In need of legal advice, a man went into a lawyer's office. He knew how expensive lawyers could be, so he inquired, "Can you tell me how much you charge?"
"Of course," the lawyer replied, "I charge $500 to answer three questions."
"Don't you think that's an awful lot of money to answer three questions?"
"Yes it is," answered the lawyer, "What's your third question?"
To an average family or small business owner, legal advice feels expensive because you pay (a lot) and you pay by the advice. What you get is assurance that your interests are protected against generally unlikely events or liabilities. The majority of families, who rarely consult with lawyers and have not been on the losing end of a legal issue, are not accustomed to spending $200 per hour for advice. To those families, the benefits of legal advice don’t seem to outweigh the costs. Could the popularity of greedy lawyer jokes be the indicator of a disruptive innovation opportunity?
Yes! Even those of us who do not have frequent needs or resources to regularly seek legal advice still relate to the emotional satisfaction of having a lawyer in our corner to make us feel more protected. The question is, why can’t legal advice be more affordable, to satisfy this need for assurance amongst those who don’t have deep pockets?
Prepaid Legal (PPD) recognized this opportunity back in 1972, when its original founder began to offer legal expense reimbursement to motorists through a membership club after he suffered a collision and significant legal fees not covered by his car insurance. Prepaid Legal Services developed into a membership-driven organization that provides a range of specific legal services to any member for a flat monthly fee.
Here’s how it works: You pay Prepaid Legal a monthly fee ($16 per month in Massachusetts for a standard family plan). This membership provides you access to a lawyer at a local law firm who is a part of Prepaid Legal’s partner network. For that membership fee, you get access to an attorney for phone consultation at any time. If the lawyer believes it would be prudent to pursue a legal matter in more depth, you have access to a menu of services that are limited to a set number of specific activities per year, such as document review or drafting legal letters.
Prepaid Legal has proven it has a successful business model, with over 1,481,531 active memberships reported at the end of first-quarter 2008. What makes them an interesting example in the disruptive playbook?
Targeting constrained customers: By focusing on the question of “How can we make legal advice accessible to non-consumers?” Prepaid Legal discovered an innovative way to design the pricing and distribution model for legal services, making it accessible for those who were previously priced out of the market. Sixteen dollars a month for on-going basic legal service is much more feasible to these customers than paying $500 to hire a lawyer one time to review a document.
Offering “just good enough” service: Customers get an inferior product by traditional standards, sacrificing unlimited service for a cheaper price point. If you need a lawyer to review documents to purchase a home, a membership affords you up to two reviews of legal documents that are no more than 10 pages. If additional services are needed, you are entitled to a 25% discount on your lawyer’s regular fees. For the majority of infrequent advice seekers, this level of benefit is a good deal. Their legal matters tend to be straight forward and the reassurance of having a lawyer on call by phone provides a significant emotional and practical benefit.
Changing the business model: What makes the offering possible is the scale that Prepaid Legal can provide to the distribution channel (its partner law firms). This is done through multiple business model innovations that deliver the same old legal services from the same old law firms, but to new consumers:
- Prepaid Legal changed the financial model to aggregate receivables before legal services are rendered. Their partner law firms benefit from a predictable revenue stream
- Prepaid has created a marketing network of associates who are usually members and who receive commissions for referrals. This pyramid type of marketing approach has garnered criticism for its ability to drive sustainable growth. But it keeps marketing and sales expenses low and allows the company to remain profitable with its low cost positioning.
- Finally, the company created a new value proposition in the marketplace that positions legal services much more like insurance. This was done by limiting the features and benefits of the service to the most scalable and frequent kind of legal advice, and by targeting that advice to traditional non-consumers.