Pricing: getting it right

Richard Susskind has a message for law firms that are fixated on new pricing models in a customer-driven legal services market – ‘you have got it all wrong’.

Speaking at the World Masters of Law Firm Management conference in Sydney in March, he told attendees that many firms have misunderstood the needs of a new breed of cost-conscious clients. Firms, he says, think the solution is a different pricing model. ‘It really isn’t,’ Susskind says. ‘The answer is new delivery models.’

New delivery models will certainly be part of the mix going forward as will increased use of technology to deliver high-volume, repeatable, low-value legal work. Will new delivery models and technology solve everything that ails private legal practice, like some sort of legal management ‘carbolic smoke ball’?  No they won’t. Neither should new pricing models be dismissed as irrelevant.

Firms should be encouraged to understand and tackle challenges on more than one front. Many firms fully grasp the need to reinvent themselves from their business-ownership model, to the way in which they resource and deliver services. But in the final analysis, the solicitor-client relationship is a commercial one. Lawyers’ services still have to be sold and therefore still have to be priced optimally, even in the technology and artificial intelligence brave new world of Professor Susskind’s dreams.

Don’t misunderstand me. I am no Luddite. Advances in technology have always held great promise. The potential application of technology in the pricing field is very exciting.

But as with most of the challenges facing the profession, the solutions are involved and multi-dimensional. Some of those solutions provide quick benefits whereas others are a much slower burn. Technology is certainly in the latter category with even traditional global software suppliers having to work hard to figure out what the buy and sell side of legal services really need and want. It all takes time.

In the meantime, there is much that firms can do to better align their interests with those of their clients through sophisticated pricing models. There are large gains to be made swiftly, primarily because when it comes to pricing sophistication, professional services have historically lagged well behind most other sectors of the economy and therefore we are coming off a fairly low capability base.

The highly respected annual Altman Weil survey of general counsel provides valuable insight into what sophisticated buyers of legal services want. When asked to choose from four possibilities in response to the question, ‘Excluding “bet the company” matters, if you could select only one of the following outside counsel pricing preferences, which would you want most?’, the following answers resulted:

• Lowest price – 9.6%
• Value-based pricing – 20.3%
• Pricing certainty – 33.7%
• Transparent pricing – 36.4%

So much for the myth that the buying decision is all about price. In any event, there is much that firms can do now and are already doing to deliver on those imperatives that have little if anything to do with technology.

Richard Susskind (pictured) poses the question: ‘What parts of your work could you undertake differently – and by that I mean more quickly, more cheaply, more efficiently and also of a higher quality using alternative methods of working?’

A sensible challenge and one the profession is, or at least some parts of it are, (more than it is often given credit for), endeavouring to get to grips with. But that still begs the question, ‘once delivery methods have been recalibrated and efficiencies achieved, how is the final output to be priced?’.

And in the meantime, can we price our work more intelligently under the current paradigm? Most definitely we can. And that is my point. It is nonsense to suggest that firms that are currently endeavouring to improve the pricing aspect of the client relationship ‘have got it all wrong’. Many have made substantial and quantifiable improvements that have gone a long way towards addressing the ‘cost consciousness’ imperative while in many cases also delivering better margins. What’s not to like?

Richard Susskind predicts a bifurcation in the delivery of legal services; routine and complex, with the former being fought over on price alone and the latter being provided by highly experienced lawyers who will not compete on price at all. It is not clear why this is a prediction – we have been contending with this two-channel approach since 2008.

Unfortunately however, most lawyers do not currently have the skills, training or tools to effectively monetise that dichotomy; one that only new and reimagined pricing models can deliver on. So, contrary to the assertion that we ‘have got it all wrong’, pricing is at the forefront of contemporary issues for the profession.

As indeed it always will be.

Richard Burcher is the managing director of Validatum