Learning From JetBlue to Stay Out of the Red

Quick! Let’s play “Name That Industry.” I’ll reel off some industry characteristics and challenges, and you tell me the industry I’m talking about. Ready? Begin!

What industry…

  • Enjoyed an explosion of start-ups?
  • Has suffered an extremely high failure rate among those start-ups?
  • Has seen increasing consolidation among even the big players, which are constantly struggling for dominance?
  • Has seen intense pricing competition, especially as consumers became more technologically savvy and as Internet usage increased?
  • Has suffered from intense customer dissatisfaction based on service and on-time issues?
  • Is often plagued by public relations disasters as once high-flying big players fall to earth?

Hmm… sounds familiar, doesn’t it? Can you say “e-commerce”?

Sure you can. And you’d be kind of right. But the real answer is “the airline industry.”

That’s right, airlines. After deregulation, the airline industry saw an incredible boom in start-ups followed by a huge number of painful failures. Hundreds of millions (if not billions) of dollars were lost as grand plans fell apart, ground under the pressures of commodification and competition from established industry players. And as the industry continues to struggle, anyone who would wade into this mess to start up yet another company would be nuts, right?

JetBlue doesn’t think so.

Started by David Neeleman, a 41-year-old airline serial entrepreneur (he sold Morris Air to Southwest in 1993 for $130 million), JetBlue has taken the airline industry by storm. Combining Southwest-like fun with killer service, a nearly unbeatable on-time record, leather seats, all-new Airbus planes, TVs at every seat, and low discount fares, JetBlue is finding success in an industry where many are struggling. While most airlines fill an average of 68 percent of their seats, JetBlue fills an average of 80 percent.

It’s been profitable since its second year, an accomplishment helped by the fact that it keeps expenses low, with 40 percent of bookings online and reservation agents who work from home. And rather than try to go toe to toe with the big players at major airports, JetBlue has been concentrating its efforts on flying to secondary airports (e.g., Fort Lauderdale, FL, and Oakland and Long Beach, CA) near larger cities.

When JetBlue moves into new territory, it jumpstarts its marketing efforts with big ad blitzes and then lets word of mouth take over. When first-time customers calling reservation lines were asked where they heard of JetBlue, over 70 percent said they’d heard of the airline from a friend. JetBlue bucks the trends and is winning. Big.

Those of us in the online world can learn a lot from JetBlue.

As the Web matures and goes through its growing pains, we’re all suffering many of the same problems that the airline industry’s been going through. First and foremost is commodification. With an infinite number of choices and the ability to easily surf from one site to another, the Web has an amazing ability to turn any offering into a commodity, with one choice looking pretty much the same as any other. Pricing strategies from online retailers haven’t helped much, either; discount rates to attract new customers merely turn consumers into rate shoppers who hop from one site to another in search of the next tasty carrot dangling from the ends of our collective sticks. With the traditional retail barriers of time and location removed, one site starts to look a heck of a lot like any other — just like airlines.

With the airlines, incentives such as frequent flyer miles and discount rates help, but consumers still continue to be price conscious above all else. Brand matters to a point, but the lowest fare still sells. In a price-driven market, the leaders can maintain their position because their size allows them to undercut upstarts that try to undercut their price.

JetBlue’s secret to success is the same one that those of us in the beleaguered online space need to learn: Price matters, but it’s the service that keeps people coming back. JetBlue knows this; it knows that any of the big carriers will likely be able to meet (or even beat) their prices if they want to. What the big guys won’t be able to do is match their level of service and comfort.

Nimble start-ups such as JetBlue can make their mark by using their newness as an advantage. They can concentrate on service, make quick adjustments, and differentiate themselves by bucking the trends. They can be different by being smart and quick and doing things in new ways — and faster than the old established players can match, shackled as they are with large bureaucracies, unions, rules, aging infrastructure, and fossilized management.

In today’s economy, we need to resist commodification through superior customer experiences, top-notch service, and attention to what customers want — meeting those needs in ways that competitors can’t match. Obviously, watching the bottom line is vital, too, but innovation counts there, also. As consumers increasingly have access to more and more information, and as the marketplace continues to become dominated by a few big players (something that’s happening online as well as offline), survival for the smaller players will mean carving out a niche that takes advantage of each company’s unique attributes.

If you’re an e-business that wants to make it over the current hump, you’re going to have to think like JetBlue, concentrating on fulfilling a need, inventing innovative new ways to cut costs, and, above all, focusing on the customer. In the end, it’s people who buy things — in the air and online.

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