The Problem with Competing on Price.

Rob at BusinessPundit has a great post on the dangers of competing on price -- especially with Wal Mart (as learned by Toys R Us). Rob says:

Blame it on Wal-Mart. Toys R Us should have seen it coming. Maybe they did, maybe they didn't, but rule number two for leaders is embrace the inevitable. Competing on price is, in my opinion, not that great of a strategy. Toys R Us needs to give people a reason to come to the stores other than just cheap toys. People can go to WalMart for that.

Competing on price is almost always dangerous. If you are able to offer your clients competent legal representation at a price lower than your competition, that's great. However, matching the lowest-priced lawyer in town can be a risky strategy -- unless you can match his or her low overhead, staffing costs, etc. If you can't, offer something that lawyer can't -- better service, quicker turnaround time, higher competence -- and charge accordingly.

I am reminded of the time I started working with another lawyer as his associate. He advertised "free consultations" in the yellow pages, believing this would bring in business, and then delegated to me most of the initial client meetings. I liked the work and enjoyed meeting a number of people, but found that at least 60% of the people I met did not retain the firm. When I opened my own office, and continued the free consultation policy, I tried to find out why. I first thought that I had somehow failed to communicate my competence or answer the potential client's questions. Instead, I found just the opposite to be true -- in many cases I had managed to answer the potential client's questions and/or solve their problems in the initial consult. They often felt that after the initial meeting, they no longer needed a lawyer any more. Since then, I have charged for initial consultations (though other lawyers in my area still do them for free) and have never had anyone complain about the cost of the consult. Most people want to talk to a lawyer and they appreciate one who will take the time to listen to their problems and offer suggestions for solving them. After all, nobody goes to the dentist for a checkup and expects to get the service for free, even if they have no cavities.