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Beyond Biglaw: Bundles Of Fees

Columnist Gaston Kroub shares some thoughts on pricing, inspired by "fee bundling" in the travel industry.

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Blank Lawyer Type Sign or Shingle.Since I am in the midst of a travel binge, it is hard not to consider how much pricing has changed, at least with respect to the airline and hotel industries. With respect to the former, it is hard to take a flight nowadays and not notice how lower-cost carriers such as Spirit (in the U.S.) and EasyJet (in the U.K.) have managed to influence the pricing structure of the legacy domestic airlines. Want to stow a bag? Better be an elite passenger with airline status or get ready to pay for the privilege. Want to avoid a middle seat? Same requirements apply. The list of extra “privileges” that fliers are invited to pay extra for seems constrained only by the imagination of a particular airline’s revenue department.

Similarly, this “fee bundling” phenomenon has crept into the lodging industry as well, albeit in an as-yet less pronounced way as in the airline industry. For example, hotels are increasingly experimenting with fees for such services as in-room wifi, or resort charges to cover a guest’s use of towels by the pool. At the same time, in a bid to attract customers to make bookings directly with their own reservation websites (so that they don’t need to pay commissions to third-party sites), many of the larger chain hotels are offering to waive certain fees for such bookings. All in all, the general sense a traveler gets nowadays is that service providers such as airlines and hotels are constantly looking to generate additional incremental revenue, and there are no guarantees that what is included in today’s prices will not be unbundled and charged for separately in the future.

Travelers are spoiled for choice, of course, and have the freedom to elect whether or not to punish a particular airline or hotel for playing the fee-bundling game. There is also a certain segment of thrifty travelers that delights in the ability to secure rock-bottom prices for the basic elements of travel, such as air transportation from point A to point B, even if that means forgoing some of the (now optional) amenities that make today’s travel more bearable. It is a free market, and each customer can choose to give their business to the airline or hotel change that meets their needs, whether that comes at the expense of price transparency and security or not. It is hard not to see the parallels between this behavior and client choice of a law firm, especially when it comes to choosing a law firm based on price and experience for a particular engagement.

While fee bundling is an interesting topic, one of the more interesting elements to me is the fact that it is embraced most enthusiastically by providers at the lowest end of the market. Airlines like Spirit revel in their ability to uncover new fees to charge customers. In fact, Spirit makes a compelling case that this business practice enhances their ability to offer the very core of their service — safe, occasionally reliable, air transportation — at the cheapest possible price to the broadest possible audience. Legacy airlines, for their part, seem to have embraced the fee-bundling era a little more tentatively, especially at first. Once they realized, however, that they could charge for baggage without customer revolt, they seem to have become more emboldened lately, and have rolled out additional fees in a Spirit-lite model. At the same time, they do seem concerned enough to offer some tangible benefits, such as extra legroom, in exchange for reaching deeper into customer’s pockets.

In contrast, travel providers (including the legacy airlines) competing for high-paying elite travelers continue to show a reluctance to jump into the fee-bundling game. For example, at least one domestic airline I am aware of provides three different pricing options for economy travelers on their flights. Each tier comes with a different set of included benefits, and they collectively stand in stark contrast to the single offering available for business-class passengers. The message is a simple one. Pay business class fares, and the airline will include whatever it can for you at that price. Look for the cheapest fare, however, and the airline will try everything it can to upsell you on previously included features.

While there are many differences between an airline and law firm pricing, they do share a few things in common. For one, even sophisticated customers have a hard time determining why a particular seat on a plane costs a particular amount at any given time. Likewise, even sophisticated law firm clients have a hard time understanding exactly what is baked into a particular firm’s hourly rates, for example. Or just how much leeway a firm is building into a proposed flat-fee arrangement. In short, pricing transparency is not a hallmark of the vast majority of law firms. In contrast, and similar to the Spirits of the airline world, alternative legal providers such as LegalZoom seem to delight in charging low starter rates for the most basic services — tweaking law firms for their lack of price transparency all the way — while also offering a whole host of optional additional services at an increased price. So far, law firms do not seem to have much desire to compete with such practices.

Ultimately, whether or not we start to see forms of fee bundling in the law firm world is an open question. There is an argument that firms today are looking harder than ever for ways to extract maximum profit out of each of their service offerings. But a reluctance to introduce certain services as optional “upsells” to clients also predominates. Most law firms prefer to style and consider themselves as offering business-class-level services at a great value for clients. We all know, however, that the wherewithal of a client often determines the level of service they truly get. While firms will always do their best to avoid nickel and diming their best clients, perhaps we will start to see some experimentation with trying to solicit additional revenue from newer or less core clients via a form of fee bundling. Based on what is happening in the travel industry, this practice will likely start to increase at the lower ends of the market, and especially for commodity work, before moving upstream. I can guarantee one thing. No one wants to get stuck with the middle seat, or the legal equivalent — no matter how much they are paying.

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Please feel free to send comments or questions to me at gkroub@kskiplaw.com or via Twitter: @gkroub. Any topic suggestions or thoughts are most welcome.

Gaston Kroub lives in Brooklyn and is a founding partner of Kroub, Silbersher & Kolmykov PLLC, an intellectual property litigation boutique. The firm’s practice focuses on intellectual property litigation and related counseling, with a strong focus on patent matters. You can reach him at gkroub@kskiplaw.com or follow him on Twitter: @gkroub.

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