As clients become more selective and cost conscious, they will be paying increasing attention to which firms they use for which matters, a law firm consultant reveals today.
Following an article published in The New Lawyer yesterday, in which Freehills managing partner Gavin Bell talks about branding in the current climate, Beaton Consulting principal Joel Barolsky said that while the market may have sustained "say six or seven top-tier firms" in the boom times, things will change in a downward spiralling economy.
"You might find in the significantly restricted or constrained economy the market can only sustain four or five [top-tier firms]," he said. And brand, he argues, is critical in maintaining a firm's current tiered status. Barolsky argues that many in-house council and buyers of legal services are tiering their work as the economy falters.
"The immediate reaction from most clients is to look at how they can manage their total legal costs", and as they do, the service provided by top- and mid-tier firms will be harshly scrutinised, he said.In this process, top tier is not an automatic go-to for all cases, he said.
"For high-end risk matters the natural provider would be a tier one branded firm and the more routine matter is done by tier two type firms. It’s not an automatic, gut, reaction of ‘let’s just go to a top tier firm for everything’.
"So many in-house legal departments are revisiting their in-source, outsource mix and in many instances retendering or reexamining their exernal provider arrangements," Barolsky said.
"Because the market is fragmented and tiered, branding is more critical between tiers, and less so within it. It’s critical that if you’re a top-tier firm that you retain your brand as a top-tier firm.
"To slip down to a second-tier firm can be extremely disadvantageous to the firm. It loses its price premium, key partners will leave. So if a firm wants to be categorised within a particular tier, it’s crucial that it retains that position now," he said.
The Beaton Consulting principal, whose company consults with law firms to improve performance and is widely regarded as an expert in the legal services market, said market perception will have a large impact on firms during this overhaul. "If a firm loses its tier one status, that aspect of brand is absolutely fundamental," he said.
"It’s the market perception of 'Is the firm retaining its stars, is it having the same critical mass, can it still compete and do the work that is required of a top tier firm?' If it drops a tier, suddenly it can’t command a price premium, it can’t necessarily attract the same quality of staff.
"That’s where branding has particular relevance. As the market is contracting it can sustain fewer top tier firms, retaining your top-tier status is a fundamental issue," Barolsky said.
See 'Branding hot in a cold climate' for background.