Commoditisation Special

3 - Commoditisation Image

To commoditise or not to commoditise… that is the question.  Or is it?

I’ve been working and speaking with law firms for many years now and it is rare that a meeting goes by when the concept of “commoditisation” isn’t bought up….  Usually as a defensive argument to keep things the way they always have been.

For the record, I have never advised a client to commoditise their processes.  Not because I have anything morally against it.  More because of the fact that in this context, the word “commoditise” doesn’t make any sense.  Why not?  Well let’s look at a Wikipedia definition of the word itself:

“In business literature, commoditisation is defined as the process by which goods that have economic value and are distinguishable in terms of attributes (uniqueness or brand) end up becoming simple commodities in the eyes of the market or consumers.”

Is this just semantics?  No.

The important thing here is that you and I don’t get to decide whether our services are a commodity or not.  Our clients do.

Is there anything you can do about it?  Yes – plenty.

Let’s take a non-law related example of a commodity.  Think of your favourite coffee chain out there and the products and services that they offer; most notably Coffee.

Coffee beans are one of the world’s true commodity products and are traded on many of the world’s major commodity exchanges.  At the time of writing this article, you could buy a pound (lb or 0.45 kilograms) of coffee for just $0.94.  I am reliably informed that a pound of coffee beans would yield 30 – 40 cups of coffee, working out at a simple unit price of 2 or 3 cents per cup of coffee.

Can anyone please tell me why I, and many of my fellow commuters, are willing to pay in excess of £3 for a cup of coffee each morning?

Brand?  Maybe.  Convenience.  Probably.  Because my day starts way too early.  Almost certainly!

Whatever the reason, the simple fact is that I, and millions like me each day, are willing to pay a premium price for a commodity product.

Importantly, it is me (as the customer) that has decided to pay the premium price and not the coffee shop or supplier.

Is knowledge and information a commodity?

In the internet age, I’m afraid the simple answer is “yes”.  So what does this mean in terms of legal services?

If we assume that all law firms start with the same commodity (i.e. knowledge / information), how can some charge different fees for the same thing?

The answer is similar as to why I pay £3 for a cup of coffee; brand and convenience play a big part.  For intangible services, such as legal services, trust and confidence in the advice provided are also important.

Does commoditisation reduce client choice?

One of the reasons that “commoditisation” of legal services is challenged is that one size doesn’t fit all and our clients deserve a choice.

Hear hear!  I couldn’t agree more.

However, just as there is choice between grinding your own coffee beans, using instant coffee or paying £3 for a frothy latte, there is also choice within each of those choices (bear with me here…).

When you walk into your favourite coffee house, do you only get one choice?

No, you select from a menu and then get to customise as you see fit based on a number of variables (strength, ingredients, flavours, temperature, etc) so that you can create your perfect tall, skinny soya, caramel, extra-hot latte.

Is the service delivery commoditised?

In that same coffee house, what do you notice about how the service is delivered?

Some coffee houses will have one person behind the counter, taking your order, making your coffee and taking your hard earned money in return.

Other coffee houses will apply the division of labour principle such that a different person specialises and performs each of those tasks.

Each approach has its own merits (personally, I prefer my coffee art to be done by a person specialising only in drawing leaf patterns in the coffee froth) but we’ll save a discussion of the advantages and disadvantages of this for a later blog.

So, what’s the point here?

To clarify; I am not saving that these coffee chains are the pinnacle of customer service, what I am saying is:

“Commoditisation of the service is not the same as efficient delivery of the service”

This is a crucial distinction:

  • The client decides if what you are offering is a commodity
  • You can decide two things:
    1. How you deliver your services
    2. How you brand your services

Your two decisions are connected but not inextricably so.  There are a number of well-known coffee shop chains out there that deliver an incredibly efficient service, with a premium brand (and premium pricing).

This can also be observed across many other industries and sectors; e.g. air travel, financial services, technology, automotive etc.

Therefore, the first thing you should be doing is understanding what your clients think of your service(s).  Increased pressure to lower fees or difficulty in differentiating your offering from your competitors suggests that the service may be perceived as a commodity in the marketplace.

Once you understand your clients’ perceptions, you can then work out how best to deliver and brand your services in order to meet their expectations.

What are your experiences here?  Do you see any emerging trends within particular service lines that suggest a change in client perceptions?  Do you see differences between service lines?  Feel free to share your thoughts in the comments section below.

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