The trend that is silently eroding your profit...
One of the things many lawyers seem to fear is ‘commoditization’. I often have discussions with lawyers on changes in the market and invariably I then ask if they see commoditization happening in their segment of the market. Depending on their personal practice and geographical location the most common answer is: “yes, I see commoditization, but not in my practice which is highly bespoke” Herein lies a danger as commoditization in the legal world is commonly misunderstood.
Lawyers tend to think that commoditized equals ‘bulk’ or ‘extremely simple’. Academics like Richard Susskind have fueled this doctrine, leading lawyers to believe that there is a gradual sliding slope that goes from bespoke/individualized, via standardized, systemized and packaged to commoditized. (Tomorrow's Lawyers - Richard Susskind - Oxford University Press).
Being the preachers of the new technology, these gurus proclaim that commoditized legal services will soon be the exclusive domain of computers and Alternative Legal Service Providers. However plausible this theory might sound, it is utter nonsense leading to all kinds of dangerous misconceptions among lawyers.
In order to understand the concept of commoditization we need to start with a clear definition:
‘Commoditization of legal services is the situation in which the client for a specific matter can choose between multiple lawyers and multiple law firms who are able to offer the same level of expertise, service and quality’
Please let this definition sink in for a moment.
So there is commoditization when from the client’s perspective it does not really matter which lawyer handles the file as long as this lawyer meets all criteria. Commoditization must be seen from the client’s perspective and not from the lawyer’s perspective. Commoditization will lead to a ‘buyers’ market’ as opposed to a ‘sellers’ market’ as is the case with matters where the client really wants or need to work with one particular lawyer or law firm.
It is important to understand that commoditization as such has nothing to do with the complexity of the work. It is simply a matter of supply and demand. To illustrate this let’s look at ‘project finance’. In a well developed competitive legal market like in London, many experienced highly qualified lawyers and law firms are capable of doing project finance work. As a result clients are shopping around. This creates a tremendous competition on price and as a result most London law firms struggle to make any money on ‘bread and butter’ project finance work. So in the London market Project Finance work has become a commodity. Clients can choose on any given day between numerous well qualified teams and as a consequence prices have gone down.
Most lawyers suffer from commoditization blindness
How different would this be in Nigeria. For the same type of project finance work in Nigeria, a client could maybe choose between two firms, if he is lucky. The situation is that Lagos as a legal market is not by far as developed as London and good quality experienced lawyers are hard to find. As a result fees for project finance work in Nigeria will be higher than in London even if the quality of work would not meet the same standards. In the Nigerian market project finance is not a commodity. Nigeria is a sellers’ market.
So there we have it. Commoditization must be seen form the clients’ perspective and is basically a matter of supply and demand. It has little to do with the complexity of the matter. Project Finance requires expert knowledge that is outside the expertise of most lawyers. Commoditized also does not exclude that the service is bespoke. That is the reason there is a picture of a barbershop on top of this article. I think no one would dispute that a haircut is as bespoke as things can get, right? Still despite the service being highly bespoke, competition among barbershops is fierce. This is simply because there are simply so many good barbershop (or hairdressers) around. The majority of people are price sensitive as it comes to barbers. (Barber Shops in the US - US Industry Market Research Report, September 2017).
Getting a haircut, despite being bespoke, is a commodity.
As it comes to commoditization most lawyers are in denial. Lawyers suffer from ‘commoditization blindness’. Many lawyers are happy to believe that commoditization only refers to ‘bulk’ or highly standardized work. This might turn out to be a dangerous misconception. Commoditization might well be one of the most underestimated profit eroding factors for the legal sector. It is important that lawyers start to recognize that commoditization is in the eye of the client and in the end a matter of supply and demand.
Could positioning be an antidote?
At TGO Consulting we work with clients to mitigate the risks of commoditization. Differentiating your product by delivering better/faster service or anything else that is relevant for the client and is not equally offered by your competitors will help. Also clever positioning and creating a strong brand personality might give a competitive edge as is demonstrated by Apple (NASDAQ: AAPL). Anno 2018 from a technical point of view mobile phones are a commodity. Thanks to their strong and clever brand identity Apple gets away with charging the highest prices in the industry. We help our clients to develop similar strategies in the legal sector. Find out more.