tell you the last time I, we, we, billed by the hour. We bill by the hour for crisis work. But nothing else. Everything else is project based or retainer based. And I think that you and I have been talking about this for how many episodes?
205 episodes now? There is, the death of the hourly business has been here and come and gone. And, and even when Phyllis shared the article in the Spin Sucks community, she said we price per project, per project, as I’m sure many of you do as well. So she preempted that by saying, like, we don’t bill by the hour.
So what is it about the value based pricing in here that’s beyond the hour, hourly business? Because I think that piece of it is dead, has, is dead, has been dead. You know, nobody, I, I don’t even think attorneys are doing that – my attorney doesn’t bill by the hour anymore. It’s dead.
Chip Griffin: I, I disagree with that.
We’ve talked about that before. I, I think that there’s a time and place for hourly billing. Obviously, you, you still do it with crisis work, as you said. Yep. And so I think that you know, you should always look at your various options for pricing and figure out what works best for you as well as for your prospects and clients.
And in some cases that may be hourly billing. So I, I don’t subscribe to, you know, you should default to no hourly billing, right? I, I think that in many cases it adds complexity and tension that’s unnecessary. And when you have a pretty good sense of how much time something is going to take, I would prefer a fixed fee approach.
I mean, my attorney still does charge by the hour. Absolutely. You know, I, I’ve used plumbers recently for some of that they charge by the hour still, right? There are still time there’s when you don’t know how long something is going to take it is the, it is the most fair pricing solution for both parties to do hourly billing.
Because if, if neither side really knows how long it’s going to take and you do fixed fee, then someone is, is likely going to get it stuck to them in the end, right? Because either you have to overcharge to protect yourself against the fact that it might take more time. And then if it takes less, now you’re overcharging the recipient, right?
So, I, you know, but if you have a reasonable idea of how long it’s going to take within a reasonable margin of error, by all means, use fixed fee. But I, to me, it’s… The whole argument about hourly just doesn’t make sense. People always, you know, somehow lawyers always come into the hourly billing conversation.
And so, you know, in the specific, one of the specific examples that Chris used in the post is how he had put together some legal agreement with ChatGPT for a friend and a lawyer reviewed it and said, yep, it’s good to go with no edits. And so, so this is how we must know that hourly billing is dead and it’s going to doom lawyers that ChatGPT exists.
Except that, there have always been things that have made it faster and easier for lawyers to do things. My father was a lawyer. I remember going to his office in the late 70s, early 80s, and they sat there and he had a secretarial pool that would type things up that he would, he would record into a dictaphone.
You probably need to look that up, but it used to be that you had a handheld telephone. That you would, that you, the attorneys would speak their letters and contracts into, and then someone else would listen to the tape back, and they would type it on a manual typewriter. That would then, you know, have to be edited on paper and then retyped all of this kind of right.
So he had that. He had a huge library in the basement of his of his building with all of these case books and law books, and that’s where they went to get information. Now, attorneys type their own letters and contracts. They don’t have a secretary who does it for them. They type into their computer in LexisNexis and they get the citations that they need immediately, just like that.
They don’t have to go hunting for it. So the level of efficiency is many orders of magnitude greater than it was in the 70s and 80s. And yet, the hourly billing model is still very much alive and well. And I don’t know about the attorneys you know in your life, but most of them do pretty well. And they’re billing by the hour in most cases still.
Some, as you note, have, have stopped doing that. But, but I would say by and large, the attorneys that I come into contact with still use it. So, the hourly billing model is not dead. And AI is not going to destroy it. Because if ChatGPT is your, the only thing that you’re doing, you’re just generating contracts, well then, you didn’t need a lawyer in the first place.
Go download a template from somewhere. You can do that already.
Gini Dietrich: This contradicts what you said last week, which was never, never use something that hasn’t been reviewed by an attorney. So if you’re going to download the template…
Chip Griffin: but if you’re just going to ask ChatGPT to do it, you might as well just download the template, right? I mean, at least the template probably was reviewed at some point in time by some lawyers somewhere.
