Debating Forrester’s pricing

My colleague Hugh Rittner’s makes an interesting comment here: Forrester’s across-the-board price rises give it a one-off boost in profits, but perhaps it would have been wiser to wait until it was under more pressure and really needed the money that such a one-off shot allows it. Hugh poses two powerful questions…

“Might a shareholder, for instance, say that in times of business expansion it is unnecessary and maybe even wasteful to raise prices? Would a better option have been to delay fee increases until revenue growth slows, thereby flattening overall revenue growth?”

Hugh’s points are certainly well informed (when not working here at Lighthouse, his other interest is institutional sales for the leading asset management company).

It seems to us that this is a complex choice for Forrester: there is steady, organic growth. Of course, part of this year’s organic growth will come from price rises, while other growth will reflect moving into new client accounts under the power of 48 or so new sales staff. On the one hand, there is an argument that if you’re aiming for high pricing, then you might as well start high with those 200 new accounts.

However, I think the real message from Forrester’s pricing changes is this: Forrester doesn’t fear that a 10% increase in list prices will lead to anything like 10% fall in contracts. To use the economist’s term, Forrester acts as if demand for its services and research are price inelastic.

That’s a judgment that we concur with, but it’s remarkable never the less. If true, then it suggests that the space exists for Forrester to boost its prices again, whether or not it increases them now, and still grow its overall revenue.

That’s a remarkable situation but one that most analyst firms can get themselves into. It also suggests that, regardless of the apparent low barriers to entry, there are still inelastic service and brand attributes that give market leaders in the analyst industry an enviable position.

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