I recently read a thought provoking book by Michael E. Raynor and Mumtaz Ahmed called “The Three Rules: How Exceptional Companies Think”. The authors propose the following three rules, which should guide business leaders to make decisions in order to deliver sustainable exceptional performance:
- Better Before Cheaper
- Revenue Before Cost
- There Are No Other Rules
I found the book very informative and it resonated with my views in earlier articles particularly with regard to small and medium businesses providing conveyancing services (traditionally or famously referred to as ‘high street firms’). The predictions on the likely demise of the high street provider of legal services are well rehearsed and the constant noise about the imminent consolidation in the legal services market seems to suggest that the only conceivable way for such firms to survive is to fight back through price-based competition.
However, the rules proposed by this book underpinned by sound research offer another option. High street firms that choose to position themselves to compete in the brutal conveyancing market by focusing on delivering better value rather than cheaper prices are more likely to create a defensible and sustainable competitive position.
It always amazes when I read blog posts or website information produced by conveyancing firms for the benefit of consumers, which make disparaging comments about ‘volume providers’ because it seems to me that such firms may not have correctly identified their competition. Not everyone providing a conveyancing service is necessarily a direct competitor for high street firms. The key consideration is the extent to which another provider provides a close substitute or their service is the next best alternative for the target consumers. For example a high street firm that is focused on providing a superior personal service, which includes effective handholding by more skilled staff at key transaction points is clearly not competing with a ‘volume provider’.
It is therefore counterproductive to seek to price match the ‘volume provider’ when the services provided by the respective providers are not close substitutes. I accept that there is a view that consumers generally cannot tell the difference and in some cases are not bothered because all they care about is the price. Nevertheless, if that view is correct, it seems to me more a reflection of the failure to articulate the unique value that different providers’ offer and the worrying erosion of self-esteem that some legal services providers increasingly seem to be demonstrating. It is clearly not accurate that all consumers are predominantly price conscious buyers because if that were the case then the discount supermarkets would be the dominant providers particularly in the current tough economic conditions.
Conveyancing is a critical service in the home buying and selling process and it is incumbent on the providers of such services to demonstrate confidence in their services by creating better value and capturing some of that value through higher prices where appropriate. If a provider of conveyancing services places, very little value on the services it provides as highlighted through its low prices, then why should consumers value the services any higher?
Firms must passionately believe in the value of their offerings in order to resist the temptation to offer lower prices out of desperation. The comparison of relative value should not be limited to competitors offering suitable substitute services or the next best alternative but also other suppliers in the home buying and selling chain competing for a share of the consumer’s budget. The last time I moved (less than 10 miles) I paid more for the home removal service than the conveyancing, which seems strange considering that it could be argued that good conveyancing provides ongoing benefits for the purchaser including making a positive contribution in any capital appreciation of the property.
Competition based on price-cutting is a self-inflicted wound and although it is easy to justify and implement because the competitors are doing likewise. Such a strategy is not sustainable because it also makes it easier for others to imitate the same strategy, which forces further price cutting in order to attempt to maintain their position. I like the ‘better before cheaper’ rule because it encourages businesses to think harder about creating more value for consumers. Such businesses will devote all necessary resources to enhance their infrastructure and organisational capability to deliver unique value to consumers in order to realise the intended (justified) higher profit margins.
So at the next meeting of partners or directors when there is a long and heated debate about reducing prices (possibly by as much as £10.00) to match aggressive low prices of competitors. Perhaps someone should have the courage to change the conversation and ask instead ‘How can we deliver better value in ways that are meaningful to our target customers and align our prices to that value?’