photo credit: Luz Adriana Villa A.

A question came in earlier this month… “How do I compete with businesses that can offer similar products/services at a lower cost?”

The question is “Why are you depending on price to close your sales?”

It’s important to examine because *so many* people focus on it. In a weak economy, it’s natural for price pressures to be everywhere. Did you choose to compete on price, or did it sneak up on you?

If price is your edge, it should be an intentional, strategic choice. All else being equal, price will be the natural decision maker since buyer won’t have to sacrifice based on price.

The trouble is, all else is seldom equal.

Wiggling

In product sales, a competitor’s prices are usually lower because they sell more and can get better pricing from their suppliers. If supply costs are the issue, that’s something you can fix as your sales volume increases.

Until you get there, find some wiggle room. You may find that it makes price less important or even takes it off the table.

Wiggle?

There’s almost always some wiggle room in a price-sensitive situation for the underdog who is hungry enough to do more (ie: provide more value) than the “low price leader”. Remember, they’re the one totally focused on price and their entire business is built around it (think “WalMart”). Want to compete with WallyWorld on price? Only if you’re crazy.

Is price *really* the only way you compete with your competition? Not in my experience.

Whether you sell products or services, there are certainly those who shop solely on price, but there are always others who want more and don’t mind paying a little more for it.

Are there no other ways that you can add value to these products and services? Have you asked your customers?

Take some time to listen to your customers. I’m confident that if you listen, you’ll find a way to take the focus off price and put it on things that will matter a week or a month from now, when price is far less important.

Let’s talk about an example, something price sensitive and seemingly generic…like carpet cleaning.

Being seldom equal

I could call a dozen carpet cleaners who will do two bedrooms and a hall for $79 (or whatever). Maybe one or two of them would do a good enough job to earn a call back, even though I suspect all of them would do a good job when it came to cleaning the carpet.

Maybe your carpet cleaning skills are only 2% better than everyone else’s, or maybe they’re a little worse (yes, you need to work on that). It matters, but it isn’t necessarily what people highly value when they get this work done.

Your job is to be their carpet cleaner. The name that comes to mind when someone mentions a dirty carpet or that they need to get theirs done.

Not because you’re the one who happened to do it yesterday, but because you’re the only one they’d dream of calling after the way you handled it last time (and the time before, and the time before). You’re the one they talk about at church, in the aisle at the grocery store, at lunch the next day, on the golf course.

Your name comes up at all of those places because you did things no one else ever has and you did things in a way that no one else ever has. The next morning, they’re still reeling from the experience.

An experience? It can be. They may live in a tiny bungalow or a 12,000 square foot mansion. Either way, you can design and deliver a consistent end-to-end experience that they just can’t forget and can’t stop telling their friends about. Ask “What else can we do?”

Rethink your pricing

Despite improving what you deliver, it’s still worth putting thought into your pricing.

Companies often price their goods based on cost, the needs of their sales people, their catalog or their e-commerce store rather than in a way that attracts customers.

Your wholesale costs can’t be ignored, but you can restructure your pricing in conjunction with increased value and change the rules of the game.

photo credit: kekremsi

Recently, the New York Times published a story about changing prices for books in print and how those prices compare to prices for electronic books.

In particular, the story focused on comparison pricing occurring at Amazon.com for books published both in paperback and for the Kindle, a very popular eBook reader manufactured and sold by Amazon.

The story teaches a very valuable lesson. It starts by quoting customers who automatically assume a lower manufacturing cost for an electronic book, since the incremental cost of producing extra copies appears to be (or close to) zero.

Customers, unaccustomed to seeing a digital edition more expensive than the hardcover, howled at the price discrepancy, and promptly voiced their outrage with negative comments and one-star reviews on Amazon. “Really, James Patterson?” wrote one reader from Elgin, Ill. “Why would it possibly cost more for a digital download than printed and bound ink on paper?”

Nowhere

Nowhere does anyone say anything about the fact that the reader gets the same VALUE from both books.

Nowhere does anyone say anything about the fact that the reader can read the Kindle version on their PC, Jerry’s iPad, Dad’s Blackberry, Joe’s iPhone, Sandy’s iPod Touch or their brother’s Mac.

Nowhere does it talk about the ability to share comments/annotations, read a page on one device and find it in that same place when they start reading the next time on a totally different device.

For that matter, nowhere does anyone note that the value of the book has nothing to do with the cost of ink, paper, binding or electrons.

Neither should the author of a book, regardless of the means used to deliver it.

Oh the cost of it all

Yes, I realize that the printed book seems like it ought to cost more.

After all, someone had to put it in a box, put it on a truck and deliver it to the local bookstore. There’s the cost of the driver, the truck, the fuel, the paper, the ink, the brick and mortar that built the store and so on.

