On the afternoon of Wednesday 23 September I will be moderating a panel (3:30 pm – 4:30 pm) on “The Law Firm of Tomorrow,” which will include Charles Martin, Senior Partner, Macfarlanes; Darryl Cooke, Managing Partner, Gunnar Cooke; and Sara Morgan, Head of Sales, Axiom.
We have been conferring and have come up with a few questions we plan to take on during our session. I won’t reveal all but in the spirit of hoping to inspire thinking in advance (whether or not you’ll be attending in person), here’s one of those questions:
Can a single law firm operate at different price points under one brand? Stated alternatively, can a single firm provide routine services at competitive prices while also taking on the most high-stakes, boardroom level attention, engagements?
To me, it’s self-evident why the answer to this question could be of pressing interest. All that’s required is that you believe there’s more than a bit of truth to the following about the high end engagements:
- Many firms declare that they aspire to do the high-stakes work, but there isn’t going to be enough to go around for all the aspirants. That work is in fact just a sliver of the overall global legal spend.
- Not only is there not enough ultra-high-end work to satisfy the hunger of all firms who say they’re pursuing it, in fact the list of firms in the consideration set of sophisticated clients for such works is getting shorter and shorter. And the hurdles for firms not already on those short lists to place themselves there some day are becoming insurmountable.
Turning to the value end of the demand spectrum – although I prefer to use the phrase “economical end” since I devoutly believe value can be delivered at any and all points of the food chain – how good are conventional law firms really at providing (a) routine services (b) at competitive prices (c) with consistent and superb quality (d) in a way that makes clients eager to come back for more? I fear the question answers itself.
Have I set too high a bar for firms to meet at this end? I can hear the responses already:
- “We don’t do routine.“
- “We have to cover our costs plus allow for a livable profit margin—and we don’t have real competition in any event.”
- “Of course we aspire to deliver superb quality; that’s essential to our firm’s nature. But can we help it if not every one of our colleagues is at the top of their game every day of the week?”
- “We’ve tried client relationship management, client teams, client business plans, and all of that; at the end of the day it comes down to personal relations and none of this top-down stuff.”
I’m not trying to be facetious, just realistic.
Now, we have seen a large variety of firms—famously starting over a decade ago when Orrick launched its “Global Operations Center” in Wheeling, WV—start operations in lower-cost centers, and the trend shows no signs of abating. Lest you doubt me, in no particular order: WilmerHale has done it in Dayton, Ohio; firms like K&L Gates and Bryan Cave have taken advantage of having a large presence in intrinsically low-cost metropolitan centers (Pittsburgh and St. Louis, respectively); and in the UK Allen & Overy has Belfast, Ashurst and Pinsents and others have Glasgow, and Freshfields has Manchester. More are surely in the works.
But are these investments changing the competitive playing field or simply sound management hygiene? My vote is with the latter. Please, I urge you, do take advantage of labor arbitrage: There’s no reason for back office functions to be conducted on Sixth Avenue in Manhattan or California Street in San Francisco. Do not kid yourself, however, that you have changed the game. Extremely similar, if not the very same people are doing almost exactly the same things in the same way but zero to two timezones and hundreds or a thousand miles removed.
A moment ago I mentioned Allen & Overy. Their ambitions in Belfast, and now Hong Kong and soon, surely, elsewhere, far exceed “labor market arbitrage.” They have launched Peerpoint, which they describe publicly as “global, flexible resourcing” but which is the first most conspicuous move into trying to house the high/low ends of the spectrum under one firm’s brand.
So staying within the boundaries of Law Land, the short answer to the question is “we don’t know yet.”
Fortunately, we are not without examples from the rest of the economy.
We have three successful examples of mass-market car brands launching high-end brands—separate brands, I emphasize—and one other company on the fence. The three success stories are:
- Toyota launching Lexus
- Honda launching Acura, and
- Nissan launching Infiniti
All three have worked splendidly, with Lexus the true thumping success stand-out. When launched in the US roughly 20 years ago, Toyota’s ambitions to take on BMW, Audi, and Mercedes at the top of the market were thought risible. And yet the best-selling luxury car brand in the US from 2001 to 2011? Lexus.
The brand that’s on the fence is Hyundai with its Genesis model, taking direct aim at the BMW 5-series, Audi’s A-6, and Mercedes E series. In a fascinating attempt to have it both ways—on which the jury is still very much out—Hyundai is using the Hyundai brand in the US but not in its native Korea. To buy a Genesis here, you go to a Hyundai dealership and look at a car with the Hyundai signature stylized “H” on the trunk lid and the steering wheel but not, interestingly, on the front hood or grill. Nor does the full name “Hyundai” appear conspicuously anywhere. In Korea, as I understand it, the Genesis is its own brand.
Why, given the proven track record of Toyota, Honda, and Nissan, did Hyundai go this route? Economics. Published reports have said the Hyundai estimated it would cost $2.5-billion and take a decade to establish a separate brand. We’ll come back to this.
The airline industry is, along with cars, famous for high-end and low-end offerings coexisting side by side. But here, by contrast, the track record of incumbent carriers setting up discount subsidiaries is ugly.
United and Delta Airlines, both “legacy” carriers, tried launching bargain brand carriers and both failed completely.
