Reputation trumps price say most GCs

Earlier this year Validatum published a blog entitled ‘We’re more expensive than them because we are better than them’.

The blog began with my observation that although there are clearly exceptions, it is well understood by most law firm marketing and BD specialists, if not so much by partners, that for the most part, technical ability is not a differentiator in the eyes of clients. And even if it is a differentiator in a specific situation, claims of superiority tend to be viewed by clients as little more than hyperbole and lacking any kind of proof.

What I probably should have acknowledged is that independent of verifiable superiority through any kind of empirical rigour, it is nonetheless true that we all have a reputation. Nebulous though it may be and not easily quantifiable, it exists nonetheless. The same applies to law firm partners whose reputation is the sum of the beliefs or opinions held by clients and potential clients those partners.

The latest General Counsel Excellence Report 2017 which has now been running for five years has produced the eyebrow-raising conclusion that in the eyes of most GCs, the reputation of individual practitioners and their teams is more important than the reputation of the firm or pricing when it comes to selecting the right external legal resource.

When asked to rank the most important factors when looking for a law firm, the selections for first choice were as follows;

1. Top rated individuals/teams – 41.3%
2. Business expertise (knowledge of the client’s business) – 24.2%
3. Firms focusing on our sector – 22.1%
4. Law firm brand – 7.1%
5. Cost/fees – 4.3%
6. Media profile – 1.2%
7. Size and reach – 1.1%
8. Law firm network affiliation – 1.1%

Put another way, the ratio prioritising individual reputation over cost/fees was roughly 10:1. There is actually nothing particularly new about this revelation as it is consistent with recent Altman Weil Law Firms in Transition reports showing that price is the determining factor for fewer than 10% of institutional buyers of legal services.

There is a huge pricing opportunity here for those firms that understand the implications and are prepared to act decisively. Many firms are sensibly pursuing sector focused strategies. The piece that remains frequently underdeveloped is deep expertise and insight into the client’s own business. It is not enough to demonstrate broad and deep knowledge of the sector. Clients want to know that set against that backdrop, the lawyers they are dealing with have an intimate knowledge of how the client’s business sits within that sector

Doing so puts the firm in the most enviable of positions and that is the external legal provider that is seen by the client as capable of providing high value legal advice within an equally valuable commercial wrapper. Increasingly, legal advice (in the form of black letter law) without a sound commercial context is seen as being of comparatively limited value.

Proactive commerciality is commanding a premium, particularly where it is unexpected and completely initiated by the firm. Timely, responsive and quality reactive advice is also expected but will not generally command any kind of price premium or credit for differentiation.

The reality is that no client is going to give their external law firms a blank cheque, but what is manifestly obvious from our anecdotal evidence and an increasing body of empirical evidence is that price sensitivity diminishes in inverse proportion to the reputation of a legal team, the firm’s demonstrable sector focus and equally demonstrable intimate insight into the client’s business operations and commercial objectives.

 Author

Based out of London, Richard Burcher’s consultancy Validatum ® is described as the foremost architect of legal services pricing practice internationally.

Richard is regarded as the leading niche consultancy of its kind in the world with a sole focus on legal services pricing; which he regards as the most challenging and rapidly evolving aspect of the lawyer/client relationship.

Richard is a major contributor to the chapter on pricing in Remaking Law Firms: Why & How, available from the American Bar Association and Amazon.

This post was first published on the Validatum blog on October 25, 2017.