Picture a future where corporate clients expect to receive all their legal services on a fixed price or budgeted basis. Don’t think it can happen? Look at the medical profession in the U.S. Over the past two decades, physician pricing has slowly but steadily evolved from fee for service to negotiated or reduced fees paid by insurers to capitated (fixed) pricing. In contrast, over just the last two years, "fixed fees" and "budgets" have replaced "hourly billing" as the billing method of choice by in-house counsel, according to client surveys conducted by Altman Weil Pensa. Clearly, the future is here.
How will lawyers compete in this future? The current legal market is characterized by oversupply of lawyers, bill audits, profit squeeze, decreased loyalty of buyers and sellers of legal services. Will investments in technology, reengineering and leadership training breathe a robust, new vitality into the profession? And what role will the marketing function play in this future? What’s really new in law firm marketing?
Overall, it is becoming increasingly clear that marketing will evolve from a respected but satellite service to a focal business process of the law firm. Because marketing is integral to the pricing and delivery of legal services, it is too important to be anything else.
Law firms will need to focus tightly on five strategic issues -- and marketing is central to each of them. In fact, without the marketing function in law firms and the vision that it brings, the law firm might face the future the way an ostrich faces the inevitable -- with its head in the sand.
To compete and win in the future, law firms will need to:
1. Develop more cost effective services.
Law firms will need to proactively offer services to clients using fixed fees, budgets or any of the array of more than thirty new alternative billing techniques mentioned in Richard Reed’s ABA publication, Billing Innovations (1996). Firms will need to abandon their billable hour culture, and with this change will come a shift to providing true value for the client -- among firms that do it right. This means firms must understand the costs of delivering services while meeting client budgets.
Not surprisingly, pricing decisions are essential to the marketing process in other organizations but rarely involve the marketing function in law firms. Although many law firm marketing directors already are involved in pricing decisions when responding to client RFPs, marketers will need to act more as product managers, working hand-in-hand with lawyers to know the competition, the market and the economics of pricing.
In addition, marketers can help identify areas that can be outsourced more cost-effectively for the client. This may mean outsourcing services currently being handled by the firm, such as routine research. Such an objective, candid evaluation of where the firm provides real client value helps justify why the firm should be hired in the first place.
2. Compete more aggressively than ever.
Law firm competitors aren’t just other law firms. New sources of competition include clients who are making rather than buying legal services, accounting firms, new software applications such as expert systems and small specialty firms with low overhead that are highly technology-leveraged. In fact, many service businesses who know how to generate profits through ongoing efficiency improvements look at the relatively high profits of law firms and find them attractive acquisition propositions. Already, one of the world’s largest law firms is part of an accounting firm and American Express is acquiring regional accounting firms. The trend toward deregulation and acquisition for the sake of improved efficiency is likely to continue.
In addition, law firms must resolve internal competition that now exists between partners and associates and between partners and partners. As battles for clients increase, firms without a marketing strategy find themselves with shortages of good, profitable clients. The result is work hoarding or inappropriate delegation of work. The solution calls for better identification of new sources of work, early warning systems to identify profit potential of clients, tighter case intake policies and closer scrutiny of work flow within the firm’s practice areas. In short, as competition increases and work becomes more hard-fought and hard-won, firms need to closely integrate their practice management and marketing functions.
3. Strike "hardwired" relationships with clients.
Good, profitable clients who are an enjoyable, professional challenge are still out there, of course. But the rules have changed. Clients’ legal budgets are under tighter scrutiny than ever. They demand ever-increasing efficiency from their law firms without a sacrifice in quality. They have new tools to measure law firm performance. Most important, they expect superior service. Cost-effectiveness, quality, performance and service are how clients perceive value -- and, with the rise in law firm marketing and the knowledge it provides regarding the competition, it is easier to switch law firms than ever.
Many law firms have relied on their practice group managers and marketing directors to introduce value innovations that are important to clients and help solidify the firm-client relationship. For example, as law departments downsize, firms often recruit outplaced client counsel to work within the firm. Conversely, firms often place associates within client organizations -- a "win-win" for both sides if the associate learns more about the client’s business and the client overcomes a temporary staffing crunch.
