Das Narayandas is the Edsel Bryant Ford Professor of Business Administration and senior associate dean for External Relations at Harvard Business School (HBS). He is also the senior associate dean for Harvard Business Publishing. Narayandas recently sat down with David B. Wilkins, faculty director of the Center on the Legal Profession, for a one-on-one conversation on marketing in the legal profession.
David B. Wilkins: Law firms have traditionally had little to no experience with knowing how to present themselves in the market, other than through legal directories. Recently, however, marketing and business development has become a significant part of every law firm’s budget. You’ve written a lot about the difference between “business marketing” and “consumer marketing.” Could you talk about the distinctions between these kinds of marketing and why business marketing is so important for professional services firms, including law firms?
Das Narayandas: In the early part of the last century, academics and practitioners created a dichotomy between “business marketing” and “consumer marketing.” They started from the belief that the way in which your organization is engaged with the marketplace will be very different depending on whether you are serving a few clients or a large body of individual consumers. Whereas institutions typically buy significant amounts of business from you, each individual consumer accounts for a very small fraction of the total sales. Therefore, the way you organize yourself will be different than if you were serving a multitude of individual consumers.
To give an example, when you’re serving a large number of consumers (business-to-consumer, or B2C), you might prefer to use types of advertising that reach out to that large base or to use channel partners to serve the disparate markets. However, if you’re in a business-to-business (B2B) context where you’re serving a limited set of clients, the volume you get from each of these clients to justify having a direct contact—having your partners or professionals reach out to each client directly using personalized and customized messages—becomes more logical. Each client engagement is incredibly personalized, but the costs of doing this are justified by the “demand” opportunities these situations present.
While partners remain at the center of client management and business development, leveraging other marketing tools to understand the clients is an imperative they cannot avoid.
Interestingly, in the past decade, this bifurcation between B2B and B2C has started to break down. New interactive and information technologies, like social media, are reducing the cost for firms engaged with consumers in the B2C sense. Moreover, there is a lot of opportunity to learn more about your customers by using these technologies, rather than having to do so in a very human-intensive way. Because of this, business marketers and consumer marketers are beginning to resemble each other.
In the case of law firms, which have traditionally used partners and managers to engage with clients on a personalized basis, they need to get better at leveraging social media—LinkedIn and the like—to learn more about prospective clients. They also need to rethink who are the right people to reach out to. While partners undoubtedly remain at the center of client management and business development, there is no doubt in my mind that leveraging other marketing tools to understand the clients is an imperative they cannot avoid.
Wilkins: We do see so much more emphasis now around social media, but law firms are really just beginning there. One of the things they’re struggling with is how to communicate. Another thing they are struggling with is what to communicate, including why a client should choose them. What are the key things they should be telling potential clients, including not just the tangible things they offer but also the nontangible and nonfinancial?
The problem with professional services firms, especially law firms, is that it is hard to quantify the benefits. How do you quantify peace of mind?
Narayandas: The benefits clients derive from your services fall on a spectrum ranging from those that are quantifiable, or tangible, to those that are nonquantifiable, or intangible. When you look at product marketing firms, say, a car manufacturer, it’s easy for them to explain to their clients about a car’s engine capacity—you can talk about engine horsepower. Or, for operating costs, you can talk about miles per gallon. The problem with professional services firms, especially law firms, is that it is hard to quantify the benefits. How do you quantify peace of mind? You just can’t quantify that! In this way, the value that law firms bring to the table in legal services is often hard to quantify, and is therefore intangible.
Now, with intangible benefits, you have a second issue, which is that it’s often hard to communicate these benefits. This has a very interesting twofold effect. Since the benefits are intangible, it obviously becomes harder to acquire new clients because it is difficult to quantity and explain the benefits. Therefore, you have to figure out ways to help the client experience the benefits either themselves or through the experiences of others. Acquiring clients is therefore very hard. But then comes the good news: as much as it’s hard to acquire a client given the intangibility of the benefits, once the client is convinced of your superior service—once they understand the value you bring to the table—it becomes harder for competitors to steal your clients simply by claiming better performance. In other words, what made it hard for you to acquire a client in the first place is going to make it hard for competitors to snatch the client away once you have them. And this leads to greater client loyalty. Therefore, in the legal profession we see a great deal of client stickiness because the bar to acquire new business is high. And the bar is even higher for firms to lose business because it’s hard for someone to quantify their benefits over your established ones.
