Porter's 5 Forces model is one of the most important tools for assessing the position of a company in a given market. Porter starts from five forces that influence one's own company. This model was first described in 2008 by Michael E. Porter in an essay. In the meantime, it has become the basis of professional competitive analysis (industry structure analysis) (Porter, 2008).
For the legal services market, as well as for all other industries, the model provides a clear process for assessing the competitive threat situation. According to Porter, the five relevant forces influencing one's own company are examined in detail (Porter, 2014).
Suppliers
The bargaining power of suppliers has an immense influence on the position of entrepreneurs. If suppliers use this power, they can either demand a higher price for their services or offer lower quality at the same price. Law firms purchase services primarily in the areas of human resources and marketing. Here, therefore, the bargaining power of potential employees as well as, for example, external sellers of so-called "leads" must be mentioned. This often refers to Internet-based information portals on specific topics that collect the addresses of people seeking legal advice and sell them to law firms.
Potential new competition
Regardless of whether law firms are very broadly positioned, active in a regionally limited market, or operate very pointedly in a special niche topic, new competitors can quickly become a serious threat. Since the activity of a law firm always consists in the application of the applicable law, the barriers to market entry for new competing law firms in one's own subject area or regional environment are to be assessed as correspondingly low, which thus increases the threat posed by competition.
Competition in the industry
Due to the extensive availability of online-based research options, it is now easy for competitors to find out which subject areas and legal products are particularly successful. The knowledge required for market cultivation can be acquired to a large extent within a suitable course of study. Lack of specialization in new subject areas is easily accomplished by merely investing time, but not money. For this reason, it is doubtful that there is a unique position in the legal services market (Bundesrechtsanwaltskammer, 2019).
Customers or clients
The acquisition of clients has been simplified by the availability of the Internet in the form of information retrieval. The fees attainable by law firms are regulated in Germany by the Lawyers' Fees Act (RVG). This may not be undercut by individual agreements. Nevertheless, individual fee agreements are possible in the out-of-court area. Accordingly, it is possible for lawyers to exceed the statutory fees, provided they can enforce them on the market, but a price war is not possible. The power of the customers or clients thus consists in the free choice of the legal service provider at generally the same prices, or in the rejection of individual, higher-priced remuneration models. For the sake of completeness, it should be pointed out here that hourly rates are frequently agreed in the area of legal services for so-called B2B clients, i.e. companies. (BRAK-Germany, 2019).
Substitute products
As is well known, there are now numerous service companies offering legal-related services, especially for end consumers. These are usually characterized by a high degree of technical innovation and enormous marketing resources and are thus law firms in the provision of highly standardized services. One example is the portal "flightright.de", which has set itself the task of claiming compensation from airlines on behalf of end consumers for flights that are delayed or not operated. The danger posed by substitute products, especially in the mass legal markets, is enormous and is already likely to cause lucrative subject areas to disappear.
Figure: Porter's 5 Forces (Frohwein, 2005)