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FALL 2015 EDITION

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Pricing – How Do We Measure Value in Everyday Life and Legal Services?

Much has been written recently about the ever changing market place for legal services and the role of pricing in that market.

For most customers in the wider market place, the price of a product by itself is not the key factor when a purchase is being considered. This is because most customers compare the entire offering, sometimes referred to as the “whole product.”

In essence, when a purchase situation arises, price is one of several variables customers evaluate when they mentally assess a product’s overall value.

Value refers to the perception of benefits received for what someone must give up. Price often reflects an important part of what someone gives up. Therefore, a customer’s perceived value of a product will be affected by a pricing decision. A clearer way to see this is to view value as a calculation:

Value =

perceived benefits received

perceived price paid

For the buyer, the value of a product will change as perceived price paid or perceived benefits received change. The price paid in a transaction is not only financial, it can also involve other things that a buyer may be giving up. For example, in addition to paying money, a customer may have to spend time learning to use a product, pay to have an old product removed, divert resources to this project, or incur other expenses.

Being able to place value on a product or service is not a simple matter. As mentioned earlier, value is based on perception. The real cost of calling out an electrician to resolve an issue in your home may be broken down into a call out fee, labor, and parts. The sum of this transaction may total £80. But the value to the customer is far greater than the £80, so the electrician may charge £120 or more depending on circumstance.

Successful businesses maximize their profits by matching their pricing with the value customers put on their products or services. As a provider of the product or service, the price is your financial reward for this provision.

Pricing for legal services is now more complex than ever. Clients prefer alternative fee and hybrid arrangements, and they want a range of services, such as e-billing, in addition to legal advice to improve productivity and efficiency.

The net result is that law firms now need skilled pricing teams to ensure that they are competitive and still profitable. Pricing professionals need to possess excellent commercial acumen to devise pricing strategies that will resonate with clients, provide differentiation, and align with the firm’s competencies.

The role of the pricing team is a matrix one, and they must foster key relationships throughout the business in order to operate successfully. From finance, business development, IT, to risk, a pricing professional’s ability to align to these business teams is key. They all have involvement in the matter lifecycle, and therefore they provide important input to the pricing philosophy and strategy of the firm.

Lastly, but of no less importance, pricing teams need effective matter planning and pricing products that give them access to key business data in a timely manner so they correctly price, plan, and manage complex matters from the initial pitch through to closure. It’s now paramount that matters are on track financially; pricing assumptions are based on business data that is still valid; and that any fee, service, or delivery issues can be proactively managed with clients to maintain positive working relationships .

The client conversation of price is regularly seen as a difficult one, and frequently clients are met with bills higher than expected which can create a poor perception despite the quality of the work provided. Pricing professionals need to work closely with commercial teams and partners to move the pricing discussion to earlier in the matter lifecycle and provide multiple pricing options so clients can make an informed choice from the start. This decision may be influenced by a number of other variables such as value, timeliness, and choice. The value and the perception of value is key at this point, as value also includes elements such as quality of advice, relationship, approachability, willingness to engage, and commitment to supporting the business.

By providing a number of pricing options, the client can now place context around these choices, and the client’s willingness to pay can now be based on more than just the service itself.

As more and more legal firms recruit directors of pricing and teams to support them, law firms also need to invest in new pricing technologies to provide these teams with the power to provide clients with innovative and clear pricing choices.

Leveraging key business information on the performance of historically similar matters and providing clear and concise cost mapping and what-if scenario analyses are essential to ensure prices offered to clients are accurate and robust.

Furthermore, these solutions must provide firm-wide visibility into these matters, how they are performing, and the timely management of unforeseen variables to ensure that matters stay on track, on budget, and meet client expectations.

The ability to accurately plan, manage, and monitor all matters from a financial, regulatory, and client perspective are no longer “nice to haves”. Law firms must have sophisticated pricing environments to ensure profitability and growth.

 

DW Reporting

Based in London, DW Reporting is an independent finance systems, business intelligence, and reporting consultancy that specializes in practice management and reporting/management information solutions within the UK and international legal sector. With backgrounds working for international law firms such as Hogan Lovells, Mayer Brown, RPC, Simmons & Simmons, Olswang, and BLP, its team of consultants are able to provide a unique blend of agnostic system and legal market expertise in a single service. Its extensive knowledge of the legal financial and management information landscape ensures that we are able to advise, guide, assist, and enable law firm teams in the successful delivery of business change and growth within increasingly complex business environments. Click here for more information.

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