Consulting And Credence Goods

An important lesson from economics.

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 I hear from partners 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. Last year, I wrote about the different factors involved in marketing 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, 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 place. The mechanic takes an initial look at the vehicle, and says to you:

"You have a bumper damage problem here. These are cracks in your bumper that can go unnoticed for a long time. I recommend you leave the car here so we can take a better look at it. If the damage is more than a few inches long, you will need to replace the bumper cover entirely. For your car model, specifically, there are two specific points where we often find punctures. Give me some time to confirm this."

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 going to 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.

The consequences of this are many, and directly affect how you market, sell, and deliver your consultancy. I'll talk more about it tomorrow.

Thanks for reading. You can get more specialized and actionable growth insights for micro consultancies in our newsletter. Every Tuesday, you get one idea from Danilo, one quote from other experts, one number you need to hear, and one question for you to level up your consulting practice.

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