Thursday, May 18, 2006

Centralized Pricing is Key

The most common question I am asked about our model is how we actually price out legal work. Most people ask "How can you price when you don't know how long it will take?". The error in the reasoning that the question implies is that there exists a relationship between time and value to the client. The basis of a value pricing model is that there is, in fact, no direct relationship at all. (Karl Marx' Labor Theory of Value was refuted long ago) In fact, most clients want the work done faster, not slower. I do not meet many passengers on airplanes who think they should pay more because it took longer to get to their destination. . . . . yes. . . even though delays cost much more to the airline in fuel and missed connections. Most passengers want one thing: to get to their destination as fast and safely as possible. Last year I paid a lot of money for a new car and did not think to ask how long it took the engineers to make it! hmmmm.

At Exemplar our interests are aligned with the client and we have an incentive to get them to their destination as safely and promptly as possible. We have a pricing committee of professionals who are dedicated to understanding value from the customer's perspective. They make sure that the intake process is effective at getting the right information so that we understand how to design our services around exactly what the customer wants. What's more, centralizing the pricing function in an organization is critical to providing a consistent customer experience. This also allows us to communicate, learn, and correct any errors in the process that would not otherwise be discovered if attorneys priced individually. Why not have attorney's price individually? Well, what other businesses let technicians price the product? Still trying to think a one? After all, what does technical expertise have to do with pricing expertise. The engineers at Ford focus on making a good car. The people who price the cars focus on giving the customer what they want at the right price. The finance experts focus on the relationships between pricing and costing from a portfolio perspective (not a per-car anaysis). At Exemplar, we are inspired by models of success that work. Centralizing the pricing function is therefore a natural step for firms that want to improve client service.

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