“Competitive advantage grows fundamentally
out of value a firm is able to create for
its buyers that exceeds the firm’s cost
of creating it.”
“A central role of Price is to capture the
full measure of value. Only at a point
of profit maximization can one say
a service value is equal to its price.”
“The customer never buys a product.
By definition the customer buys
the satisfaction of a want.
He buys value.”
“Every buyer wants to lower fees, but not one wants to lower value.”
Not only does this truism encapsulate the challenge of serving clients, it reveals a law firm’s true business objective: offering value. In a capitalist economy, every consumer – whether conscious or not – asks the question: “Is this purchase worth the cost?” In other words, is the value of the purchase equal to (or greater than) the price paid? Every transaction is based on this type of cost/benefit analysis.
Buyers have four cost/benefit options when selecting counsel:
choose you, choose a competitor, do the work in-house, or do nothing.
Why choose your firm? A singular – but not simple – reason: value. Because the essence of your client relationships – acquisition and retention – is rooted in the concept of value, it is imperative that you and your firm understand your firm’s value.
A brand is the external expression of your firm’s internal attributes. It helps your firm stand apart from its competition. Done correctly, buyers come to know the better value offered by your Practice Group or Firm, and they are motivated to purchase your services. In many cases, it may result in buyers paying higher rates.
Your ability to sell your services at your rate is tied directly to the quality and quantity of competitors. Known as Next-Best Alternatives (NBAs), competitors play a decisive role in how buyers assess your value. Having a strong understanding of your position in the marketplace will help you create better value.
Like beauty, Value is in the eye of the…buyer. 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, such as Decoy Pricing (see Economist Test below).
Training is vital for partners to capture more Value in their Price.
Even ten years after the Great Recession, law firms still use a Cost-Based method of Pricing.
Two comparable beers are priced at $1.80 and $2.50.
With two choices, the more-expensive beer wins:
$1.80 – $2.50
20% – 80%
A third, low-cost option drove buyers to the middle:
$1.60 – $1.80 – $2.50
0% – 80% – 20%
A third, premium option shifted buyer behavior:
$1.80 – $2.50 – $3.40
0% – 84% – 16%
The result? A significant revenue gain (>10%).