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The Latin term for price is pretium. However, closer investigation reveals that pretium also means “value”. In other words, the Romans had the same word for price and value: pretium = value = price; something that is at the core of every economic transaction.
Value is the most important aspect of price, price management and pricing policy. Or, to put it more precisely, the value perceived by the client. The willingness of clients to pay and therefore the price targeted by the firm are always just a reflection of the perceived value or benefits of the advice and service being provided – nothing more and nothing less.
Giving two sides of a transaction the same word, the Romans understood the fundamental connection between price and value. Interestingly, Latin gives us a second linguistic meaning that goes in the same direction. Pretium facere (literally, “set the price”) also means, ask for a price (from the buyer) and offer a price (from the seller).
A transaction takes place only if the law firm and the client can agree on a common price. Many law firms are unhappy about the prices they have been able to achieve in recent times. The lowest price offering always seems to come out on top (that is not the reality but it is certainly the perception). Many law firms providing a high standard of advice and service feel defeated amidst the low price craze.
When law firms raise the issue of permanently discounted headline rates, poor realisation and recovery rates and the like, I have three questions; first, what part of the market are you targeting or is your natural habitat? Second, what added value and benefits do they offer that your competitors don’t? And third, do the firms pricing policies and strategies reinforce or undermine the first two answers?
In response to the value/benefits differential as perceived by clients, the usual response is silence. However, businesses and private clients are willing to pay full or even premium prices in return for higher value.
While this concept applies equally to goods and services, the concept is sometimes easier to grasp within a product framework. Enercon’s wind turbines are approximately 20% more expensive than those of their competitors. Still, Enercon has a market share of 60% in Germany. Why? Because of the economic advantages and the top accessibility they offer, which also lead to higher returns.
Miele is also able to charge about 20% more than its competitors due to better quality, higher reliability and durability – in one word: higher value. When Gillette launched its threeblade Mach3 razor, it charged 50% more than its most expensive product at the time, the Sensor Excel. Since then, new products have entered the market with even higher prices. Throughout it all, Gillette has gained the largest market share in its 50year history. The reason is clear: higher client value!
Of course, to communicate the advantages of the new blades, Gillette did invest significantly in advertising. Apple for that matter didn’t become the highest valued company on the stock exchange with a reputation of selling products for low prices, but with a reputation of selling high value. Innovation, design, brand, system-integration – these are the value creators that Apple has employed with enormous success. They are also the value creators that technically more advanced companies such as Sony have failed to utilize.
And what about luxury goods that are literally being grabbed from the hands of manufacturers, in the midst of the worst economic conditions since the Great Depression? In October 2012 the London financial media reported on the iconic British luxury brand Burberry in the following terms; “Burberry shares soared on Thursday after it reported 3% sales growth in its first quarter report. The company topped the FTSE 100 as share prices rose by 13.26%”.
Why, because although expensive in comparison with competitors, their products still represent good value in the customers’ mind and those customers are voting with their wallets and purses.
Price is not an abstract concept. Price only has meaning when viewed against a backdrop of value. Something can be cheap but poor value or expensive and poor value. Equally, it can be very costly but good value. Here’s the thing; there are still plenty of clients who understand the distinction. For them, if you represent poor value, you will get the axe, even if you are the cheapest. Equally, many are willing and able to pay well, as long as they feel that they are getting good value.
No, law firms that have problems asking for profitable prices should first ask themselves what is wrong with their value proposition and their pricing strategies. The chances are that this is the root of their problems.
Pretium = price = value. A simple but indispensable insight; one for which we should still be thanking the ancient Romans.
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