Price Competition Is A Fools Game

I have received much disagreement on my traditional idea of hourly billing in a litigation setting.  However, no matter what the billing structure, there seems to be a good deal of agreement on one point - leading with fees as your marketing point is a fools game.  It leads to price competition, brings in the wrong type of clients, and cheapens the profession by leading consumers to believe that law is a commodity, just like cereal, gasoline or tube socks.

Let me say, nothing in what I say is meant to suggest that lawyers should either gouge clients or seek to take unfair advantage by surprising anybody with exactly how much something is likely to costs. You need to make a decent living and not exploit.  I have found that the problem clients have had with attorneys over the years does not directly concern fees and costs, or how they are paid or calculated (as long as this is disclosed).  It concerns the quality of services received (and I do not mean whether you win or lose).  If the quality of your work in both substance and keeping the client informed is good (win or lose) then the client never seems to be overly concerned about fees.  If the quality of service is bad (win or lose) then I can almost guarantee you that fees will be a point of objection.

People and companies really do discern between price and value.  When the fee objection or grievance arises, you can be certain that the client has a disagreement with value received for the money paid, and objecting to the fees is the only recourse they feel that he or she or it has.

Chris Marston on his blog, Inside The Firm of the Future, said it well:  "Price competition is a fools game. Our clients know they get what they pay for. Lowest-cost providers in a fixed-price model suffer from a problem called "Winners Curse." The bidding way drives prices farther and farther down. . . all the while making it impossible for the "winning bidder" to do the work profitably. Put differently, what did the winner really win? Higher Gross Revenue and LOWER Net Profits? Who the hell wants that? They can have it!  Ron Baker put it well in his book when he wrote: 'It is possible to make pizza so cheap that noone wants to eat it!' -- AGREED!"

And, price competition involves more than the total costs of services. For example, for more than 10 years bankruptcy attorneys advertised no money down bankruptcies in the Eastern and Northern Districts of Texas.  The Courts pretty much controlled fees and set the fixed fee charged by most in consumer cases.  Bankruptcy counsel in order to win over clients began advertising no money down cases.  After a number of years it drove almost every attorney into a zero down mode.  The problems with this were manifest.  Distribution of money from Chapter 13 trustee can take months, bankruptcies have a high time consumption rate upfront and a high failure rate. The result was that staff had to be hired, at great cost to the law firm to handle these clients, there was a sizable delay in payment, much of the work performed went uncompensated, since fees were essentially fixed you could not recoup these loses.  And, after most attorneys were driven to do the same thing, zero down no longer worked as a marketing play.  It can be said that zero down competition increased the market over all, but those it brought in were those whose plans to reorganize were not feasible, meaning that it increased the number of cases on which the attorney lost money.  Further, it is sad to say, that clients that had nothing invested in their case (even a relatively nominal amount) typically did not see value in the services provided.

It should be stated that the firm that started this craze grew mightily and then eventually filed for bankruptcy itself, and had a good number of client complaints and grievances.

My firm tried and succeeded in what is termed "non-price competition", and succeeded for the most part.  Most attorneys said that we would not.  Non-price competition is where you focus on the service and attention to service being provided and do not sell or discuss price upfront. Your law firm tries to distinguish its services (your niche practice) on the basis of attributes and sustainable competitive advantages other than price, such as your knowledge, certifications, diligence, client-centric practices and the like.

Our exception to the rule was that we found we had to offer a free initial consult so as to ascertain the client's needs, how we could help, and to review all matters such as pricing, billing and costs.

As demonstrated, price competition has a network effect in which it can and does damage an entire practice area.  It results in price matching that drives others to meet the model contrived.

But, you will not succeed matching or beating the competition on price, especially if you are a Third Wave attorney.  You fight it be seeking referral-based clients who are more concerned with the result achieved and the service provided than the price charged overall or upfront. 

This is indelicate and nobody likes to mention it, but you label your colleagues that do price compete.  There, I said it.  I do not mean to slam or degrade the competition.  Bar associations will not allow comparisons or derogatory remarks.  This is unnecessary and unprofessional.  You bring up information or traits that such representation might be undesirable in some situations.  Understand, the client buys on perception.  In my initial interviews, when I wanted $500.00 down, I had clients tell me that so-in-so will do it for nothing down.  My general response was not to denigrate so-in-so, but say something like "I will return your phone calls".  Or point out that every dollar you put through the plan is increased by 10% to cover the trustee's fee.    I sold the attributes of my firm and the way we did business.

You get over the price competition by educating your prospect.  That is the reason I found it necessary in my case to promote our FREE initial consult.  Maybe that is price competition too, but my purpose was not to provide them discount services, but to lower the barrier to educating the potential client. 

Other ways you can do this today is by blogging.  Write articles and white papers.  (Attached these to your blog).  Participate in seminars.  Offer demonstrations how the legal services can work for you.  (In the old days we had to fight with the Bar over the right to give examples, such as the payment on a car was and now is this in a bankruptcy).

Then, of course, and probably the most important, you have to deliver a better experience to your clients.  If your existing clients see value in what you provide, they will refer others.

Remember, even potential clients do not want the lowest price.  They want the best of what they need at the lowest price possible.  This is different than the lowest price because the attorney offering them the lowest price might not be offering them exactly what they want or need.  Low price firms generally offer the most basic service possible.

And, if you are one of those attorneys who just want to be the turd in the punch bowl, I say quit playing around.  Post your prices on the side of the road like a gas station.  Live and die by your prices.  I doubt if you are doing yourself, your clients, your profession or yourself any good, but that is certainly your option.