The difference to most is that people typically don’t see the costs invested to deliver the electronic form, all they see is that 1 copy costs no more than 2 copies because it’s just another download.

When people howl about the price of an electronic book, no one considers the amount (much less the cost) of research and development necessary to design the Kindle device and have it manufactured and shipped to the U.S.

They don’t marvel at the costs of the servers and software to support the book’s transport to a wide range of devices and software viewers.

They don’t consider the boardroom and engineering efforts to work out deals with cellular carriers so that the device can download newly purchased books and sync anywhere in the world without so much as a login.

But none of that matters. It’s great evidence. Great talking points.

But it doesn’t matter one bit.

What matters

The value of the content inside the book is what matters.

What if you opened that book and in two hours of reading learned something that changed your life, changed your business or cured a problem you’ve had for years?

Is the allegedly zero incremental cost of that electronic book in any way relative to the value you received from it? No way.

Are professional baseball bats priced like a 2×4? Are a PGA champion’s golf clubs priced like stainless steel and graphite you might find in an auto parts store? Of course not.

So why is it so easy to assume that a printed book is worth more than an electronic version?

Because no one put any effort into convincing you that the electrons (or the paper and ink) don’t even begin to set the value.

98 cents

Your body is worth about 98 cents in “ingredients”.

Going by that measure, Winston Churchill and Einstein are each the equivalent in value of mass murderer Charles Manson.

I don’t think so.

Never let your products/services get to the point where the value you deliver is calculated primarily by the container it’s delivered in and/or the material it’s made of.

photo credit: ToastyKen

The oft-referenced-here Cialdini work “Influence” speaks in volume via today’s guest post from Rob’s IM Reports.

While the guest post’s video is intended to be funny, it does a nice job of illustrating a situation most of us have faced at one time or another.

You might also have created some of them. Did they make you squirm?

Preventing squirm

How you communicate value (and thus price) – and do so ethically, without royally ticking off your customer – is HUGE to maintaining your price structure.

Maintaining that is critical to creating the profits you need to stay open, grow and if necessary, hire.

We’ll talk more about that next week as we jump into the Amazon e-book pricing mess.

photo credit: BruceTurner

Despite Chris’ assertion that information wants to be free, some of it just isn’t. Sorry.

In fact, some information is worth far more than the paper it is printed on (or the pixels it lights up).

For example, imagine that your company publishes technical articles. Short, sweet, fine-tuned to a specific purpose for a very specific audience.

The trick is making money from them, so maybe you’ve found that the best way to do that for your company (vs all other models) is to charge for access to your publication.

The Wall Street Journal does this. So does Investor’s Business Daily, as do a number of publications (online or print) in technical fields like auto mechanics, programming and FOREX trading.

Prove it

One of the biggest challenges these firms have is proving their publication’s worth at renewal time.

When renewal time comes up, or the charge appears on the credit card bill, the customer thought process goes something like this:

Come on, why should I pay $300 a year for a technical investing article resource when I can find everything Google has indexed for free?

The answer these businesses might commonly respond with include some of these:

• Because it’s well-indexed so you can quickly find the exact trading info you need.
• Because it has a search engine that understands investing terminology so you can quickly find exactly what you need
• Because our publication is fine-tuned to the audience’s investing style (or whatever). It’s as if it was written solely for day traders with between $4200 and $6500 to trade per day.
• Because it includes proven step-by-step guides for trading without losing my shorts (pun intended).

All of that is warm, fuzzy but not so exciting.

#3 and #4 aren’t bad but #1 and #2 are Google’s domain. They get better at it every day and paying you for it is going to get less and less likely unless you are much, much better at it in your specialty area.

I got your proof right here

Bottom line, almost all of that is pretty subjective. Bean counters (and spouses?) want hard numbers: “Why do you need this?”

Why not let them tell you?

If your article instructs them and provides them with a skill or offers a way to discover a new technique, make sure your feedback mechanisms (on the site or whatever) allow a way to say “Dude, this article saved me 2 or 3 days of struggling with this task”.

And yeah, it’s a lot like a Digg or a reTweet, but it’s more accurate than that.

The mechanism that works for you might need to be a number they can type in, or it might be a radio button with selections like “Waste of my time”, “Saved me maybe an hour”, “HUGE, DUDE. This got me back on track after a week”.

Whatever it is, it provides them with a way to tell you how much time, money, etc your information, your service, your product, your help saved them.

Think about where you could go with that info, even if it is largely anecdotal and not scientifically defensible.

If you have 100 clients and they (on average) provide feedback via a mechanism like this that says you save them 112 hours per year, seems to me that your prospects might want to know that information.

It also seems like it would be a great way to totally defuse the “your price is too high” argument (and maybe a number of others).

