In terms of innovation, let’s face it, ABS was always going to be a damp squib. It never really promised to be anything else. There are organisations that already partner with law firms to provide an integrated service, such as mortgage providers and conveyancers. For these, once the opportunity to own and control the legal aspect of their activity arose, they were always going to make the investment. It was predictable. Clementi was about ‘capacity’, ‘competition’, ‘lower pricing’ and ‘being more open to consumers’. Sounds great on paper. The reality looks different.
Legal is a credence good. That’s the fundamental issue. The marketing text books say ‘make it cheap and accessible’. But it never has been, not in legal. In some cases, rightly so. Take the insurance industry (another credence good!); an example of a cheaper, competitive market which has reduced the capabilities of the service providers. Insurance is a purely commoditised market where much of the focus is on the supply chain. Remorseless cost-cutting is commonplace to be able to compete on price. Innovation is stifled. And differentiation comes from installing a furry African mammal, complete with Russian accent, into the psyche of the British, insurance-buying public. With the insurance industry commoditised, the price of insuring your car today has never been higher. Insurers say this is down to fraud. Advertising costs, me thinks.
But let’s go back to ABS. There was no news of Tescos signing up to its own eponymous brand of law. But the Co-op, as promised, did sign up and private equity backed the high volume, least complex and commoditised insurance law firms – notwithstanding the tremendously risky shake-ups in the personal injury, claims management and insurance industry. And that was pretty much it.
In investment speak, law firms are attractive to private equity; they are classic ‘utilities’, much-needed, safe and guaranteed returns for investors. However, the transactional nature of the top law firms’ workloads, together with the reputation of partnerships as being notoriously difficult to work with, are said to be deterring private equity interest. And as much as I’m sure the larger firms had considered external investment, the prospect of being publicly open to scrutiny on partner earnings and performance simply did not float one’s boat.
So activity was limited, with no surprises. But there was one ABS development that caught my attention from a marketing perspective; the emergence of Riverview Law (RVL).
The “different perspective”
A trading name of LawVest, RVL is the brainchild of Karl Chapman and DLA Piper. Karl has a background in providing quasi-legal, outsourcing and advisory services to organisations. He has been here before it seems, with a degree of success.
The marketing messages say RVL aims to change the way businesses buy legal services. It banishes the ‘ticking clock’ hourly charging model typically favoured by law firms, and replaces them with annual contracts or fixed price costs for legal support. The proposition is that annual contracts provide unlimited access to legal advice and, without hourly billing, provides certainty and transparency on costs.
It’s fair to say from the outset that fixed fees are nothing new. Speak to any regional commercial law firm and they will say they have been offering fixed price services for a long time. Price certainty is a client demand, and that demand has been there for a while.
What separates RVL is it’s the first firm to build its brand, business model and service proposition solely and exclusively around fixed fee pricing. That’s different from merely saying you offer fixed fee pricing. It’s a brand value. It’s inherent. It’s differentiation to the max. A real source of competitive advantage. So this is all good, solid marketing in action. But what makes RVL really interesting is that they are the first to do this. The first to move. And it’s this concept of the ‘first-mover’ that throws up challenges for marketers like myself.
Capitalising on the position of ‘first mover’
By being a first-mover, RVL aims to gain a strategic competitive advantage as the first significant occupant of their chosen market segment(s). In the case of legal, they are the first to bring a new pricing concept to a clearly frustrated and uncertain market, and in that respect they have been ‘timing lucky’ – with timing comes an opportunity to create significant barriers.
First, it can create a primary advantage in having the upper-hand in research and development of its pricing model. The first few years will be a significant ‘consumer trial’, balancing the aspects of service and price. To do this and concurrently strive for profitability will be a learning curve. But if successful, this learning curve effectively becomes propriety knowledge. It will be its ‘edge’. Providing this edge can be protected (the biggest threat to this propriety knowledge is workforce mobility!), it can provide an ongoing sustainable and competitive advantage.
