While sophisticated consumers of legal services would not equate purchasing legal services from top law firms with shopping at Macy’s and Marshall’s, law firms are increasingly relying on a prized tactic of retailers: “retail theatre.”
As most savvy shoppers know, retailers often give an item a very high “list price,” and then provide steep discounts in order to lure shoppers in with the perception of big “discounts.” In the retail industry, this is known as “retail theatre.”
As the Washington Post explained in detail, the “sale” price of retail items is typically the actual price at which the retailer expects to sell the item, while the “list” price is one that the retailer expects very few consumers will pay.
Indeed, as the Post points out, many retailers go so far as to raise the “list” price of items a few days before Black Friday in order to make discounts seem even steeper. As Columbia Business School Professor Mark Cohen noted, “The silliness of it all is that the original price from which the discount is computed is often specious to begin with, because items hardly ever sell at that price, which makes the discount less legitimate.”
Likewise, law firms are increasingly engaging in their own version of retail theatre: rate card theatre. As we discussed in a prior post, law firms are continuing to raise their “rate cards” or “list” prices in the face of reduced demand for legal services. Much like retailers, however, law firms are simultaneously providing “discounts” to their clients in order to give clients the appearance that they’re receiving value. Not surprisingly, approximately 87% of law firm clients receive a discount off of their law firms “rate cards.”
Much like retailers, whose profits continue to climb in the face of this game of “rate card theatre,” many law firms continue to see increased profits. Indeed, profits per partner at the largest firms rose by 5% in 2015, significantly outpacing inflation, despite decreased demand for legal services.
Also, as we reported in our last post, the aggregate discounts have gotten higher and higher over time, as higher and higher legal rack rates have become less and less meaningful. Indeed, the average discount received by a client, has more than doubled over the last decade.
Savvy in-house counsel and legal operations professionals realize that “discounts” do not equate to value from their law firms. Nor do law firm discounts suffice to show that a legal department is run in a business-savvy way.
The most value-driven legal departments are using more meaningful metrics than law firm discounts to prove the legal department is being run in a value-driven way.