ChatGPT was never reviewed by a lawyer anywhere. Right? So you’ll give, if you give me a choice between the two, I’m probably going to pick the template that some lawyer likely reviewed, particularly with, you know, my knowledge of ChatGPT hallucinating things or that kind of stuff, or the fact that ChatGPT is out of date.
And so if there are laws or regulations that will come along in the interim that cause, that mean your contractor agreement should be different, well, ChatGPT can’t by definition know about that. And good lawyers ask you a lot of questions to figure out what you really need and to help you understand what the risks are because there’s not a one size fits all contract or agreement for anyone.
You can cover everything, but if you do that, you’ll probably never get the other party to sign. Right. So a good lawyer sits with you and says, okay, let’s talk about the work you’re doing. Let’s talk about what you’re worried about from a risk standpoint. How much exposure are you willing to accept? And that’s how you figure out what to include or exclude for your personal circumstances.
ChatGPT cannot do that in 2023.
Gini Dietrich: I think you bring up a really great point too, which is the same for for agency owners, which is we have an expertise and we have experience. And those two things, along with the trust that we’ve built and the authority that we’ve built, those, those things are what somebody is hiring us for, right?
They’re hiring us because we have expertise and experience that they either don’t have internally, or that they need extra brains around because there’s something coming up. And that’s why they hire agencies. They don’t hire agencies because they have a team internally who can do it. And oh, they’re just going to use ChatGPT.
And can we just review it? That’s not how it works. So yes, we can use ChatGPT to make us more efficient. And when we were talking before the show started, I relayed one of the things that we use it for pretty consistently, which is we have a client who does an hour long webinar every week. And before ChatGPT came into our lives, probably last November, we had, we, we would have it transcribed by Remy or Tev, and then we would.
Or I just, just did that different, that Rev or Temi, my dyslexic brain.
Chip Griffin: I was, I was trying to figure out where you were going. I’m like, I was trying to process that in my head and I thought it was actually someone’s name, like Remy somebody and…
Gini Dietrich: Temi or Rev and, and then back before November, we would have to go through and clean it all up, and then we’d have to create content from it.
Now what we do is we throw that transcript into ChatGPT, we have it cleaned up, and then we say, create three outlines for three blog posts on this, on this topic. So then it gives us a starting point and an outline for us to create the content, and it probably saves. 20 hours a week easily.
Are we, we’re not charging more for that. We’re not charging less for that. What we’re doing is we’re saying, here’s all of this. And they’re, they’re ecstatic because they’re getting it so much faster. They’re getting it within a day instead of almost the following, almost the following week, they’re getting it really fast.
So they’re ecstatic. And then we’re taking that time and we’re putting it into other things that we know need to be done for this client. So they’re like thinking they won the lottery because they’re paying the same exact amount, but they’re, they feel like they’re getting more. They’re getting something delivered a lot faster, several days faster than when we were doing it manually.
And we’re doing other projects that have been on the back burner for several months because we, we’ve been spending all this time doing all this content that now ChatGPT helps us do. So my point is that It’s you’re not going to, you can use it to be efficient, but you don’t have to charge more or less because you’re using it and you don’t have to say, Oh, my gosh, it’s going to replace us because it’s making you more efficient.
It’s giving you an opportunity to be able to do more for your clients.
Chip Griffin: Right. And we’re constantly getting access to those kinds of things in the agency world. I mean, looking at, at all of the things that we do today as a PR or marketing agency in 2023, almost all of them are easier to do today than they were 20 or 30 years ago.
Gini Dietrich: Absolutely. I mean, your example of the secretary pool.
Chip Griffin: I can’t remember the last time I stood at a copy machine. Correct. Or a fax machine. Correct.
Gini Dietrich: Or send packages back and forth to clients to get approval.
Chip Griffin: Right. I mean, I load paper into my printer about once every six months now, right? You know, it’s, these are all things that took a lot of time before.
Yes. And all of the technological advances have helped improve what we do, right? I mean, the, the mobile phones that we all carry with us have given us the ability to do things at times and places that we never could have before. Those are all good things if we figure out how to use them, right. AI is the same way.