This learning curve will deter new entrants. No doubt. It will be costly to imitate. It’s a great barrier. It’s also very similar to an insurance model. Clients are given a ‘contract price’, and if the clock ticks over, adjustment is made to the contract the following year. New-to-market insurers have similar processes; insurers trying to emerge as first movers will usually sell their products below cost in an effort to understand the market better, gain intelligence and then strategically turn the market around and control the markets cost. There’ll be profitability issues initially, but that’s almost always the case when entering a new market.
The other competitive advantage I believe RVL can claim is that they have a managerial system that differs from other commercial law firms. It isn’t run as a lawyer-led partnership; a structure which is known for its difficulties and lack of dynamism. When a firm’s management style is unlike any other and it grasps a concept of management that other firms do not, they can benefit. Supported by a regular, market-facing client relationship development programme, there is a clear competitive advantage here.
If RVL can achieve scale and win new business quickly and service the business satisfactorily, copycat and ‘me too’ firms will have no choice but to invest a sincere amount of resource to attract clients away from RVL. Providing service levels are satisfactory, clients tend to stick with the first brand they encounter. Clients are aware that switching firms costs money. If RVL can create a loyal client base, not only is its propriety price knowledge and learning important, but it can further define the service attributes and pricing components that are perceived as important to fixed fee legal purchasing clients.
The other advantage to note is ironically the butt of many a competing firm’s sneering. Being backed by DLA Piper is extremely advantageous: financially; through brand association; and, importantly for any start-up, access to contact lists.
This all sounds like a sure fire recipe for success but I’m afraid it’s not all plain sailing. There are challenges from the marketing perspective that first movers inevitably face and must overcome.
There are organisations who are able to study RVL, its techniques and strategies. The legal expense industry for example I can see taking up the mantle of ‘secondary movers’. Legal expense insurers understand risk, and they understand legal risk. As opposed to an annual contract model, legal expense insurers could take the pre-pay insurance model.
There have been commercial legal expense products available since the 1980s that provide legal support on the occasion of an insured event. The problem is that legal expense insurance has never had the level of take-up in the UK as it does in Europe, particularly Germany. I say that will change.
The benefit of being a secondary mover is that they can effectively ‘free-ride’ on RVL in a number of areas, including pricing R&D, market education, business model and infrastructure development. Imitation costs are a lot lower than innovation costs. Combined with their existing knowledge, the legal expense insurance providers could pose a formidable competitor – especially if pre-pay legal services are channelled through referral partners such as commercial insurance brokers.
The main challenge to RVL is if they were to not fully capitalise on their opportunity as first mover. By being the first entrant into the legal market, they could very well enjoy their success too much and become complacent. This is called ‘incumbent inertia’ and has several root causes such as being locked into a specific set of fixed assets – is a national client base best served by a fixed Wirral base in an industry that is well known for being ‘location, location, location’? So they need to scale, and they need to scale very quickly.
RVL may also be reluctant to modify its pricing structure or to cannibalise existing service lines. They may even have to adapt into an insured model backed by an underwriter to cover annual contracts that significantly go over time. The problem here is that there are extremely few underwriters in the UK that understand the risk, and this may cause RVL an issue further on down the line.
Then there is the added problem that they may indeed succumb to the law firm approach of being organisationally inflexible.
First, but not necessarily still there
It’s a stark reality that many first-movers fail. Longevity is not guaranteed for these ‘innovators’. In fact, first movers tend on average to produce unprofitable outcomes. Why do they fail? They fail for many reasons, but by far the most common is that having secured first mover advantage, they don’t then devote sufficient resources to keeping it. Follower companies learn rapidly from first-movers and often erode first mover competitive advantage before they’ve made efforts to consolidate.
Those that do survive can enjoy lasting advantages in market share. How? Sometimes it’s just down to blind luck. Right place, right time. Speed and scale are necessary for success, but aren’t in themselves sufficient. The advantages of being first aren’t lasting, and must be consolidated with resource. Eventually someone else comes along and takes part of the pie. First-mover status must never be a strategy in itself, only the prelude to a longer term strategic plan.