In addition, some firms have looked to their clients, to other service organizations and their marketing directors to develop a key client program. In this system,which advertising agencies and banks have had for years, the firm invests time and dollars into its top revenue-producing clients. This calls for making one partner a relationship manager, with ultimate client responsibility, including profit and loss and client satisfaction as measured by a regular client audits. Services, such as preventive law, are often offered "free" as part of an annual package of services to demonstrate the importance of the relationship. Naturally, the firm also invests its time into learning more about the client’s business, often inviting the client to conduct "reverse seminars" in the firm’s offices.
4. Understand clients and markets better than ever.
We live in an information age. The instantaneous transfers of intelligence from one entity to another and the acquisition of strategic knowledge for competitive advantage have been the most important business developments of the ‘90s. For proof, we only need to look at the growth of the Internet and, in the legal field, the emergence of on-line services like Lexis, Westlaw and Counsel Connect.
Surprisingly, for organizations that are awash in substantive legal data, law firms are surprisingly fallow in market information. In fact, one of the most surprising findings of the 1996 NALFMA Legal Directions monograph, The State of Professional Services Marketing, written by Norm Rubenstein and this author, was that law firms have little or no intelligence regarding their markets, client and prospect industries and their competitors.
Herbert Meyer’s article, What is Law Firm Marketing Intelligence?, found in Law Marketing Exchange, addresses this important issue. Some firms are already beginning to invest the time and resources required to assess their markets rationally and analytically. Again, other service industries -- particularly the large accounting firms -- can serve as the model for law firms. For years, "Big Six" firms have had a research function, staffed by expert industry analysts, to provide front line information about market industry growth, locations and trends.
Research and design (R&D) is typically associated with product and service development to help improve the manufacturing and marketing processes in industry. For example, auto makers conduct consumer clinics, providing potential buyers with sample cars to gather their feedback before launch. Often, changes to the smallest detail can make an important impact on marketing and profitability of the product.
In the law firm environment, marketers and lawyers can work together to develop a meaningful R&D function. In fact, firms might consider hiring industry analysts from investment banks, brokerage houses or accounting firms to support the R&D effort. The intelligence they gather can provide competitive insights to practice groups to help them make rational decisions concerning new clients and new offices, and to the firm as a whole regarding geographic expansion and merger candidates. What’s more, the reports developed by the R&D function can be repackaged as white papers and delivered to clients as an added value of working with the firm.
Are law firms doing this? One firm in Great Britain hired an industry analyst from an accounting firm to lead its R&D function on an "experimental" basis. Within the year, the firm added two more analysts to research additional targeted industries.
At the same time, firms need to continually survey their clients. In a semi-annual study conducted by Altman Weil Pensa, more than 60% of corporate clients responded that they had been surveyed at least once in 1995, a significant increase from the 40% who reported the same figure in 1993. Of course, firms must respond to what clients are telling them. But the practice management, service and pricing issues that are identified continue to make client surveys one of the most important marketing weapons the firm can wield.
5. Manage the marketing process internally.
Sally Schmidt’s article, Applying Marketing Principles to the Marketing Department, which is also in this issue of the LME, discusses the need for sound marketing and management of the marketing function within the firm. As marketing becomes more and more central to the business operations of the firm, marketers need to play a leadership role in managing budgets and resources, being accountable for marketing initiatives and expenditures -- and being rewarded for success.
In the near future, more lawyers can be expected to be part of the marketing process, participating in an even more meaningful way. For example, some firms have created a service ombudsman, a partner who can address any client’s concerns or problems quickly and objectively, even (or especially) if he or she is not the responsible partner. Firms are also reducing or eliminating their marketing committees. Instead, they are vesting power in a marketing partner with clout to make partners and associates live up to their marketing commitments.
To demonstrate their commitment to the marketing process, firms are revising timekeeping and compensation policies to provide the time and support to market. Since many lawyers are willing to help market the firm but don‘t know where to begin, firms are offering sophisticated marketing training programs where appropriate. Most important, lawyers are being compensated and/or recognized for achievement of marketing goals, not just for origination of new business. These are significant changes in the management process that make marketing central to the firm.
What’s new? Law firms have seen more change in the past five years than in the preceding fifty years. It’s likely to expect the cycle of change to continue to compress. To compete in this future, law firms need to integrate the marketing process with all their other business processes. Marketing is just as important within the law firm as governance, practice management, economics/compensation, firm location and growth. Marketing cannot be seen as an add-on item. Only by dovetailing the efforts of lawyers and marketing personnel, working together to be responsible and accountable marketing the firm and managing the marketing process, can law firms compete in the foreseeable future.
Courtesy of Altman Weil.