That’s right. AI is not a nuclear bomb. That’s going to come in and destroy everything. And, and so when I hear people talk about, you know, because of AI, we need to completely redo everything. No, we need to figure out how to integrate it in what we’re doing. And I love that you talked about how you can use it to make yourself more efficient and produce better, more timely results for clients.
That is very different than the example of using AI to replace a lawyer or an agency or something like that. And if someone, if someone is going to use ChatGPT to replace the work that the agency is going to do… well, that’s not a, that’s not a playing field I want to be on anyway, right? I want them to understand why, why I can provide them something that is above and beyond what the AI can do.
And to your point. We have as experts have knowledge. We have things that go beyond what the technology can presently do. And we can look out there and say, okay, here’s what’s going on in the world today. And so maybe you don’t want to say it this way. You want to say it that way. Or maybe you want to go with this particular approach because we’ve seen it working of late.
If you’re relying on ChatGPT, it knows what worked a year and a half ago. Right. That’s not the same thing as an agency that’s staying on top of things. And it’s not, it’s also not human. So it can’t read people’s perceptions, at least again in 2023, in the same way that we as experts can. And so if someone wants to just use it and have it, you know, write press releases and put together target lists and have it do it all on its own.
God bless ’em. Go do that. Those aren’t the clients that I’m trying to fight for.
Gini Dietrich: No, and I think that the agencies wanting to do that as well are not the agencies that that should be hired because clients are hiring you for your experience and your expertise. And if you’re not going to add that on top of the artificial intelligence that you’re using to make yourself more efficient, then you’re not providing the best result that you can for your clients.
So yes, absolutely use it. To make yourself more efficient. And yes, absolutely use it to, to create better, faster results. But you have to provide that expertise on top of it, or you’re not, there’s no reason for you to be in business at all.
Chip Griffin: Right. And if you’re able to use it to make you more efficient, you know, some of that can go to your bottom line in the form of profits, some of that can go to increasing the bandwidth you have to do more for the client for the same fee. That’s right. I mean, you know, if you can, if you can shave off, you know, 10 hours a month because you’re using ChatGPT to do summaries and edits and that kind of stuff, I mean, certainly take some of that to your bottom line, but take some of those hours and do something more to produce some more results that are still within scope, I’m not encouraging scope creep here, but there’s a lot of things, even within scope.
A lot of times we say, well, we just don’t have time to get to that this month. Have time to get to that. Deepen your relationship with that client. Make them stickier. Find a way to upsell them on something else. You’ll come out ahead in the end if you’re using it intelligently and not seeing it as a threat that causes you to have to redo and rethink everything.
And if you’re going to redo and rethink everything, please, please don’t play with value pricing. It is, it is one of the most dangerous things for people to do who don’t even get basic pricing correct. And this is, I’ve talked about this before. And even if you listen to Blair Enns, who is probably the biggest proponent of value pricing, that is Win Without Pitching and, and the groups that he has and all that.
He is a huge proponent, but he will tell you quite clearly that this is not pricing 101. You don’t start at value pricing. Value pricing is a graduate level activity. And so until you get to the point where you just can knock it out of the park with hourly or fixed rate billing. And you know you can do it consistently, reliably, profitably, in a way that your prospects are believing that they’re getting great results from you when they become clients.
If you’re not able to do that, value pricing is not the answer. Because value pricing is very difficult. It’s very complicated. It requires you to have a real specialization in the work that you do, in the industries you serve, so that you understand what that true value is, and have the confidence that you truly can deliver that value in the same way that the client sees that value.
Those are not easy things to do. It sounds great on paper, it feels good when you watch it in a 30 second YouTube short. That is not the same as actually implementing it in your agency in real life.
Gini Dietrich: And I will tell you that there are situations that we do value pricing, but it’s things like speaking engagements.
You know, where I, the, the client and there have been times where a prospect has said, I don’t understand why this costs so much money, you’re only going to be on stage for an hour. Yes. You’re right. I’m only going to be on stage for an hour, but I have 20 years behind me of experience that I’ve built to this level that allows me to be able to get on stage for an hour.
