Porter's Five Forces Analysis of LegalShield (2015)

Today, more than 100 million Americans have enrolled in some type of pre-paid legal insurance plan that provides a range of benefits, including coverage for 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 sector. To determine how the company achieved this level of success and to examine the competitive environment in which it operates, this paper reviews the relevant literature to provide an overview of LegalShield using Porter's five forces framework, followed by a strategic recommendation based on the 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 website, "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 establish 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, LegalShield 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 must (a) 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 that 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 attorneys for virtually any type of legal issue, regardless of its apparent triviality, and this ability extends to major legal matters as well. The company's promotional literature notes 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 announced that it was changing its name to "LegalShield" and implementing a new marketing plan as part of an overall rebranding initiative intended to reflect how the company had responded to changes in its competitive environment and its acquisition by MidOcean Partners on June 30, 2011 (Carter, 2011). At that time, LegalShield representatives also reported that the rebranding initiative would include new corporate literature, training programs, and web-based outreach efforts (Carter, 2011). This initiative had been given careful consideration, given 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 model and legal network as the basis for this optimistic projection (Carter, 2011). The company additionally reported that it would focus on developing new market segments, including the expanding Hispanic community and small business services sectors (Carter, 2011).

The company offers three basic pre-paid legal services plans — personal, identity theft, and small business — summarized below.

Personal legal plans. These plans begin at $20 a month, and members' spouses are included at this price.

Identity theft plans. Benefits of this membership plan include credit report monitoring, personal credit score analysis, complete identity restoration service, and safeguard protection 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 options for small businesses, including monthly, semi-annual, and annual arrangements via bank draft, direct payment, or credit card (About us, 2015).

Taken together, it is clear that LegalShield has developed a business model responsive to changes in its competitive environment, but it has not been the sole entry in this sector. To determine the environment in which the company competes and how different forces shape its strategy, Porter's five forces are applied to LegalShield in the sections that follow.

In sharp contrast to tactics that shape the day-to-day operations of an enterprise, strategy is intended to identify how a company can move from where it is to where it wants to be. For this purpose, a Porter's five forces analysis can provide valuable insights concerning the factors companies must consider when shaping their strategy. According to Kermally (2003), Porter's five forces framework can provide practitioners with an improved analysis and understanding of competition in a particular industry. As Kermally notes, "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 they create is allocated (Porter, 2008). Created value can be siphoned away by rivalry among existing competitors as well as redistributed through the bargaining power of consumers or suppliers (Porter, 2008). In addition, created value can 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 competitive forces or, alternatively, as a means of identifying a niche in an industry where those forces are weaker (Porter, 2008).

Strategy development must also account for any changes in the relative strengths of the five forces in order to remain relevant and timely (Porter, 2008). 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 a competitive advantage over those that do not (Porter, 2008).

Power of Buyers

Today, legal services consumers have a wide array of choices available to them, ranging from sole practitioners and small law firms to full-service legal firms and online providers, 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). As Smith observes, "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" (2015, para. 2).

In addition, there has been increasing competition among the various actors in the law firm industry during the past five years, driven by a growing reluctance among businesses to contract for outside legal counsel (Morea, 2014) and by the ability of legal services consumers to perform many legal tasks for themselves (McKitterick, 2015). In this competitive environment, LegalShield's performance in recent years can be attributed to these shifts in buyer power as well as to changes in the power of suppliers, which is examined below.

Power of Suppliers

At the macro level, the sustained creation of value from legal services in the United States indicates that demand will continue in the foreseeable future, regardless of how that 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, with 2014 revenue projected to grow even faster at 2.7% (Morea, 2014).

Continued improvements in the national economy translate into increased corporate profit margins and corresponding increases in corporate activity, which generate additional demand for legal services in the near term (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).

Threat of Substitution

This force has been perhaps the most significant for many traditional practitioners because it has introduced entirely new ways of delivering legal services. In the not-too-distant past, traditional lawyers held something of a monopoly on legal services and there were no viable substitutes available. As Smith (2015) emphasizes, "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, beyond the variety of sizes and specialty practices available in law, the major threat of substitution today is the online legal services industry — the sector in which LegalShield competes — which experienced sustained growth during the period from 2011 to 2015 (McKitterick, 2015).