Among the biggest challenges law firms face today is the issue of client value. While technology, legal operations, and project management attempt to quantify nearly every aspect of legal practice, clients’ perception of the service they receive remains largely subjective.
Certainly, industry reports give statistical insight into the satisfaction of large groups of clients. But how do you understand your clients’ perception of value? Gaining an understanding of the individual components your clients evaluate is critical. It can help you proactively demonstrate and increase the value your clients perceive.
Here are three ways of thinking about value that may help.
The client value formula
A perennial favorite of economists and MBAs, the basic iteration of the client value formula looks like this:
At first blush, most lawyers would consider this formula obvious. Clearly, clients want more benefit for lower cost. The past decade has seen a seemingly relentless focus on cost reductions driven by client demands and technology innovation. Mathematically speaking, reducing costs is a perfectly acceptable way to increase the output of the formula.
But driving costs down tends to commoditize products and services. In the legal industry, it has put constraints on firms’ ability to increase the benefit they provide. In order to increase the benefit to the client, firms need to make investments — in personnel, processes, and technology. Without sufficient revenue, these investments become difficult to make.
If you find yourself in this kind of situation, it’s important to consider the benefits you currently provide that clients may not be considering. It may be your unique expertise and insight, efficiency, and clear communication, or your capacity to minimize risk and maximize gain.
The value pyramid
More recently, consulting firm Bain & Company has published its B2B Elements of Value pyramid. This framework organizes value in ascending order — starting with table stakes, then functional value, ease of doing business value, individual value, and finally, inspirational value.
Most law firms have mastered the table stakes and functional value elements — things like acceptable price, quality, and improved top or bottom line for clients. As the legal industry becomes more fragmented and services more commoditized, it takes more to differentiate and demonstrate value. The good news is that law firms have an advantage when it comes to moving up the pyramid.
Within the “ease of doing business” segment, elements like responsiveness, expertise, stability, and cultural fit are historical strengths for law firms. Likewise, there are opportunities to make strides without burdensome efforts. Transparency, organization, and simplification are elements that depend almost entirely on operational effectiveness and the quality of interpersonal communication. The pyramid offers opportunities to differentiate simply by focusing on what clients value beyond price.
In 1988, two McKinsey & Company consultants defined a value proposition as, “a clear, simple statement of the benefits, both tangible and intangible, that the company will provide.” In the years since, major brands have developed increasingly-clever ways of conveying their value.
For instance, Target’s value proposition is “Expect more, pay less.” Even though most legal clients seem to expect this to be their firms’ value proposition, it is a useful case study for law firms. It says nothing about the products Target offers. It makes no specific claims to price either. Instead, it speaks directly to the notion of perceived value.
For law firms, the application of a formal value proposition can be in proactively addressing the value conversation and shifting focus to the client. Rather than a distinguished heritage, world-class client service, or unmatched legal talent, consider what those things mean for a client. Confidence? Peace of Mind? Predictability?
Articulating your firm’s value in terms of what your clients truly need can be an important step toward differentiating from your competition. In an industry full of players touting the number of lawyers and offices they have, a firm that can translate those stats into meaningful, client-focused benefits will stand out.
An opportunity to differentiate
It can sometimes seem that firms and clients will always be at odds in assessing value. Clients will continue to push for lower costs and increased output while firms will spend their time justifying the cost of their services with the benefits they provide. But firms who make the effort to understand how their clients assess value beyond cost can secure a competitive advantage for years to come.
Learn more about competitive advantage and get practical guidance in our white paper, The New Legal Business: Rethinking Competitive Advantage.