Blue Ocean Strategy in the Legal Marketplace Marya C. Noyes, 123LLLT, MBA
Greetings Readers. Hopefully this article finds you in good health. Apparently, we are in the middle of the apocalypse. While that may or may not be true, at some point our world will stumble back to its equilibrium and we will all be re-engaged in business as usual. When that time occurs and people are not actively attempting to sell single rolls of toilet paper on eBay for two dollars, business owners will once again be actively engaged in increasing their profit margins. If one thing is predictable in a semi-capitalistic system, it is the consistent drive of its participants to obtain more of the almighty dollar.
In my last article, we discussed the concept of deadweight loss and its possible contribution to the existing justice gap in our society. If you have suddenly developed subject matter amnesia on the topic, I don’t blame you. Economics can be a disturbing subject; one that is often prone to inspiring temporary blank spaces in a person’s unconscious.
To jog your memory, I provide the following definition. Deadweight loss is equal to the overall loss to both buyers and sellers in an inefficient marketplace. Due to some intervening market condition, supply and demand do not meet at the natural equilibrium price and quantity, creating an overall loss to society. As previously discussed, these intervening market conditions may have any number of causes such as; regulations, monopolistic pricing or simply just industry “sacred cows” in place so long they have become a source of pride for the market participants.
I suggested at the end of the previous article that there may be a possible solution to the deadweight loss market dilemma in the legal marketplace. Specifically, that there might be certain mechanisms that can assist in inciting an exponential leap in industry growth to capture previously untapped marketspace.
That is exactly the question that W. Chan Kim and Renee Mauborgne set out to answer in their book, Blue Ocean Strategy published by the Harvard Business Review Press. In this book, Kim and Mauborgne review hundreds of companies spanning over 100 years in 30 different industries. In their study they determined that over time there were no perpetually successful companies or consistently successful industries. In fact, long-lasting success in an industry did not come from battling competitors at all. The authors discovered that long lasting success was the result of something they described as the “strategic move” which created blue oceans of untapped market space. Now, I apologize. That last sentence is sort of the spoiler of the whole book. Unfortunately, I am limited by the space allotted to me in this article and brevity is the soul of wit, so I am attempting to be brief in making my point.
In the book, Kim and Mauborgne use the concept of a red ocean as a metaphor for a competitive marketplace. In a mature marketplace, any client obtained by one business comes directly from the business of the competition. In this marketspace, supply frequently exceeds the demand of the product or service which leads to increased commoditization and reduced profit margins. The ocean turns red because of the type of bleeding that this sort of competition inherently implies. As morbid as the author’s symbolism seems to be, you must admit that does create quite a compelling picture in the mind of the reader.
On the other hand, a blue ocean describes any untapped marketspace. In a blue ocean, the competition is irrelevant because it does not exist. Blue oceans symbolize all the industries not yet in existence today. While we might be tempted to allocate the creation of blue oceans simply to technological advancement, it is important to note that Kim and Mauborgne found that blue oceans have been created across a vast array of different industries.
Apple clearly created a blue ocean with their introduction of the iPod. This innovation brought the ability for clients to conveniently purchase single songs digitally for 99 cents in a marketplace that was previously dominated by a sales model requiring the end user to purchase an entire CD for $19. While this blue ocean was created by technological innovation, other industries have created blue oceans by simply reconstructing their marketspace.
For example, Cirque de Soleil created a blue ocean in the circus industry. The company’s removal of animals and focus on artistry provided an entirely different circus experience for customers in an industry that had been around for hundreds of years. In doing so, in twenty years the company eclipsed the level of revenue it took Barnum & Bailey’s Ringling Circus over 100 years to obtain.
Of course, novelty by itself does not necessarily equate to a blue ocean strategy. As we know, all innovation is not necessarily useful or profitable. Just ask the makers of the Sony Minidisc Player, or the movie, Gemini Man. (Really, Will Smith? Really?) Kim and Mauborgne discovered that for a blue ocean strategy to be successful, it was necessary for the innovation to create value for its users. Specifically, that the product or service must create greater utility for the end consumer at a more accessible price, or at a price wherein the end consumer experienced more of their desired outcome. In doing so, the company was able to reach beyond the red ocean of its current competitive marketplace into an entirely new marketspace beyond their existing demand curve.
I submit this theory of blue ocean strategy in this discussion of the legal marketplace for the sole purpose of addressing the issue of the justice gap. While the existing disparity between those who can afford legal services and those who are forced to represent themselves may or may not be a sad statement on our priorities in society; viewed through a business lens this lack of representation presents an extraordinary business opportunity for those who might create a blue ocean strategy to take advantage of this previously untapped marketspace.
