There IS life, just not as we know it – A shift in the Customer Value Line

A raft of articles have been written following the recent New Republic publication of ‘The Last Days of Big Law You can’t imagine the terror when the money dries up‘ by Noam Scheiber. Some of the more cited ones on social media include:

All of these are excellent and raise valid questions about the current state, and the future, of so-called Big Law.

My own view on the issue of the ‘Death of Big Law’ is to agree in part with what has been written before, but with a slightly different slant on this issue at-hand.

CUSTOMER VALUE LINES

In Chapter 2 (‘Mapping Differentiated Value’) of their outstanding book ‘Value-Based Pricing‘  (published in 2012 by McGraw-Hill) Harry Macdivitt and Mike Wilkinson  introduce and discuss the concept of a ‘Customer Value Line’ (CVL) to explain the perception of ‘value’ that customers believe they get from the ‘price’ they pay for a good or service.

In its simplest form, the CVL is a linear line between the ‘price’ a client pays for goods or services and the ‘quality’ they receive. With a higher price paid comes an expectation of higher quality received by the client and, therefore, satisfaction on the part of the client that they have a ‘value for money deal’.

CVL

In Figure 2.4 (taken from page 34 of ‘Value-Based Pricing‘, and used with kind permission) above then, the correlation between the price paid and the quality received between price points A, B and C equates to a perception of consistency in satisfaction in the ‘value for money deal’ in the eyes of the client.

A SHIFT IN THE CVL – D2

The interesting issues in all of this is:

What happens when we get a new entrant who can provide a better quality for a lower unit price, say because of better use of new technologies?

Looking at Figure 2.4 above again, this is reflected by point D2.

The answer to this question is that one of four things is likely to occur:

  1. D2 cannot sustain its offering over a long period of time and will drop away.
  2. D2 can sustain its offering over a long period of time and A, B and C need to change their offering so that they offer, across the Customer Value Line relative to D2, both the same quality and price (namely, better quality for price).
  3. A, B and C are unable to increase the quality they offer and instead elect to reduce their price while maintaining or reducing the quality (ie, they elect to move down in market segmentation from top to middle, or middle to low).
  4. A, B and C elect to do nothing and, over time, will go out of business – they no longer offer clients Good Customer Value.

In short, what we are seeing is a shift in the gradient of the Customer Value Line, ie clients are now expecting better quality for a better price if their perception of satisfaction of a value for money deal is to be met.

HOW DOES THIS APPLY TO LAW?

More than likely the result of new entrants into the market, there is little doubt that clients of the legal sector now want “more for less”. Moreover, with the new entrants having now proven over a period of three to four years that they can sustain their offering, what we can say is that this demand of “more for less” has resulted in a shift in the gradient in the CVL – as it applies to the legal sector – and is here to stay.

Basically, law firms’ clients’ perception around their satisfaction of a value for money deal has shifted. As a result, what we are currently seeing take place in the legal sector is the correction that takes the form of those outlined in 2-4 above, namely law firms today are:

(a) upping their game and offering clients better quality for a better price, or

(b) deciding that they cannot continue to profitably offer the service at the reduced price and are reaching down to market segments that they had not previously participated in before by offering reduced quality for a reduced price, or

(c) doing nothing and blaming market conditions for their fate.

The interesting factor in this mix is those law firms who elect option ‘c’. Over time firms who elect to continue to act in this way will eventually seal their own fate – ie, their death is all but guaranteed as they are no longer offering Good Customer Value.

* NB: the application of Macdivitt and Wilkinson’s CVL to the legal industry in this post is my own and, as such, any incorrect analysis of this is mine alone.

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About rws_01

I am a Business Development and Marketing professional with over 15 years’ experience working with leading professional services firms in Asia and Australia. All views and opinions expressed in this blog are my own.
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One Response to There IS life, just not as we know it – A shift in the Customer Value Line

  1. Pingback: How do you know if your law firm is providing value to its clients? | Australian law firm business development

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