Wednesday, December 09, 2009

When it Pays to Nickel and Dime Your Customers

Maybe it's because my primary business is a commodity type business - I've generally believed in trying to price to clients in a way that accurately allocate costs they incur to our business. It's not as easy as it should be as I'm always still fighting to ensure our business is simple enough to understand. Fighting to charge for the cost of credit/working capital for instance is often an uphill battle.

It goes back to clearly understanding where and how you build and generate value for your clients and charging accordingly for those goods and services.

Michael O'Leary from Ryanair may be my new hero. He makes a fantastic point that nickel and diming isn't meant to generate revenues it's meant to change behavior (WSJ):

We now have to be more inventive in the way we lower costs, which is why we're looking at things that seem revolutionary to other people.

Like, paying for checked-in bags: It wasn't about getting revenue. It was about persuading people to change their travel behavior—to travel with carry-on luggage only. But that's enabled us to move to 100% Web check-in. So we now don't need check-in desks. We don't need check-in staff. Passengers love it because they'll never again get stuck in a Ryanair check-in queue. That helps us significantly lower airport and handling costs.

Now we're looking at charging for toilets on board—not because we want revenue from toilet fees. We'd happily give the money away to some incontinent charity. What it means is, if by charging for toilets on board, more people would use the toilets in the terminals before or after flights, I could take out maybe two of the three toilets on board, add six extra seats and reduce fares across the aircraft by another three or four percent.

So, there's always new ways of lowering costs, but you have to come at it with some imagination and some passion.

Remarkably, despite the mother of all recessions, Ryanair is "on course to keep growing and post strong profits again this year".

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