“The financial performance of law firms
over the last ten years has essentially
been driven by only one factor:
REPORT ON THE STATE OF THE LEGAL MARKET (2018)
“Thoughtful price and value
communications can decrease
price sensitivity and support
“Poor communication of value results
in higher price sensitivity and more
intense price negotiations.”
If insanity is doing the same thing over and over but expecting a different result, the legal industry is guilty of insanity when it comes to better rates. The annual automatic rate increase is not a successful Pricing Strategy, especially when discounting is commonplace, value is not communicated, and realization rates continue to fall. Most importantly, rate increases are focused internally, not externally.
A proactive approach to better rates is for Practice Group and Firm leaders to focus externally, on the buyers and clients: what do they value, how can your attorneys meet expectations.
A brand is the external expression of your firm’s internal attributes. It helps your firm stand apart from its competition. Done correctly, buyers know how the firm’s benefits add value and why they are motivated to purchase your firm’s services. It is because of the buyer’s perceived value that s/he is willing to pay higher rates.
Your ability to sell your services at your rate is tied directly to the quality of your competitors (known as Next-Best Alternatives (NBAs)). Knowing the choices—value and price—your buyer has allows you to make adjustments that support better rates. In addition, NBAs can be the single greatest threat to better rates.
Securing better rates starts with understanding “people buy emotionally and justify intellectually.” Most professionals miss the importance of the psychology involved in Pricing. There is Buyer Psychology: how counsel are chosen, and how firms can influence those choices. And, there is Price Psychology: how firms can shape buyer behavior. Securing better rates hinges on partners learning how to leverage psychology in the sales process.
Buyers of professional services are more value-conscious than price-sensitive. Practice Group and Firm leaders need to focus on creating Value Propositions to appeal to buyers. A value proposition articulates a reason why a buyer will benefit from engaging the Group or Firm.
“If you don’t know your value, why should you expect your prospect to?”
Buyers want to buy at the lowest price; Sellers want to sell at the highest price. This “tug-of-war” is influenced by the buyer’s willingness-to-pay (WTP). Firms need to understand a buyer’s WTP in order to increase rates.
Two similar beers are priced at $1.85 and $2.30. With two choices, the less-expensive beer wins: 80% to 20%.
In the test, a third beer is added: a low-cost option for $1.65, and a premium option for $2.65.
With three choices, the low-cost option drove new behavior: 0% – 20% – 80%.
With three choices, the premium option made an impact on purchasing: 0% – 60% – 40%