Legalshield Pre-paid Legal Services Essay

A Five Forces Analysis of LegalShield (formerly Pre-Paid Legal Services) and Recommendations for the Future

Today, more than 100 million Americans have enrolled in some type of pre-paid legal insurance plan that provides a range of benefits, including the entire array of issues that typically confront individuals, families and small businesses (Jackson, 2007). One company that was in the vanguard of offering pre-paid legal insurance is LegalShield, formerly named Pre-Paid Legal Services of Ada, Oklahoma (About us, 2015). Founded in 1969 by Harland Stonecipher, this company has grown to become an industry leader in the pre-paid legal insurance industry today. To determine how this company achieved this level of success and the competitive environment in which it competes, this paper reviews the relevant literature to provide an overview of LegalShield using Porter’s five forces framework, followed by a recommendation based on this analysis.

Following a motor vehicle collision that hospitalized him in 1969, Harland Stonecipher became acutely aware of the need for improved access to the legal system for ordinary individuals. According to LegalShield’s Web site, “After depleting his life savings defending himself against something he didn’t do, Stonecipher was determined to make legal protection accessible to everyone, everywhere, no matter how traumatic or trivial the situation, so that no one would ever be blindsided again” (About us, 2015, para. 2). Based on this mission, the founder went on to establishe Pre-Paid Legal Services, later renamed and rebranded LegalShield (hereinafter alternatively “the company”), in Ada, Oklahoma with the goal of creating a scalable business plan that could integrate technological innovations to deliver legal services in new ways (About us, 2015). 

Today, Legal Shield has more than 4 million members in 49 states and four Canadian provinces using its network of affiliated legal practitioners with a broad array of specialty areas as well as general legal expertise. In order to qualify as a LegalShield affiliate attorney, lawyers (a) must be in good standing with their state bar association, (b) have a service philosophy parallel to the high standards of LegalShield and (c) understand and appreciate the everyday legal needs members face (About us, 2015). The company has expanded its operations into a 170,000-square-foot corporate office on 80-acres with more than 650 employees at its headquarters in Ada, Oklahoma (About us, 2015). 

Notwithstanding this sustained growth in a rapidly changing competitive environment, the company’s leadership insists that its core vision remains the same today as it was in 1969:  “Our leaders have decades of experience and our goal remains the same – to create a world where everyone can access legal protection and everyone can afford it” (About us, 2015, para. 5). One of the main benefits of LegalShield’s membership arrangements is the ability of members to consult lawyers for virtually any type of legal issue irrespective of its seeming triviality, and this ability extends to major legal issues as well. In this regard, the company’s promotional literature points out that, “Because our attorneys are all paid in advance, they provide the same level of service for trivial or traumatic legal situations” (About us, 2015, para. 5). 

In late 2011, Pre-Paid Legal Services reported that it was changing its name to “LegalShield” and implementing a new marketing plan as part of an overall rebranding initiative that was intended to reflect the manner in which the company had responded to changes in its competitive environment and its acquisition of MidOcean Partners on June 30, 2011 (Carter, 2011). At that time, LegalShield representatives also reported that the rebranding initative would include new corporate literature, training and Web-based outreach programs (Carter, 2011). This rebranding initiative had been give careful consideration based on the company’s existing 40-year-old brand that enjoyed widespread recognition. 

Notwithstanding this long-term investment in brand equity, LegalShield’s chief executive officer, Rip Mason, emphasized that, “We believe this company has untapped potential for future growth and the [LegalShield] brand reflects the expanded vision we have for the company moving forward” (cited in Carter, 2011, p. 3). Company representatives also cited strong operational and administrative systems and the scalable operating system and legal network as the basis for this optimistic projection (Carter, 2011). The company also reported that it would be focusing on development new market segments, including the expanding Hispanic and small business services sectors (Carter, 2011).

The company offers three basic pre-paid legal services plans, personal, identify theft and small business and a summary of these plans is provided below:    

Personal legal plans. These plans begin at $20 a month and members’ spouses are included for this price. 
Identity theft plans. Some of the benefits of this membership plan include:

* Credit Report and Monitoring
* Personal Credit Score Analysis
* Complete Identity Restoration Service
* Safeguard for Minors

Small business plans. Small business owners can obtain advice on legal questions or issues concerning their business. The company also offers a wide range of payment plans for small businesses to encourage new members:

* Monthly bank draft
* Annual bank draft
* Semi-annual direct
* Annual direct
* Monthly credit card
* Semi-annual credit card
* Annual credit card (About us, 2015).

Taken together, it is clear that LegalShield has developed a business model that is responsive to changes in its competitive environment, but it has not been the sole entry in this sector nor is it the only “legal services ballgame in town.” To determine the environment in which the company competes and how different forces shape its strategy, Porter’s five forces are applied to LegalShield below.

In sharp contrast to tactics which shape the day-to-day operations of an enterprise, a strategy is intended to identify how a company can get from where it is to where it wants to be. For this purpose, a Porter’s five forces analysis can provide some valuable insights concerning what factors companies must consider in shaping their strategy. For instance, according to Kermally (2003), Porter's five forces framework can provide practitioners with an improved analysis and understanding of the competition in a particular industry. In this regard, Kermally reports that, “In order to construct a competitive strategy, an organization needs to know what is likely to happen in the markets in which the organization delivers its products and services. It also has to know who its competitors are in a particular industry structure” (2003, p. 58). 

