Oct 23, 2014

Should Lawyers Offer Discounts To Clients? by Karin Conroy

Editor's note: This article was originally published on the Lawyerist blog on October 14th, 2014. 

Are discounts or free samples the route to more business or a quick road to devaluing your services? Some top law firms are using discounted rates to retain their budget-conscious clients. However, discounts need to be considered carefully to avoid the challenges of not being paid. This article explains the pros, cons, and best practices of special offers.

The Pros

Coupons, discounts, and free samples offer some incredible benefits, such as fast returns and a jolt in client inquiries. Experts have uncovered some interesting psychological effects of coupons. For many people, saving money produces oxytocin — a chemical your body releases when something good happens. In other words, special offers delight some customers, and those good feelings often become mentally associated with the business that provided the special offer.

The Cons

Special offers can be expensive and ineffective, and they may negatively affect a firm’s brand positioning if done incorrectly. According to a recent survey of Lawyerist Insider subscribers, coupons may also increase the number of past due accounts. Some lawyers also worry that discounts cause people to underestimate the value of their services and attract the wrong kind of customers.

When Discounts Work Best

Especially online, customers respond to special offers. About 70% of respondents in arecent survey reported that they have used a digital coupon, offer, or online promotion code while shopping online. To many people, the idea of using coupons is so ingrained in them as part of the purchasing process, providing discounts can sway them to choose your firm over a competitor that offers no discounts. Even corporate clients consider discounting their legal rates: “We almost always negotiate rates down from the rack rates,” said Randal S. Milch, general counsel for phone giant Verizon. The result, he said, is a “not-insignificant discount.”
Free gifts or services can also attract customers, and not just because they allow clients to see you in action at no cost. One reason discounts are so effective at drumming up business is the reciprocity effect. Studies show that people who receive a free gift or service often experience a strong urge to reciprocate by patronizing a business in return.
Large businesses that purchase legal services in bulk are especially hungry for discounts, and the commitment of long-term business may be worth the loss incurred by offering a discount. Bigger clients that purchase long-term bulk services are the best bet for discounts and special offers. That bulk work is worth wooing with a discount.

How Law Firms Use Discounts Effectively

The cost of legal services and the need for capable professionals puts law firms in a unique position in the world of marketing by discount. People dread the expense of lawyers before they even hear the price, but the promise of not having to pay a percentage of the cost can encourage a potential client to call your offices to find out more. Since some firms are advertising special offers, customers may wonder why you are not.
Why not avoid some complication by simply lowering rates? Charging higher rates and offering a discount to offset that expense is often more effective than simply offering a lower rate outright. The difference is the effect on the customer’s perceived value of your services. With a coupon, the customer feels as if they are getting more value for less money. With a lower rate, customers feel they may be purchasing lower quality services. Most customers still believe the old adage that they get what they pay for (or in the case of discounts, what they do not pay for).
Of course, according to the Wall Street Journal, most law firms will not even discuss the discounts or specifics of their rates in the first place.

Why Discounts Do Not Equal Less Revenue

Many studies show the same correlation: ever since the financial crisis, firms have been steadily raising their rates and yet actually collecting less money. How can that be? They are offering special offers — discounts and free services — to entice customers by boosting the perceived value of their services.
In some ways, coupons, discounts, and special offers do not make much of a difference to the bottom line. As the use of special offers has increased, so have the hourly rates of lawyers. However, these numbers show that many law firms are embracing the power of the discount even as they raise their rates to offset the cost. Reports show that the gap between law firms’ sticker prices and the money they actually collect from clients has grown in recent years, with more and more firms pricing high and offering a discount.
Haggling and negotiating price is more common than ever before with law firm clients. But as customers have learned how to haggle over prices on legal services, lawyers have learned how they can offer the deep discounts clients expect — by raising their rates to the highest possible price. This approach not only takes care of creating a discount the customer is happy with, but also gives the customer more confidence in the services since most people associate higher prices with better quality.

How Customers Evaluate Law Firms

The sky-high hourly rates of some lawyers scare off potential customers, which is why many customers are eschewing the larger, well-known firms to save money at the smaller firms that offer a lower rate for less well-known, but equally professional lawyers.
Astute customers recognize not only the price, but the value of the services. Most decision-makers will pay more for superior service and value. The takeaway is that the best bet of a firm is to not only offer discounts, but also to raise rates to reap the psychological benefits of coupons.

Source:- www.lawyerist.com 


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