It is intriguing to see how lawyers answer the question: “Why should clients come to you instead of retaining one of your competitors?” Something like 80% of them say nothing (for quite some time) at first and then start humming and hawing. Among the remaining 20%, there are a few who explain at great length where they see their law firm’s advantages. As a listener, you know precisely as much as before. Only very few succeed in describing in two sentences how they stand out from the competition and why they are particularly attractive for their customers.
Now, is this a question of communication? Of course not, or at least not only! Rather, this is about the question as to how a law firm is positioned in the market in relation to competitors. Michael E. Porter has developed a very simple model about this, which can also be applied to law firms. According to Porter, you are either a price leader, a differentiator or a niche provider.
If you aim at price leadership, you say: “I’m less expensive than my competitors!” This statement always applies with reference to the market that is relevant to you. This relevance can be established by determining the most important criterion that demarcates you from other market. Your relevant market may be the small rural town in which you practise, or it may be the jurisdiction in which you are in a nationwide competition with others. Choose that criterion which in potential clients’ expectations is the essential one to describe your market!
With this competitive strategy, your clients’ benefit is the price advantage. They are provided with a service that is comparable with that of other law firms, but at a lower price.
If you want to be a differentiator, it is precisely the other way round. Clients come to you because they want this additional quality and are prepared to pay a higher price for it.
Then there are the niche providers. Their services are so special that they elude categorisation as either price leaders or differentiators. At this juncture, however, I have to warn you: for most of us, the assumption that we are a niche provider who does not have to be either particularly favourably priced or outstanding, is an illusion. Unfortunately, 95% of law firms have to live with the fact that in the perception of the market, they fail to pass as niche providers. Be that as it may! So it’s either price leader or differentiator.
Before I come to my conclusion, I would like to dispel a fallacy: “If I’m a differentiator, I won’t have to bother with cost management!” Far from it! Completely irrespectively of whether I operate as a price leader or as a differentiator, I will keep to have my costs under control. It is only a question of the level at which this problem occurs, not a question of principle. It is conceivable that there may be more art on the walls of a differentiator’s office, but efficiency in the service provision process is as important in a high-end law firm as it is in a small law firm with a modest clientele. After all, the high-end law firm has to compete with other differentiators, so costs and prices may well make a difference in the tussle for attractive mandates!
About the Author Prof. Dr. Leo Staub is a Titular Professor of Business Law and Legal Management at the University of St. Gallen. He also is one of the Directors of the Executive School of Management, Technology and Law of St. Gallen University where he chairs the division “Law & Management”. Leo can be reached at firstname.lastname@example.org