United’s effort, “Ted,” first flew in 2004 and was shut down in 2009. (Its planes were repurposed into United’s fleet.) Among other things that went wrong was insufficient differentiation between Big United and Little Ted. The only difference in the planes themselves was the elimination of first class in Ted-brand planes, but they were operated by United Airlines crew and, because of predictable operating needs, Ted-branded planes often operated as mainline United flights and United aircraft were substituted on Ted routes.
Delta’s effort didn’t last half as long: It launched “Song” in 2003, another all-economy-class carrier, and closed it down in 2005. The skepticism with which Big Delta viewed Little Song was summed up by Delta’s CEO Gerald Grimstein who came on board just after Song was launched and said it should have been called “Swan Song.” Among other problems, maintaining a clear marketing distinction between the two brands, especially in large markets like New York and LA served by both Delta and Song, was problematic, and Delta’s COO at the time of the shutdown admitted running both the main Delta brand and the sub Song brand was “very expensive.”
Two case studies:
#1. In 2000, the vast cereal manufacturer Kellogg, based in Battle Creek, Michigan, acquired the new-agey Kashi brand in La Jolla, California. Kellogg’s goal was to import the cachet of a natural, organic, back-to-basics portfolio of cereals into its grocery store aisle-busting megabrands such as Frosted Flakes, Rice Krispies, and Corn Flakes. Understandable intent; terrible execution.
For awhile all was well, but starting in the 2010’s the acquisition began to run off the rails. First, food activists discovered and broadcast far and wide that despite Kashi claiming its products were “all natural” and contained “nothing artificial,” ingredients included pyridoxine hydrochloride, calcium pantothenate, and other ominous-sounding chemicals. Although they actually occur naturally, food companies often use synthetic versions to control quality and manage consistent supplies. Be that as it may, the alarmist bell had been rung. Kellogg ended up paying $5-million and agreeing to change its labeling to settle a class action lawsuit.
Next, in 2011, it came out that Kashi used GMO’s, another no-no to its core customers. Sales had already been sliding but this made matters worse. In 2013, Kellogg management decided to relocate Kashi from its long-time home in La Jolla to HQ in Battle Creek. The rest of the story has not been written but the portents are not promising.
#2. In 1994, Quaker Oats acquired the niche tea/fruit drink maker Snapple, also a “new agey” brand, for $1.7-billion. In 1997 Quaker sold it off for $300-million (a loss of $2-million per day while Quaker owned it, for those of you keeping score at home). This was immediately characterized as “one of the worst acquisitions in history.” What went wrong?
Among other things, Quaker couldn’t relate to the independent distributors Snapple relied upon, who were not at all like the mass market distributors Quaker was used to. It also bollixed the marketing message, doing away with Snapple’s quirky employee-based campaign (featuring one Wendy Kaufman, a real person) and replacing it with a confusing boast that it would be happy to be third in beverages behind Coke and Pepsi.
So what might we conclude from this very mixed track record in Corporate Land?
My hypotheses are:
- It’s rare to see a single monolithic brand offering high-end and economical products or services under one name. Even where it’s clear that there’s common parentage, brand names are distinct, as are distribution channels (read: stores or offices). “Giorgio Armani,” “Armani Exchange,” and “Mani” are all clearly part of one corporate parent, but it’s a parent that works very hard to keep the lineages separate. Mixing them up will kill you. If you doubt me, just ask those with long memories at General Motors. In the 1970’s it came out that the carefully manicured brand distinctions between Cheverolet, Pontiac, Oldsmobile, Buick, and Cadillac were more imaginary than real. An impressive array of not just parts but entire drivetrains, chassis, and fundamental platforms were shared indiscriminately. Oldsmobile “Rocket V-8’s” in Chevy’s? You betcha. If you’re tempted into operational efficiencies, don’t even think about it.
- If you want it to borrow from the cachet of the established parent by sharing the name, you may be able to get away with it (the jury is still out on Hyundai/Genesis, and I would argue that the Armani stable is the exception), but then again staking our entirely new mental territory in the clients’ minds is probably better. “Lexus” not “Toyota,” “Smart” not “Daimler,” and for that matter “Scion” not “Toyota.”
- Safeguarding the integrity of the “offshoot” brand is paramount. Do not pollute its operations, marketing, finances, or talent-acquisition processes with “learning” from the parent.
- Keep it geographically separate (LaJolla, not Battle Creek).
- Give it its own stores/offices.
Fundamentally, these add up to one imperative: Don’t meddle!
So what are the prospects for this kind of dual-track offering in Law Land?
Highly improbable, bordering on “not going to succeed if you try it,” I would argue.
For one simple reason which has far more to do with culture, psychology, and training than it has to do with marketing, finance, or operations: Lawyers cannot control themselves when it comes to meddling. They simply won’t be able to restrain themselves and keep their hands and their opinions away from the offshoot. (If the offshoot is looking for funding from the parent, which seems far more likely than not, the meddlers will have a ready-made rationale: “It’s my money.”)
I’m not fond of this behavioral dynamic and I disapprove of it mightily. After all, it boils down to the unattractive attitude that lawyers can do anyone else’s job but no one can else could possibly do the lawyer’s job.
But is this attitude real? With resignation, I admit that it is.
So can the “offshoot” be pulled off? I fervently hope so. Allen & Overy/Peerpoint may be the first large-scale effort in this direction, and I am following its progress avidly and frankly rooting for its success. But even if it succeeds, would I wager on others? Only with someone else’s money.