The recent announcement by QualitySolicitors to abandon hourly billing and to more widely embrace fixed fees was surprising but very welcome. Although a pricing strategy based on fixed fees is not new in legal services neither is it ground breaking, nevertheless it is noteworthy to recognise the courage of QualitySolicitors to publicly declare its intent to embrace this approach across its network of firms. The success or failure of this brand promise will be subject to public scrutiny which makes such a bold and risky declaration relatively unique in the retail legal services market. I sincerely hope that QualitySolicitors does not make the same mistake that some conveyancing firms made by setting fixed fees at levels that continually sacrifice profit margins for market share or growth. As indicated in an earlier post, we take the view that fixed fees do not necessarily have to mean cheap fees.

Another aspect arising from the recent announcement which is welcome is their willingness to experiment in order to deliver a better customer experience. This approach echoes the following comment made by Jeff Bezos earlier this year which if executed effectively would result in better customer experiences that will enhance the brand image of QualitySolicitors in the long term:

“I don’t think that you can invent on behalf of customers unless you’re willing to think long-term, because a lot of invention doesn’t work. If you’re going to invent, it means you’re going to experiment, and if you’re going to experiment, you’re going to fail, and if you’re going to fail, you have to think long term.” (Jeff Bezos, Amazon)

 It is the likely longer term impact on customer expectations and the possible changes in buying behaviour (accelerated by the growing sharing and connection economy) that should be potentially worrying for other legal firms if QualitySolicitors succeeds in delivering customer experiences that uniquely resonate with customers and enhances their trust in legal services providers.

It has been interesting to note the mixed reaction to the announcement by QualitySolictors ranging from this is a ‘publicity stunt’ to ‘fixed fees are unfair to some customers’. But one issue that has been raised by a number of commentators which is noteworthy is that a ‘one size fits all approach’ to pricing may not be appropriate for every firm.

The debate should not always be ‘fixed fees’ against ‘hourly billing’ but rather ‘what is the most appropriate pricing strategy for our different customer segments’. For some firms fixed fees may be appropriate for all their customers and for other firms a mix of fixed fees and hourly billing may be more appropriate for their customer base. So the starting point to determine the right pricing strategy is the accurate identification of the priority needs of customers rather than just those of the provider. Unfortunately from some of the commentary on social media and other forums following the recent announcement by QualitySolicitors it appears that there is still an over reliance on the ‘cost plus’ approach to pricing which makes it difficult to embrace fixed fees even where it is evident that some customers would prefer the predictability of such fees.

An aspect of the recent announcement by QualitySolcitors which appears contradictory is the intention not to make fixed fees mandatory across all firms of the network. This may seem surprising particularly as fixed fees may become a unique selling proposition for the brand and may send mixed messages if the promise is not accessible to customers at every major touch point in the network. However, the incremental approach to implementation of fixed fees rightly recognises the challenges inherent in this approach and the cultural implications of shifting from hourly billing to fixed fees which requires careful and skilful execution.

Although the benefits of fixed fees are well rehearsed, the level of adoption particularly in the retail legal services market is still relatively low and this in part is because of the challenges associated with effective execution of this pricing strategy.  So if a firm decides it wishes to follow in the footsteps of QualitySolicitors, it may be advisable to be fully persuaded that some of the following benefits are relevant to its target customers and that it has the capacity and capability to overcome the challenges highlighted below.

Benefits of Fixed Fees

 Fixed fees offer a number of important benefits for customers and firms. Some of those benefits are as follows:

  •  Increased certainty of likely overall costs which enables customers to make confident, timely, informed and cost/benefit decisions about the transaction;
  • Enhanced trust from customers because the fear of hidden charges is reduced or eliminated;
  • Eliminates the perception that a firm is motivated by self-interest particularly where hourly billing is involved (i.e. perception that firm takes longer to solve their problem) and instead provides the perception that the firm is positioned to achieve the best possible outcome for the customer;
  • Fixed fees enhances productive engagement between the customer and firm during the service delivery process as any anxiety associated with the uncertainly about the variable costs are reduced;
  • Fixed fees avoids the situation whereby customers inappropriately assume the responsibility to deal with certain aspects of the service delivery process in order to reduce costs when such decisions are not in their best interests;
  • Fixed fees compels firms to identify and eliminate unnecessary waste and to develop processes underpinned by reliable, relevant and insightful data;
  • Fixed fees can support the delivery of better customer service due to increased focus on understanding customer requirements;
  • Fixed fees can enhance transparency, which empowers customers to make more informed choices about the selected service provider;
  • Fixed fees can reduce/eliminate the complexity associated with some variable pricing approaches and minimises the shock experienced by customers when the final bill is received.

Challenges of Fixed Fees

Despite the benefits of fixed fees highlighted above, there remain concerns about the suitability of this approach including the associated challenges some of which are outlined as follows:

  • Fees may not reflect actual work done for customers and therefore may be perceived unfair to others customers that may be subsidising such customers;
  • Transparency of fixed fees makes it much easier for competitors to undercut fees;
  • Scope of work is not always predictable and firms may under price the service delivered to the customer;
  • The firm carries the risk to deliver the service at the agreed price irrespective of the ‘unknown’ drivers of scope;
  • Fixed fees may lead to an erosion of the quality of service provided as the basis of competition may revolve around price and some firms may be willing to adopt unprofitable fixed prices to win or maintain market share;
  • Low fixed fees may create the temptation to hide the true price of the service by combining a low headline price with a confusing menu of optional extras.

Do you want fries with that?

The legendary question used by McDonalds has been recognised as being effective in influencing buying behaviour and highlights the importance of using effective questions to nudge people in a desired direction. So it seems to me that rather than asking ‘Should we ditch hourly billing and embrace fixed fees? It may be preferable to consider an alternative question in 2014 along the lines of ‘How can we implement profitable fixed fees for the right customer segments in order to enhance the trust and loyalty of our customers?