It might tell you how outrageous you can make your money-back guarantee. If it’s 30 days but it should be a year or 5 years, these numbers will give you some insight into it.

Who knows, you might even find out that your pricing and your value proposition are in vastly different places.

photo credit: striatic

Adelaide, a Charlotte ticket agent with Delta Airlines, had undoubtedly heard similar passenger comments hundreds if not thousands of times.

“$15 a bag and $40 for two? What’s with that?”

She handled it well, including laughing at the ( joking) speculation by other passengers that all the luggage fees go to her personally. Still, it was clear that she was handling it off the cuff.

But was she trained by Delta to discuss it in a way that would defuse the passenger’s annoyance and/or anger?

Did her employer offer training for handling the situation so that she would not to simply repeat the corporate mantra (whatever that might be), but actually engage in a meaningful conversation with her customer as they check in and deal with their bags?

It wasn’t clear that Delta had trained their staff – including Adelaide – to deal with that question and do so disarmingly.

Obviously, it’s an unpleasant position to place your public-facing staff, so why not arm them with the perfect response that disarms most clients?

Why not prepare them to handle the situation in a way that doesn’t leave everyone with a bad taste in their mouth?

Sometimes, even the things you don’t sell need to be sold.

photo credit: Rob Shenk

Think hard about using market price to arrive at pricing for your products and services.

Wikipedia has their thoughts about it, but quality, reputation, delivery ability and related issues aren’t really part of their discussion.

I’d simplify that to define market price as “The price that a typical salesperson can get for an average product.”

Is that what you offer to your clientele?

photo credit: _sarchi

So you’re probably sick of me talking about the fact that basing the success of your business solely on the ability to beat everyone else’s price is a mistake.

Some would hold out Wal-Mart as an example that I’m dead wrong. Rhetorical question for those people: How many businesses *other than WalMart* run that way and are successful with that business model?

You may not realize that I’m talking about small businesses, not large, multi-national global corporations large enough that if they were a country, it has been said that it would be the 4th largest country/economy on the planet.

Yet today isn’t about beating up on those guys, so let’s move on.

Instead, here’s a little twist: Let’s talk about how depending on price ends up hurting your service, which ends up revolving back and hurting your price because you can’t seem to find enough margin to flush the toilet.

Airline, Castrate Thyself

Most airlines keep looking at it backwards. Rather than adding value, they are castrating themselves in an attempt to trim another time from their cost per passenger-mile (CPM).

Why? Because they’ve created a “permanent” price war by virtue of the way they position their service. They’ve left themselves with no choice other than to constantly be on the lookout for places to cut costs.

• Like cutting services, making it less and less pleasant to travel – actually getting to the point where it has become *unpleasant* to fly, not just occasionally annoying.
• Like alienating their most dedicated customers by gutting frequent flier programs.
• Like getting rid of their most experienced, most skilled personnel in favor of employees who don’t have to be paid as well.
• Like cutting back on things are fundamental as maintenance on airliners.

Don’t get me wrong, there is a time and place for cost cutting and being careful with your expenses, but there are right and wrong ways to do so.

The problem with that is that someday, you’ve trimmed to the point where the only thing you can trim is the baseline service: which they can’t do. It’s not like you can charge someone to fly from New York City to Los Angeles and then drop them off in Vegas:)

Not so extra extras

So what happens next? You charge for trivial things that people take for granted.

Like buying a ticket on your airline.

Or going to the bathroom at 35,000 feet.

While the bathroom comment was said to “maybe” be tongue-in-cheek, Ryanair later confirmed that they have been in discussion with Boeing about making it a reality.

Wonder if they’ll charge extra for additional flushes? Wonder if people will flush 2 or 3 times as a protest against the fee? People will find ways of silently paying Ryanair back for their transgressions – I don’t think I have to elaborate<g>

Maybe they think those extra fees won’t be considered as part of their price, allowing them to be the low price leader.

I don’t know what they’re thinking, much less if they are.

Alternatives?

My analytical side says they know how many times the toilet gets flushed per flight, on average – if not per route. Given that they know the cost, they can easily add .25 per passenger per ticket (or .07, whatever it might be) to cover those expenses.

Meanwhile I have to wonder why that isn’t already built into their overhead.

Imagine a future airline ticket receipt that looks like this:

As for charging you a fee to sell you an electronic ticket, I’m hard pressed to find a defense for that, much less an alternative.

What I can say is that even today, with travel spending curtailed by so many businesses, it would be a great time to be competing with businesses who make misguided decisions like these.

I don’t know their management. I have little doubt that they are smart people or they wouldn’t have gotten to where they are.

But this? Somewhere along the line, they’ve been derailed and seemingly forgotten what business they’re really in.

