Newish to many lawyers, rarely to their delight, is a growing realization that when clients start talking about the price for legal services, they don’t (really) care whether that price is arrived at by summing a whole lot of billable hours, a negotiated “AFA,” a successful RFP submission, or drawing straws. What clients really want for their money is Value. And you should under no circumstances equate value with “cheapest;” value can be found at every level of the food chain from the top to the bottom, and the lowest overall price is one of clients’ very last priorities. (Survey results on this are consistent; you could, as they say, “look it up.”)
But this merely changes the subject of the problem in most lawyers’ eyes, from Cost to Value. “When clients talk about value,” I hear many lawyers say with a combination of exasperation and wounded pride, as if the privilege of receiving their services didn’t speak for itself, “I don’t know what on earth they’re talking about.”
I’m here to help. Up to a point.
Circulating out there in our collective noosphere is a recognition that part of the process of coming to understand this or that phenomenon at a profound level—which is to say, being able to explain how it arises, its lifecycle, and its end, and not merely being able to fix labels on it—can be a process of developing and testing a series of hypotheses about the mystery phenomenon. The hope, and the great promise of the scientific method, is that each refinement will bring one closer to the goal of genuine comprehension. The objection that some of these interim hypotheses will not be correct is inadmissible, or, as the pithy but wise quip has it, “all models are wrong, but some are useful.”
So our mission today is to take a simple, but I hope ultimately profound, step towards unpacking what clients mean when they speak of value.
To our aid comes Any value proposition hinges on the answer to one question, from the redoubtable Harvard Business Review. It seems to begin innocently enough (emphais original):
Any strategy lives or dies on the basis of its customer value proposition. There are many typologies relevant to crafting a value proposition, because there are many ways to win customers. But the key issue is always: what is the center-of-gravity in our approach? Do we ultimately compete on the basis of our cost structure (e.g., Ryanair and Wal-Mart) or another basis that increases our target customer’s willingness-to-pay (e.g., Singapore Airlines and Nordstrom)? In other words, will we sell it for more or make it for less — and allocate sales resources accordingly?
Nearly all competitive markets confront firms with this choice. In retailing, there is Wal-Mart, Dollar General, and category killers. But there is also Nordstrom, Louis Vuitton, and many high-end boutiques.
Let’s take a closer look at each option.
Selling it for more simply means your offering in the marketplace—legal services, I’m assuming—provides clients with better performance in dimensions that are important to them and for which they will willingly pay a premium price. “Selling it for more” goes wrong when you fall afoul of one or more of these traps:
- Irrelevant or imaginary differentiation: Customers actually don’t care about the elements of superiority you’re offering, or they’re not in fact superior.
- Invisible or uneconomic differentiation: Customers don’t think your type of superiority is worth the premium you’re charging, or they can’t tell the difference to begin with.
- Unsustainable differentiation: There are low barriers to entry for others to offer what you are offering, so your service superiority is competed away over time by imitators.
Examples of firms thriving, at least for now, in this area of the imaginary price/performance matrix might include BMW, Giorgio Armani, Ritz-Carlton, Cartier, and Wachtell. Firms that used to occupy this space but are elsewhere altogether these days include Duesenberg, Emilio Pucci, the Bristol Hotel (Paris), and Dewey.
Making it for less means creating, and managing, a cost structure such that you can make money at price levels competitors cannot or will not sustain. I need not forewarn you that pursuing this strategy creates organizational and executional challenges of the highest order, but the reward for crossing to the other side, as it were, can be great. For one thing, most industry structures, and I see no a priori reason Law Land should be exempt, permit only a handful of players to occupy this space on our imaginary matrix, and for another, scale advantages of incumbency can create high walls for would-be entrants to surmount.
Here’s what to avoid:
- Price wars: Brutal price competition can mean that all the cost advantage is captured by customers and no firm in the market can extract value.
- Substitutes: Your price may be less than your peer group of competitors, but not less than substitutes which target customers find perfectly acceptable.
- Confusing cost reduction with lowest cost: Strictly speaking, markets tend to have room for only one true “lowest cost provider” at a time. Don’t make the mistake of assuming that because you have cut your costs as far as you think you can if you want the lights to stay on, that that will make you the lowest-cost supplier.
Examples of firms, or brands, here: Toyota Corolla, Honda Civic, Hyundai Elantra; Old Navy; Ikea; Motel 6. The dead or the walking dead here: Chevy Vega, Ford Pinto, Montgomery Ward, Sears.
Make no mistake: Pursuing one of these strategies to its logical conclusion, and not attempting to muddle through the middle, requires extraordinary discipline. At the high end, zero tolerance for anything short of excellence, and all-enveloping client service—at every single level of the firm and with every point of client interaction, no matter how seemingly trivial. (Every try opening the front door of a Ritz-Carlton for yoursefl? The attending staff will practically break their arms to beat you to it.)
At the low end, rigorous and minute green-eyeshade oversight of expenses, ceaseless business process optimization, and a cold determination to make the techniques you were using yesterday obsolete before someone else does it for you.
I told you I could help you out on this up to a point, and that point has arrived.
What if you can’t or won’t choose between selling it for more or making it for less?
In that case, you will find yourself one of a very large number of members of the awkward in-between space, providing neither the best nor the cheapest.
Your riposte may be that there are many clients, thank-you-very-much, who don’t want to pay for the best but are more discriminating than to settle for the cheapest. I wouldn’t doubt you for a minute on that.
But there is a comparably large number of law firms ready, willing, and able to serve exactly those clients–and in today’s battle for market share environment, they aren’t shy about coming after “your” clients and targeting the same juicy prospects you may have in mind. The pie may be sizable, but how can you make sure you win (at least) your share?
My point is not that there is no “middle market,” my point is that the middle market is an extremely tough place to survive and thrive, precisely because it is so densely populated with law firms which, to many clients, are indistinguishable from yours. When there is a surfeit of firms which all look like perfectly acceptable substitutes for one another to clients, the dynamic that almost inevitably evolves is straightforward, well nigh impossible to resist single-handedly, and gets ugly fast: Price wars.
So, if you have ceded the two most compelling value areas on our imaginary matrix to others, you had better focus as hard as you know how on the clients you do have, or want to have. Shower them with love. Or, as Warren Buffett may or may not have ever said, “You can put all your eggs in one basket. Just watch that basket like a hawk.”