While every enterprise is unique, all companies must make informed decisions concerning how the economic value it creates is allocated (Porter, 2008). Created value can be siphoned away by rivalry between existing competitors as well as exchanged through the power of consumers or suppliers (Porter, 2008). In addition, created value can also be limited by the threat of substitutes or new entrants into the marketplace (Porter, 2008). In this context, corporate strategy can be regarded as a means of developing protections against the competitive forces or, in the alternative, as a means of identifying a niche in an industry with weaker forces (Porter, 2008). 

In addition, strategy development must also take into account any changes in the relative strengths of the five forces in order to remain relevant and timely (Porter, 2008). In sum although fast-growing industries such as pre-paid legal insurance may not always be profitable due to uncontrollable forces, it is possible for companies to influence the key forces in ways that provide it with a competitive advantage over those companies that do not (Porter, 2008). The first of the five forces is the power of buyers which is discussed below.

Today, legal services consumers have a wide array of choices available to them, ranging from sole practitioners, small law firms, complete-services legal firms, and online providers that deliver legal services as well as “do-it-yourself” approaches (McKitterick, 2015). As a result, the increase in buyer power has fueled a number of the changes that have taken place in the legal industry in recent years (Smith, 2015). In this regard, Smith advises that, “Price sensitivity, discounting and alternative fee arrangements is the strongest evidence of the power of clients but it is accompanied by lower client loyalty and willingness to change firms, increased access to information about firm practices, and less dependency on ‘buying local’ for legal services” (para. 2). 

In addition, there has been increasing competition among these various actors in the law firm industry during the past 5 years due to growing reluctance of many businesses to contract for outside legal counsel (Morea, 2014) together with the ability of legal services consumers to perform many legal services for themselves (McKitterick, 2015). In this seeming cut-throat environment, LegalShield’s performance in recent years can be attributed to these changes in this force as well as the power of suppliers force which is discussed further below.

At the macro level, the sustained created value from legal services in the United States indicates that the demand will continue in the foreseeable future irrespective of how this value is apportioned among the various actors (Morea, 2014). For instance, during the period from 2010 to 2014, revenue for the legal services industry was projected to increase at an average annual rate of 1.5% to $282.7 billion, and 2014 revenue was projected to increase even faster at 2.7% (Morea, 2014). 

In addition, continued improvements in the national economy will translate into increased corporate profit margins and corresponding increases in corporate activity which will generate additional demand for legal services in the near future (Morea, 2014). At the micro level, Smith reports that, “The key supply for law firms is talent. The oversupply of talent in the market, along with increasing differentiation of the talent required (partner track associates vs. staff attorneys vs. paralegals) means that the dynamic has changed and law firms have more flexibility to adapt their staffing models than in the past” (2015, para. 4). The next force, threat of substitution, may not have even been on many law firms’ radar just a few years ago, but this has changed in substantive ways in recent years as discussed below.

This force has been perhaps the most salient for many traditional practitioners because it has introduced entirely new ways of delivering legal services. In the not-too-distant past, traditional lawyers were like the telephone company and there were no viable substitutes available. In this regard, Smith (2015) emphasizes that, “The prospect of substitutes was unheard of a few years ago but now we see competition coming from legal process outsourcers, technology, virtual firms, even non-lawyer licensed law practitioners. In some jurisdictions outside investment will create new models, and accounting firms are once again providing legal services” (para. 4). Consequently, besides the different sizes and specialty practices available in law practice, the major threat of substitution today is the online legal services industry in which LegalShield competes which experienced sustained growth during the period from 2011 to 2015 (McKitterick, 2015). 

During this 5-year period, the legal online services industry grew at an annualized rate of 10.1% as a result of a variety of factors that served to improve the accessibility of generic legal services for consumers and small businesses in the U.S. (McKitterick, 2015). In particular, innovations in technology have introduced new ways to access and pay for legal services conveniently (McKitterick, 2015). Current projections indicate that the online legal services industry will continue to experience significant growth in 2015, increasing 5.7% to $4.5 billion (McKitterick, 2015). 

The online legal services industry is comprised of two primary segments as follows:

1. Traditional law firms:  these employ qualified attorneys that primarily interact with clients using the internet or other electronic communications and legal document service providers; and,
2. Companies that have no lawyer-client relationship and supply documents that can be customized using interactive software (McKitterick, 2015, p. 5). 

With growing numbers of consumers and small businesses becoming expert with interactive websites, it is not surprising that the online legal services industry has experienced this level of sustained growth. Websites that provide legal document services allow consumers and small businesses to create generic legal documents such as wills, trusts, powers of attorney, and business incorporation documents (McKitterick, 2015). Unlike the business model used by LegalShield, though, this type of online legal service has been somewhat controversial because these enterprises are not legal professionals authorized to practice law. In response, in 2012, the American Bar Association’s eLawyering Task Force published a set of best practice guidelines that address these issues and these guidelines have served to legitimize the practice (McKitterick, 2015).

The respective barriers to entry in the law firm industry depend on the size and type of practice that is involved. For instance, participants in the law firms industry span the continuum from sole practitioners to mid-size firms to full-service legal firms that provide services primarily to corporate clients (Morea, 2014). Therefore, the barrier to entry for online legal document services is far lower than full-service legal firms. As Smith points out, “Barriers to entry are lower than in the past in all but the very top tier of legal work” (2015, para. 4). In some cases, full-service legal firms have expanded their operations globally, while others have identified niches wherein they have been able to gain market share based on price, type of specialty practice and other factors (Smith, 2015).