Wilkins: Part of what you have talked about is the loyalty ladder. One of the challenges law firms are facing today is that people used to think relationships were very sticky, and that as long as you were doing a good job, the client—the general counsel—had very few reasons to switch to another provider. However, in the marketplace, general counsel are becoming more metric driven. Law firms are therefore having trouble moving up the loyalty ladder in a way that maintains the stickiness you just talked about in the face of increasing competition and more knowledgeable and price-conscious consumers.
Loyalty is not, in and of itself, what you want. Loyalty is a bond. It’s the connection your clients have with you and you have with your clients.
Narayandas: There are two parts to your question. First, how do you get clients to go up the loyalty ladder? Second, how does this affect how you create the right portfolio of clients? Let me break my answer into two parts.
First of all, loyalty is not, in and of itself, what you want. Loyalty is a bond. It’s the connection your clients have with you and you have with your clients. That in itself is not the result, because when there is loyalty, the bond then creates business for you. It either brings you more revenues from the same clients, or from new clients, or it reduces the cost to serve your clients. At the end of the day, those are the two benefits you should focus on: how do I increase my revenue line, and how do I manage my cost line? Loyalty is useful only if it impacts either your revenue line or your cost line. That’s important to understand because what you want is to build that loyalty. You want clients who have such a strong bond with you that they will give you more business, and your knowledge of their business makes it easier for you to serve them.
If that’s not the case, then the dark side of loyalty comes into play. Sometimes we spend so much time trying to manage a relationship that there is a negative consequence. Indeed, many relationships become unprofitable because you’re striving for an outcome that is financially not attractive. Yes, the client might have a strong bond with you, but at the end of the day the results are what matter.
Going back to the loyalty ladder, my research shows that the stronger the bond, the more positive behaviors the clients start to show or display toward you. For example, at lower levels of loyalty—as the bonds are building—the clients might begin doing more business with you. As the bond grows stronger, they might actually be willing to pay you more than other competitive offerings. And, as the bond gets even stronger, they might become your advocates. As the bond—and the loyalty—goes up, the behaviors the clients display will lead to either increased revenues or lower cost.
The more motivated and talented people you have, the better chance you will provide high-quality service. The better the quality of the service, the more likely you’re going to attract a better pool of clients.
Smart professionals understand the strength of the bond and are able to predict future behaviors. When is the right time to introduce, say, a new service? When is the right time to bring others from the firm to talk about what else the firm can do for the client? When is the time to leverage the client to be a reference? You need to understand these things in any relationship: where are the clients in their bond with us and therefore what behaviors are they most likely to display?
As for the second part of your question, if you are getting into hypercompetitive markets with knowledgeable and demanding customers, you need to have a deep understanding of the connection between the internal talent market and the external client market. At Harvard Business School, we have been working on the connection between the talent we have in-house and the clients we serve in the external market. We have found that there is a tight connection between the two, and that connection is important because the quality of the service you provide has a direct impact on your market and representation of clients.
On the flip side, the quality of the service you provide is also affected by the quality of the people you have. The more motivated and talented people you have, the better chance you will provide high-quality service. The better the quality of the service, the more likely you’re going to attract a better pool of clients. That’s really where the connection happens. The inside has a strong impact on the outside.
You also have to understand everything from the client’s perspective. You might think you are providing a very high value-add service to the client, and that might be true today, but you have to recognize that over time, as the client gets more familiar with it, the value of that service begins to go down in their mind; they have seen it. It is no longer something unique. In their eyes, it has become a commodity. The only way out of that trap is to innovate so that the client perceives you a specialty player.
What I find is that in most professional services firms, including law firms, we do not spend enough time communicating the value we bring to the table. When we don’t, we create a problem for ourselves. You have to continuously understand the evolving needs of the clients so that you can better serve them over time.
