When you sell on price, your customers buy on price. Once you start down this nasty road it is hard to get off it. The airline industry has put themselves in a monstrous hole because of it. Now, without increasing fares, which they can’t bring themselves to do because they have taught us to be price sensitive to fares, they gouge customers with “optional” costs. Where does it end? It may end in the toilet as any stupid price based strategy does with Ireland’s RyanAir announcing a pee-premium on its shorter flights.
What happens when you lower your price?
1. It makes it very difficult to offer good service. People start to look at price as the differentiator and expect your prices to be among the lowest. There is little room in these diminished margins to pay for good service.
2. People accept poor service because they bought on what was offered–low price. Hence, what had the potential to be a differentiator–good service–now is not valued and not affordable.
3. It is impossible to continue down the low price threshold. Eventually, some aspects of service are required to support the product. However, no one values it because it is so poor, that you now need to treat service as extras and have people pay for these extras.
4. Unfortunately, these services are not that good so most people resent and avoid paying for them. Hence, you cause more commotion with the charges for these services than you receive in the minimal revenue they generate.
5. Eventually everything will become an extra and there is no real service, no real value and still no real profits. All because you originally decided that you had to lower your prices to be competitive.
If you had taken the time to understand what people would value and pay for in the beginning and made sure those services were worth paying for, this whole silly price, service, extras fee structure would have been avoidable. Frankly, it is still avoidable. Unfortunately they aren’t asking me, because then they would have to admit they made a huge mistake years ago. Too bad, we could have pleasant travel and profits and everyone would win. Time to find some change to use the restroom.
Dave Cooke has recently launched his program the Sustainable Revenue Formula™ (SuRF), which provides businesses a comprehensive formula for effective and sustainable revenue growth. If you are interested in obtaining a copy of the white paper, “Revolutionizing the Future for Today’s Business”, please contact me: dave@salescooke.com.