Before you answer this question, consider this one first: Do you believe your firm delivers better results than some of your higher-charging competitors?
If so, it’s time to rethink your pricing.
Haddon Consulting Managing Director and Teaching Fellow at The College of Law Nigel Haddon explains why underselling your services may be costing you customers – and what to do about it.
More than meets the eye: the pitfalls of price sensitivity
When it comes to pricing, things are rarely as they seem. While we might intuitively think that lower priced services will equate to more customers, the truth is a lot more complicated.
That’s because there’s a psychological element behind how consumers perceive price – and this includes how ‘price sensitive’ they are when choosing providers.
So, what is price sensitivity? It is the degree to which demand changes in response to a change in product or service cost.
And in the legal field, we continually overestimate the prevalence of price sensitivity among our customers.
Who is making decisions based on price?
“Very few people choose services based on price and price alone,” says Nigel.
In fact, research intro price sensitivity suggests that only around 10-20% of people are truly price sensitive.
“Although this may seem like a significant number, it’s important to remember that your ideal clients aren’t in that 10-20%. That’s because their loyalty is to price, not you. This makes them easy to lose – as soon as a lower bidder comes along.
“Rather, you want sophisticated clients who understand what you bring to the market and why you’re better than your competitors.
“In fact, if you’re not charging prices that reflect your worth, you’re effectively telling your ideal potential clients that you don’t measure up to the competition,” he says.
What it means to be reassuringly expensive
Nigel explains, “Consumers understand that price is proxy for quality. The $100 pair of jeans is going to be better than the $20 pair of jeans. A $70,000 car is going to be better than a $30,000 car.
“So, by extension, a $350 per hour lawyer is going to be better than one who only charges $250.
“If you’re saying you’re better than your competition, but then charge less than them, potential clients will struggle to make sense of this,” he says.
So, what do clients base their decisions on?
Nigel says that when it comes to choosing between service providers, consumers typically place price as their third or fourth consideration.
So what do clients base their decision on?
“Most firms sell their services based on reputation and recommendations. This is because clients predominantly look for ‘social proof’ – an assurance that others have had a positive experience with them.”
Nigel says personal chemistry is also extremely important in the decision-making process.
“We all want to do business with people we like and trust. We want to be sure we’re selecting a provider who will do what they say they will, and fix things if they go wrong,” he says.
So, if your firm is technically strong and delivers what clients want, when they want it, and how they want it – you’re well placed to charge premium prices.
How to charge what you’re worth – and attract the right clients
If your firm is trying to be all things to all people, it’s time to adapt your pricing strategy so that you can find clients who will be loyal to you – not your low fees.
Introducing Attracting and Retaining Clients, a 12-week course from The College of Law that explores the principles of behavioural economics in the legal world.
During this course, you’ll learn what makes your clients tick – and the factors that influence their purchasing decisions. And ultimately, you’ll come away with the confidence and knowledge to re-think your pricing and attract the right client base.