If a company were to develop a way to create value in the area of legal services at a more accessible price, then Kim and Mauborgne would suggest that they may be working in previously untouched marketspace. Next article, we return to the wonderful world of economics. (Yay!) We will be discussing the economic theory, “Tragedy of the Commons” and why (I’m sorry Ms. Jackson) efforts of unorganized individuals will never ever (never ever) resolve the justice gap. If I have room, I may even expound on Adam Smith’s invisible hand.
The Face of a Legal Technician - Deadweight Loss - Snohomish County Bar Association - March 2020
THE FACE OF A LEGAL TECHNICIAN By: Jeanne M. Barrans, WSBA 114LLLT My friend and fellow Legal Technician, Marya Noyes, has graciously offered to assist me with a series of articles related to the benefits of Legal Technicians and their role in helping to bridge a gap in the legal system. This is her second installment. (She’s not only my friend, but she’s pretty smart too!).
Deadweight Loss Marya C. Noyes, WSBA 123LLLT, MBA
Greetings, readers. In last month’s article, I promised a follow-up on the economic concept of Deadweight Loss and its relation to the legal marketplace. Unfortunately for you, I remembered my previous commitment and submit the following explanation for your reading pleasure.
Simply defined, “Deadweight Loss” is the measurement of the cost to society of a market working inefficiently. This market inefficiency can be created by any number of limiting factors, such as monopoly pricing or an artificial pricing floor. Regardless of the source of the inefficiency, society incurs a cost for this inefficient allocation of resources equivalent to the “Deadweight Loss.”
While that explanation of this term and its relation to the legal marketplace may seem random at best, I promise, I have a point. First, I must detour through the definition of an efficient market. Please understand, those of you not familiar with economics, there is quite a lot discussion around what makes a market efficient. Possibly at some point, I might even write a follow up article on this controversy and the general misappropriation of Adam Smith’s “invisible hand.” Lucky for you, at present, I don’t have the room and will spare you my dissertation on the subject. What I am referring to in this description is the basic definition of the Supply and Demand Model most of us were taught in Econ 101.
The Supply and Demand model represents the relationship between the amount of a product sellers wish to produce at various prices (Supply Curve), and the quantity of that good that consumers wish to buy (Demand Curve). The point in which these two curves meet is referred to as the equilibrium price for that product. In equilibrium, the quantity of a good supplied by producers equals the amount of the demand for that good by consumers at the equilibrium price. At times, various and sundry forces interfere with the market reaching the equilibrium price of a product.
These forces might take the form of taxation, regulations or monopolization. For example, in a monopolist marketplace, one seller controls the entire supply of a product. In this scenario, the monopolist sets the price of the product to maximize their own profitability. Typically, the monopolist reduces supply on the marketplace in order to increase the price of the good. Often, the monopolist price is typically higher than the equilibrium price set in a market with many sellers.
The higher price and lower supply of the product results in unmet consumer demand. The monopolist abandons those consumers willing to buy the product at the lower equilibrium price and denies participation to those sellers willing to produce the product at a lower price. The result of this market inefficiency shrinks the entire market for the product. The measurement of the total loss to both potential buyers and sellers is equivalent to the market’s deadweight loss.
The overall loss to society created by monopolistic pricing is one of the reasons we have anti-trust laws. Further, deadweight loss is generally understood to be bad for society. Now clearly, that is not always the case. We need things like regulations in order to protect the public against producers willing to produce substandard products at low prices. For example, a low cost, unlicensed doctor might be willing to perform your Lasik eye surgery for less, but would it be in the public’s best interest to allow them to provide it? I’m not a doctor, but I would say, no.
In the legal system, the “Justice Gap,” represents the substantive divide between those in need of legal services and the percentage of the population able to afford them. I posit that a large portion of those individuals currently unable to afford legal services are a measurement of deadweight loss of the legal marketplace. Yes - that means I am stating that there are consumers willing to purchase legal services at the less than going rate. If the economic model is reflective of the marketplace for legal services, it means that these consumers are in addition to the consumers already purchasing legal services at the current rate. This, of course, means that the legal marketplace is actually much larger that the limited portion of the population currently being served.
If I have bored you to tears, I apologize. It is difficult to make economics sound riveting. I truly commend your perseverance for reading this article in its entirety. Next article, I will propose a solution to accessing this unmet consumer demand in the legal marketplace by reviewing Kim and Mauborgne’s, “Blue Ocean Strategy.” *I did not cite any sources in this article because frankly, the economic models presented are so basic, they can be found in any economic textbook. Providing citations would be analogous to providing a citation for basic arithmetic. For further information, you can simply Google the terms: Deadweight Loss, Supply and Demand, Equilibrium price, etc.