I have just returned from one of my firm's regional conferences over the weekend and realized it was my turn once again to provide the Business & Financial Management Weekly Thought.
As part of the general discussions between plenary sessions and breakouts, discussions centered (at least with me) about how to ensure appropriate pricing consistency in an international basis - something certainly within my firm which is key. Perhaps some higher authority was guiding me to address a topic close to my heart (I am not sure) but my topic this week is ' Pricing - The International Dimension'.
We all recognize that market pressures vary by jurisdiction, clients often vary by jurisdiction, and potentially (in some firms) the capabilities that are offered may also vary by jurisdiction. So how do you ensure you are implementing the right pricing approach in these situations?
In an article by Richard Burcher (of Validatum), printed in the Managing Partner magazine in May 2014, he outlined a series of steps to help guide those facing this very dilemma. I have provided the high-level steps Richard suggested below which, based on my international pricing experience to date, ring loud and true.
Firstly, you need to start with most the fundamental question - i.e. deciding which pricing approach you intend to take for your firm. Are you seeking to harmonize your pricing offering across all your locations or customize either on original or jurisdictional basis? Harmonization can be difficult, especially if you have a very large global footprint. It can therefore be better to provide much more tailored market appropriate solutions on a matter by matter basis where you can.
Once done, you then need to determine what the appropriate pricing should be based on your client's 'willingness to pay' (which can differ by industry and location) prior to segmenting your client base into a number of categories or groupings for pricing purposes. It is important to note that these groupings may be different from those developed from a client management perspective where these types of programmes are in place. This could be driven by whether the clients concerned are primarily local clients to one of your firm's offices and are those which have a strong domestic presence, or are those which span a number of regions or indeed are global in their coverage.
You can then start to further segment based on both internal law firm measures such as client size, client industry or sector, historical spend, practice groups involved, etc but you should also not lose sight of your clients' needs when doing this exercise. Taking client requirements into account may extend your segmentation approach to include things around practice area focus, their relative importance within their respective sector and global reach.
To quote directly from Richard's article: "This sort of approach resonates far more with clients and makes the justification and implementation of price discrimination easier because it is directly linked to the needs of the client rather than the needs and interests of the firm."
Having successfully segmented your client base from a pricing perspective, how to you then take it to the next level ? This is where the hard work comes in, is one that is often skipped, and is where your pricing director or equivalent (if you have one) should be engaged if not already. This is where you need to determine the 'price elasticity' of demand for each of your identified segments. In other words, what impact would a change in price have on the volume of matters supported? Where firms operate in very price-sensitive markets or practice areas, even relatively small changes in price can have an adverse impact on volume. (In these situations, price is determined to be 'elastic'. Unsurprisingly, where price changes have limited impact on volume, price is said to be 'inelastic'.)
All in all, text book pricing practice to date.
It is Richard's next step, creating a pricing and payment menu for each segment which, although ideal, can often prove to be very challenging. Adopting the 80:20 rule it may be best to identify coherent pricing approaches for a limited number (3 - 5) of the most common (or higher value) matter types and build from there.
Once the initial wave of pricing has been implemented, it becomes relatively easier to build upon this once benefits are clear for all to see. It is also worthwhile developing a list of preferred pricing approaches by theme or pricing approach for this group (and also other key matter types), allowing firms who do this well to (again, in Richard's words) " . . set (themselves) apart from the lack pricing creativity and flexibility." Pricing only takes you so far though - remember that you also need to be able to successfully deliver the matter to your client. It is here that the interaction between good pricing practices and those of legal project management become even more closely intertwined. No client will engage you a second time if the first was poorly executed - regardless of the price.
However, the ability to present a consistent 'pricing face' to the market requires the law firm to be able to manage what individual fee earners can, and cannot, offer to their clients. In pricing jargon, this is known as having established 'price fences' - a clear set of guidelines in how a law firm's products and services go to market. Regardless of law firm this can be difficult as you seek to restrict or proactively manage as a minimum fee earners' natural inclination to 'strike a deal'. The bigger the law firm the harder this can be - which touches on the themes of law firm culture, governance and also revenue and compensation models.
Strong price fences are required to ensure both that the agreed guidelines are adhered to, and secondly, that there is no danger of intra-firm inappropriate dilution of revenue. Making it clear when a local office can adopt a local approach and when a matter needs to be viewed in a more cross-jurisdictional or international context is paramount.
In summary, whilst we know that one size does not fit all, it is good to understand who actually constitute the 'all', and then restrict the available pricing options accordingly. Doing nothing (either through ignorance, or worse, a lack of willingness) is not viable here. This is where pricing expertise becomes critical and those in these roles 'earn their stripes'.
The need for a consistent, strategic approach is critical whether you have 10, 20 or more offices overseas (indeed ,the same can be true if operating in very different markets within North America). This needs to be supported by a strong coherent infrastructure, which enables the implementation of price fences by market and product, the ability to monitor the success (or otherwise) of these, and ensure a level of appropriate support for fee earners 'in situ'.
The impact of managing pricing from an international dimension is significant when done well - more consistent and compelling marketing, stronger client value propositions, and appropriate revenue generation to name a few. Being done poorly doesn't bare thinking about.
Finally, I look forward to any comments and suggestions that you may have about how you have approached some of these challenges within your firm, and any thoughts you may have as to what the future holds in this area as a larger number of law firms become increasing more global in their footprint.