And I’m going to be away from the business and, you know, like all of the other stuff that goes around it. So you have to be able to say, prove that the reason you’re asking for that price is because of all the stuff that you have around it. Not just because you’re spending only an hour on something, but because you actually have the expertise to be able to, to provide value based pricing.
And it’s hard, like people will say, I just don’t understand why it costs so much money when you’re only going to be on stage for an hour. You’re like, okay, well then you’re not the right client for me.
Chip Griffin: But see, even that I would argue is not truly value based pricing, right? That is premium pricing. And I think this is one of the areas where people get confused in the difference between premium pricing Right?
I mean, a lawyer who charges you $1,000 an hour is engaging really in premium pricing. Value pricing, to use your speaking engagement example, would be you understanding what is the value to the event organizer for having you on the stage? What percentage of ticket sales can they attribute to the fact that you’re, you’re listed as a keynote?
What percentage of the satisfaction of, of attendees derives from the fact that they loved the keynote that you gave? Right, that could, because that’s where you get to what the value is of your speech. The fact that you’ve got a lot of experience leading into it justifies the value, but it is not the true essence of value based pricing, which says, okay, I’m going to produce this press release for you.
It’s going to generate, in my view, an additional 1,000,000 in sales, and I want a piece of that action. Maybe not explicitly, but because I know it’s going to generate a million in revenue. You know, it’s reasonable for me to ask for 100,000 for that one press release, right? Because it’s only 10%. So that’s not that bad.
That’s value pricing. And the problem is that most people conflate premium pricing with value pricing. And, and for you to understand how much of, you know, what’s your true value as that event organizer, that would be incredibly difficult because you’d have to spend a lot of time understanding their business model.
It would be incredibly difficult. Yep. Yep. And understanding, you know, what’s the difference if someone else is up there speaking instead?
Gini Dietrich: And getting the data from them that they’re probably not going to give me.
Chip Griffin: Correct. Correct. And so most of the examples, if you, if you read articles or you watch videos about this, most of the people who propose value pricing say you should say to them, okay Ms.
Event Organizer how much, how much tickets are, or how many tickets are you going to sell at how much and, you know, how many keynote speakers do you have and how prominent am I going to be in that? And so, okay, so, you know, if I didn’t come, how do you think that would affect your revenue? First of all, most people aren’t going to answer any of those questions for you.
That’s right. Even if they could, and a lot of them can’t answer those questions, even at your clients, even if it’s not an event, right? I mean, they just don’t have that access to information. And so if you’re truly going to go down this path, it’s a whole different world. And so I think we need to be really careful about that.
We certainly need to make sure that we’re not undercutting ourselves. We don’t want to get into the business of trying to compete with AI. And so saying, well, ChatGPT can do it. So I’m only going to charge you 10 bucks for this press release because I know you could get it for free anyway. That’s not the way to do it.
I’m not proposing that, but also, you know, don’t go out there and decide that, you know, you’re now going to charge 10 X for a press release because that’s, that’s how you’re going to protect your bottom line. That is not the way to go. So use it to your advantage. Don’t be afraid of it. And please be thoughtful about changes to your business model.
Don’t just do it because, you know, you paid attention to some story about ChatGPT and decided it was the end of your world as you knew it. And so you need something entirely different.
Gini Dietrich: No, it’s not. It’s not. You’re right. You’re right. Lots of changes have come that have made us more efficient and has not been the end of our world.
Chip Griffin: Not at all. But if you want to trigger me, feel free to write about value pricing and AI, put it together.
Gini Dietrich: I kind of feel like I should do something on SpinSucks, just to see.
Chip Griffin: So thank you, Chris, for giving us a very passionate topic for us to talk about. And by all means go read his argument. He is a thoughtful guy and, and, you know, there are some points in there that I’m sure you can take away and make your own decision.
But my, my view is just don’t do that. So with that, that will draw to an end this episode of the Agency Leadership Podcast. I’m Chip Griffin.
Gini Dietrich: I’m Gini Dietrich,
Chip Griffin: and it depends.