Peter Drucker and the 21st Century Law Firm. Part 7: Who is the law firm client?
All lawyers know who is their law firm client, don’t they? From a retainer and contractual view that is no doubt certain. Legal ethics, and good risk management, ensure that lawyers “know their client”. But is this true at a strategic level? Do the law firm leaders really understand who is the client from a strategic marketing perspective? If you do not know who is your client, how do you know what business you are in?
If a law firm’s leaders have worked to answer the fundamental question “who is our client” their firm will be able to provide the legal (and other) services which the client, or client segment, actually need, instead of a perceived need. This firm will more than likely be successful as it will provide targeted services to clients who it wants to work with. On the other hand, if a firm’s leaders do not understand, or ask, the question this type of firm will provide services to a wide variety of clients, or client segments, thereby not meeting client needs (or providing full value to each client).
Who is the Customer (The Law Firm Client)?
Drucker is adamant that a business (the law firm) when trying to understand its business must ask, and investigate, “who is the client”. Do law firm leaders seek to answer this question? Do those who are setting up a new law firm seek to answer it before deciding to commence business?
Drucker states that “The first step towards finding what is our business, is to raise the question: “who is the (client) customer?” – The actual (client) customer and the potential (client) customer? Where is he? How does he buy? How can he be reached?”
Next question to be posed is: “what does the (client) customer buy?”. What legal (or other) services does the client buy from the law firm? As Drucker was writing in the 1950s he uses a 1950’s analogy. “The [Porsche] Cadillac people say that they make an automobile and their business is the [Porsche Division] Cadillac Motor Division of [VAG] General Motors. But does the man who spends $4000 on a new Cadillac [$200,000 on a new Porsche] buy transportation or does he primarily buy prestige? Does the [Porsche] Cadillac, another words, compete with the [Mercedes] Chevrolet and the [Maserati] Ford; or does it compete – to take an extreme example – diamonds and mink coats?”.
In the law firm context is the client, or potential client, buying legal advice or the solution to a business, or personal, problem? Is the client buying the lawyer’s technical legal advice or broader business experience? Is the lawyer competing for the client’s business with another law firm, or an accountancy firm, or a consultancy firm, or an online provider, or some other entity?
Drucker has a salutary warning for law firm leaders: “To raise the question “what does the customer buy?” is enough to prove inadequate the concepts of market and competition on which management usually base their actions.”
What is Value to the Customer (Client)?
One of the most difficult questions that must be answered by any lawyer is “what is the value to the client of my advice?”. This question must be asked at the firm level with regard to client segments. Importantly, it must also be asked at the beginning of each and every engagement with an individual client. If you do not understand what is value to the client how will you understand the issues of quality, price, and the exact solution that the client requires?
Drucker poses the question in the following terms: “Finally, there is most difficult question: “what does the (client) customer consider value? What does he look for when he buys the product (or service)?”
His answers are instructive to all lawyers. “Traditional economic theory has answered this question only one word: price. But this is misleading. To be sure, there are few products (or services) in which prices not one of the major considerations. But, first, “price” is not a simple concept. And secondly, price is only part of the value. There is the whole range of quality considerations: durability, freedom from breakdown, the maker’s standing, purity, et cetera. High price may actually be value – as in expensive perfumes, expensive furs, or exclusive gowns.”
In other words, client purchase legal services based upon their subject view of value, not solely on price alone. Unfortunately, many lawyers fail to fully understand the concept of value to the client thereby misaligning value and pricing (or costs in lawyer language).
Quality of Service to the Client
Some clients want high quality service, others are happy with lower quality service, but all require high quality legal advice. The concept of quality is of vital importance to the client but it is broader than just the legal advice. Quality means different things to different clients. Unless a lawyer investigates the concept of quality with the client and provide the quality of service which the client expects, and is willing to pay for, there will be a misalignment.
On the question of value Drucker states: “… what the (client) customer considers value is so complicated that it can only be answered by the (client) customer himself. Management should not even try to guess at it – it should always go to the customer in a systematic quest for the answer.”
The more time spent understanding “who is our client” and “what is value to our client” will allow law firm leaders to articulate the value proposition, the pricing strategy, and design appropriate operational processes.
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