Wilkins: I think you’ve nailed exactly where law firms are trying to go. Many of them don’t want to fall down the commoditization curve. Are there some things law firms should be looking for to try to understand whether they’re managing this correctly? In business, we would ask, “What are the KPIs?” What should law firms be closely looking at to make sure they are delivering value effectively?
Narayandas: You should be focused on four key parts. First, you have to build validity to create value and innovate. If you’re not going to innovate, you are going to suffer from commoditization. The second piece is to communicate. You have to communicate the value. It is not for the client to figure it out. That is your job. Now, in professional services firms, this is where you run into an issue because people get confused between communicating value and selling value. You’re not selling; you’re communicating. You are helping them understand how you have created the value. The third step is to deliver. Your teams have to deliver the right service at the right time. You might have the best service, but if you don’t provide it in a timely way and in the manner that really helps the client, who cares? Do not underestimate the importance of understanding how to deliver the value. The last one is to capture value. You see this is evident in legal firms. There are firms like Wachtell that have the courage to price their services according to the value they create. They are willing to demand and get their price premium. Do not underestimate the importance of each of these four things as you plan to engage your clients.
Wilkins: The final question I have is asking you to speculate a bit about the future. As you know, Clayton Christensen and others have been arguing that we’re in the midst of a set of disruptions that are really going to transform what we think we know about the knowledge economy, and professional services particularly. How should firms be thinking about trying to adapt to the changes that are coming, whether these are artificial intelligence or machine learning, the globalization of supply chains, or the new types of workers entering firms? One way they’re trying to deal with these disruptions is by forming broader and deeper bonds with their clients. What do you think are the biggest threats to the loyalty vision you’ve described, and how can law firms begin to think about positioning themselves?
Narayandas: As I mentioned earlier, anything you create is going to get commoditized over time. Gone are the days when you could create something new and it would stay as a specialty forever. That’s changing—someone is going to commoditize you.
You have to stop saying, “Here’s what I do,” and start asking, “What is the problem?”
Just stepping away for a moment from the legal profession, one of the industries that got disrupted by the internet early on was travel. Travel agencies ran into a huge problem with online booking sites like Expedia or Priceline because they created an open system for people to search and bid on air, hotel, and other travel-related expenses. Does that mean travel agencies were completely disrupted and went out? No. In fact, they came back in full force when they realized that if all they were offering was airline tickets, there was no option but to get commoditized as Expedia was going to do a much better job. But, if you redefine yourself as selling not simply air tickets but “travel vacations,” where you understand the client’s needs and you’re able to curate something unique for them and an experience they would value, suddenly you are creating value the client appreciates—and is willing to pay for. The travel agencies have therefore come back. They don’t sell tickets anymore—they sell experiences.
The same thing is going to apply to the legal profession. If you are going to be merely service focused, you are most likely going to go down the way the travel agencies went when online booking sites first came on. You have to stop saying, “Here’s what I do,” and start asking, “What is the problem?” The moment you get there, you’ll get enough clues and opportunities to understand how you can reinvent yourself to remain a value-add and preferred partner. This is a fundamental shift from talking about your capabilities to understanding what the clients care about.
I predict that many law firms are going to figure this out. They will understand the problem, but they will not be able to do it because it’s just not in their DNA. We are going to see a lot of people and a lot of firms fall by the wayside. That being said, the ones that can reinvent themselves, that understand what the clients want when they are hiring a law firm, will be the most successful. Remember one thing: we all are consumers. We all buy stuff—and we all buy stuff to solve our problems. Spend time trying to understand what clients really care about. That’s the answer.
Das Narayandas is the Edsel Bryant Ford Professor of Business Administration and senior associate dean for External Relations at Harvard Business School (HBS). He is also the senior associate dean for Harvard Business Publishing.
David B. Wilkins is the Lester Kissel Professor of Law, vice dean for Global Initiatives on the Legal Profession, and faculty director of the Center on the Legal Profession at Harvard Law School.