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Guest post: Luxury lawyering and the Bergdorf effect – getting your price right

A week or two ago, we were having drinks here in New York with two senior corporate partners at an AmLaw-25 firm that is quite self-aware enough to know it’s not in the realm of the super-elite, and the topic turned to pricing.

A matter they’d both been working on since earlier this year recently passed $1m in billings, which prompted their being summoned to the client’s corporate headquarters for a day-long review of the fees by the general counsel and chief financial officer.

Fortunately for our friends, it didn’t take long for the client to conclude that all was in order – with a few minor nips and tucks here and there, more for the sake of form than anything, we suspect – so our friends went on their way vindicated, as it were.

Needless to say, this prompted some musing about the client’s approach to legal fees on their part, and not exactly in a vacuum, either.

To put a point on it, they had learned of another firm’s billing to the same client on a not-dissimilar matter, which they described as being at ‘astronomical rates’ for ‘merely serviceable work, and some of it not even that.’

‘Well, wasn’t the other firm grilled just as they were?’, we asked somewhat naively.

‘Not at all; their bills are evidently never questioned. The other firm, you see, is a super-elite firm, so the client seems to accept their so-very-stiff fees at face value and, on top of that, assumes the calibre of the work is perfection itself. So far as our friends know, that firm’s fees have never been questioned.’

‘This doesn’t make a lot of sense,’ we observed, which we thought was a somewhat axiomatic comment. ‘What do you suppose the client is thinking?’

‘Actually, this isn’t the first time we’ve seen something like this,’ they reported. ‘If only we had the reputation those guys have, we could probably get away with bills like theirs as well.’

Since this seemed a topic of some sensitivity, the conversation moved on to other things, but it got us wondering.

Now, the client’s behaviour with our friends’ firm vis-a-vis the super-elite firm may ‘make no sense’ in an objective homo economicus mode, but the more Janet and I thought about it the more understandable it seems. Let’s call it the Bergdorf effect.

Bergdorf Goodman, as presumably everyone knows well (some of you perhaps too well…) is the super-high-end fashion and department store occupying most of the block between 57th and 58th Streets on the west side of Fifth Avenue. As they put it:

There’s only one Bergdorf Goodman [emphasis theirs] A New York landmark since 1901, Bergdorf Goodman represents the pinnacle of style, service, and modern luxury. Located at 5th Avenue and 58th Street, it is the leading fashion authority and a singular destination for the most discerning customers from around the world.

Even if you’ve never set foot inside Bergdorf, you know what to expect: The most lavish and up-to-the-minute array of high end designer merchandise, priced to match. This is not the place to haggle, and you won’t. You know what you’re in for when you walk in the door. If you’re not in the mood for paying top dollar, to coin a phrase, ‘don’t even go there.’

Compare that to your experience visiting a more normal department store, or even an upscale one like Saks Fifth Avenue or Nordstrom: You’re almost certainly going to wait until things are on sale; you want a bargain. The same mentality applies when you go to stores like Target, Home Depot, or (obviously) Costco. Whether or not things are ‘on sale’ at those stores is not terribly germane: They’ve staked their reputation on low prices.

Bringing this back to Law Land is now intellectually trivial.

Clients patronising the super-elite firms know what they’re in for it in terms of legal fees. It’s not quite accurate to say that they’re not thinking about price, but by entering the door they’re entering they have made a conscious decision that their desire for what’s offered here outweighs economic considerations at the moment.

Those same clients going to non-super-elite firms are you and me at Saks and Nordstrom; we appreciate what they’re offering but we’re determined we’re not going to overpay.

So was our friends’ client being irrational or failing to ‘maximise shareholder value?’ Not really; they would surely explain that they were choosing different providers for different purposes in different contexts. And who’s to second guess them? I think this is a genuine and (I suspect) widespread phenomenon.

Now, what should we make of this? More pointedly, what should we do with it, or about it?

If you’re super-elite, I suppose your job is simple: Don’t compromise on what it took to earn your reputation. It’s pretty straightforward: Don’t f it up, as a former boss of mine was fond of advising. (To be fair, he only used this with co-workers he trusted implicitly; he could be highly directive with others.)

If you’re like most every other firm in Law Land, however, you have a three or four-dimensional game to play. I can’t strategise in advance and in a vacuum for you, but here are a few of those considerations. First, don’t pretend the fray of price pressures is beneath you. You’d be bluffing and clients will think less of you if you seem out of touch with where your firm stands in the magisterial pecking order we all seem enchained by. (This magisterial pecking order is itself a topic for another day.) Have a spine and don’t apologise or be defensive when it comes to discussing your fees, but also be realistic. You know as well as your client that they have choices.

Second, talk with your clients frankly about their perception of the quality and responsiveness of your service and advice. If there are things you could improve, wouldn’t you rather know it while there’s still time to do something about it? And understand one simple reality: clients don’t want you to fail, and they don’t even want to inflict pain. This is not an adversarial relationship. Clients want you to excel. Ask them how you can. This not only shifts the discussion and the focus away from price, it helps them appreciate how many valuable elements there are to your overall relationship.

Finally – this is the hardest, so I saved it for last – over time work on cultivating the perception that your service and advice are, actually, every bit as ‘fit for purpose’ as the super-elite firm. You can’t and shouldn’t kid them that you’re offering them a Ferrari, but work on convincing them you’re offering a BMW. How often do you really need to go 200-mph in a street car? Or to have 12 temperamental Italian cylinders?

If we recur to retailing for a moment, two of the most successful global retailers of this decade – H&M and Zara – have cracked and are perfecting the almost inconceivably complex logistics challenge of bringing designer knockoffs to stores near you in a matter of a couple of weeks after the styles first hit the New York, Paris, and Milan fashion runways. Their business models are antipodal to Bergdorf’s, but they’re trying to satisfy the same craving for the latest style for a very different clientele.

So far, it seems to be working. Both H&M and Zara stocks are up more than 20% over the last 12 months or so, compared with a slide of about 5% for Federated Department Stores, parent of Macy’s, Bloomingdales, Lord & Taylor, Marshall Field’s, and more. But back to Law Land.

The challenge, as always for those of us living near sea level and not in the high thin air of the super-elite, is balancing service, quality, responsiveness, and price. There’s no magic formula – if there were, we could repeal Chapter 11, after all; no one would need it.

All of us down here with the ocean views are, actually, trying to satisfy clients who, sometimes for some matters cross the threshold of Bergdorf, with the same overall ‘fit for purpose’ multi-dimensional blend of personal and emotional reassurance, business-driven results, and value for money. Is this more challenging than being Bergdorf (or Ferrari)? Perhaps, but our playing field is capacious and our opportunities for applied imagination far more vast.

Bruce MacEwen is president of Adam Smith, Esq. You can read his blog here.