Best price is no excuse for mediocre experience

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The summer is upon us which means spare seats on trains, cold brew coffee and more ‘out of office’ responses than actual replies.

In preparation for this year’s annual migration to European sunspots, Irish airline Ryanair dramatically simplified the number of baggage payment options from 108 to just 6.

The initiative is part of the airline’s recovery plan, which began in 2013, prompted by declining profits and a reputation for dismal customer service. In a 2013 Which? Customer Service Survey of the 100 best and worst companies for customer service, Ryanair ranked precisely 100.

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Cost myopia

Ryanair built a business that has operated successfully for three decades thanks to a relentless focus on one principle alone; price.

It is not an uncommon approach for a post-industrial business. Cost leadership is one of Porter’s generic strategies and operational excellence is one of the three disciplines in Michael Treacy and Fred Wiersema’s bestseller The Discipline of Market Leaders.

Pricing can give rise to a mindset that equates customer service with savings — as if a great price is inherently a great experience.

Ryanair CEO, Michael O’Leary, appears to believe this. In a letter to Forbes contributor, Adrian Swinscoe, when challenged on the subject of caring for his customers O’Leary responded:

“I am the only airline Chief Executive that really cares about my customers, which is why I have spent 28 years driving down the cost of flying in Europe”.

Even at his road to Damascus moment, he described the about-turn on customer service to shareholders as trying “not to unnecessarily piss people off”.

The high price of friction

However, the point of cost leadership is that discounts come through operational efficiency and scale, rather than customer friction.

This is a tough act to pull off and few, outside of heavyweights such as Ikea and Walmart, have ever done this well. It is not easy to build up a reputation for great prices without skimping on service.

Some companies (banks, energy providers, mobile operators and airlines are at the top of the list) present artificially low price tags whilst concealing a series of hidden charges. However, digital offerings are making this an increasingly precarious position.

Online and mobile tools have created almost flawless transparency, making it easy for customers to compare and switch to another company with just a click or a swipe.

Digital experience

Moreover, we no longer expect to pay for convenience, personalization or a great experience.

Online fashion business, Thread, provides an individual stylist who makes personal recommendations based on your preferences, lifestyle and existing wardrobe without a designer store appointment or price tag.

Meanwhile, opening up the Uber app almost always results in a clean car and a helpful driver within minutes and at low costs. Similarly, Amazon is a customer experience leader and is rarely bested on price.

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Experience starts with empathy

This doesn’t mean that making your product available to the widest possible budget is not a successful strategy, but it should come from a sense of purpose, not market position.

US carrier, Southwest Airlines, is a low-cost operator that does just that. It’s not about ticket prices or manipulating headline rates. They have a purpose and it is all about their customers experience and not their wallets. They want to democratize the skies.

When put under pressure to introduce charges for bags, Southwest outright rejected the idea.

According to Roy Spence, an advisor to Southwest at that time, the leadership held their position because it made flying less accessible to their customers, not more.

It didn’t change the price but it did violate their purpose. Consultants warned that they were leaving $350 million on the table and that ‘everyone else was doing it’. Southwest held their position, shrewdly reminding their customers with well-timed advertising and took $1 billion in new revenue.

The right price is not about numbers

A relentless focus on price is inside out thinking. It serves only to lower a number on a ticket, windscreen or website.

It leads to a ‘what do they expect’ culture and, at the extremes, results in inexcusable decisions such as charging premium rates to call for customer service, a practice for which Ryanair was fined in 2015.

Today, cost-leadership is a customer experience proposition requiring businesses to:

  1. Put the customer experience first: In fact, it is an important source of cost-saving. Happy customers buy again, tell their friends and give businesses the benefit of the doubt when things go wrong. Serving satisfied customers is cheaper by as much as 20 percent according to a McKinsey customer experience survey.
  2. Price as part of the overall strategy: Meeting the needs of the customer must include their budget, but not to the exclusion of everything else. And, according to a CEI survey, almost 9 out of 10 customers prefer to pay a little more for a better experience.
  3. Regard friction as a hidden charge: Price cuts come through operational efficiency and innovation, not an erosion of the customer experience. If you are not easy to do business with they will move on and you can watch your new customer acquisition costs skyrocket.
  4. Value yourself: If your business can’t deliver a great experience without generating value for your company, your people and your partners then your prices are too low. If you can’t retain sufficient value for you and yours then you don’t have a business. At least not a sustainable one.

The old rules treat customers one dimensionally, thinking only of their wallet. Will we sacrifice frills for price? Sure. Will we sacrifice our time? Perhaps.

Will we overlook courtesy, fairness or complexity in an already complicated world? Not so much. Introduce friction into the customer experience and, at some point, customers will stop subjecting themselves to it.

After all, the real risk in a race to the bottom, is that you may win.

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