Meanwhile, there’s Branson

If a different entrepreneur ran these airlines, what would they do differently? What would they do to compete? One alternative is Richard Branson’s way, but there are others.

Your turn. If a different entrepreneur ran your business, what would they do differently?

And why exactly can’t you do those same things – even it’s only a few of them? Start with one.

The photo? You’ve probably figured out by now that the photos in my posts have some meaning. Sometimes they’re a message to a specific person who reads the blog. Sometimes it’s a puzzle for everyone who reads Business is Personal. Sometimes, they’re just another form of sarcasm<g>

Today is different.

I want to recognize a strong photo that I found on Flickr. It’s the last photo that someone took of their dad before he passed away. Such a strong image, I thought I should share it.

Thanks to HR wizzo Tom for passing along the airline stories.

It’s hard to imagine why big national retailers continue to play the fools game, thinking that by discounting their prices 40-50% or more they’ll increase their profit.

Perhaps they think they’ll make it up on volume.

When you cut prices, the first thing that you give up is a piece (or all) of your profit.

Retailers who spent the weekend falling all over themselves catering to an upscale clientele don’t have this problem, especially if they’ve cultivated and groomed the relationship with that clientele all year long.

They didn’t have to go to the home of an employee and explain how a young employee was trampled to death, simply by having the misfortune of being the guy who unlocked the front door to his employer’s store.

When price is the only way you have to differentiate yourself from your competition, you deserve any pain you feel on your financial statement at the end of the quarter.

Is that the only competitive edge that you can find? If so, you aren’t looking hard enough.

Is there a Wal-Mart in Pamplona?

Another “competitive edge” – one that contributed directly to last weekend’s trampling death and injuries at a Long Island WalMart – is the special sale that starts at 0-dark-thirty in the morning and offers limited items at the special pricing. 2010 update about stampede.

Our store is better because we can get our people to the store before yours. Woooo, impressive.

If your competitors’ move their start time to an hour before yours, when does it end? Do you start a Cold War over who can open their doors first? In an ultra-competitive environment, is that really how you want your clientele to choose who their vendor is?

Do you really have to stir up a frenzy over one (or 10, whatever) $299 plasma screen TV to get people into your store? Is that the only edge you have?

Don’t get me wrong. I’ve told you to read Cialdini and will again. We’ve discussed scarcity and will again. However, we’ve also discussed common sense. Hopefully, we don’t have to discuss making sure your staff and clients leave the store alive.

Is it really worth having 300-400 people stampede over your staff and each other as if their survival depends on it? This isn’t the first time it has happened. Human behavior is not a surprise in these circumstances.

Yeah, sure. You can blame a small percentage of morons for this ridiculous behavior, but it isn’t just the customers in that store who were in the wrong. But… big retail, in their typical lazy way – they continue to confuse the customer with the sale as the most valuable part of their business.

All this focus on creating temporary insanity among your prospects for one transaction on one day illustrates the lousy, if not non-existent, relationship that most large US retailers have with the buying public.

That’s where the problems really lie. When you commoditize your marketplace by competing solely on price, you’re one of two things: Wal-Mart or crazy.

Wal-Mart can afford to do these things. Their entire business – and the systems that drive it – is built around that premise. They have the logistics, automation, buying power and mammoth size to make it happen.

If you aren’t Wal-Mart or crazy, you have to do something different and better. I don’t mean to suggest that you can just double your prices, do nothing else and expect all to go right with the world.

You can’t.

Remember, Business is Personal. Build the relationship. Deliver the value. When nothing else matters, they’ll shop on price.

Make other things matter.

Download audio file (StampedesAndShootingsBlackFriday.mp3)

Comcast appears to feel that it’s a problem that their customers actually use their service. OK, that’s a little vague.

More accurately, they have a problem with that small percentage who use their service *a lot* despite doing so within their (current) terms.

Their new solution to this “problem” is to cut off that customer and probably motivate them to avoid being a Comcast customer forever. I don’t imagine that this sort of action will contribute to good word of mouth marketing by former Comcast customers.

While their bandwidth limits seem rational, history has proven that customer needs will expand beyond that – and quite often more quickly than Comcast would respond with policy changes or additional billing options.

In contrast, Time-Warner is testing tiered pricing. The more you use, the more you pay. That makes sense, particularly beyond a certain level.

In every group of customers, there’s a percentage of high-use customers.

You have two choices

• Cut them off. Tick them off. Run them (and probably their friends) off.
• Find a way to bill them that reflects their use and the value you’re delivering.

Think about that for your business. There’s probably a small percentage of high profit customers (or potential high profit customers) who might benefit from an additional level of service.

Running off the customers who need your products and services the most seems a little crazy, doesn’t it?

Sometimes, it’s necessary to make the decision to close a business. It isn’t easy and it isn’t something that is done without pain and suffering in some form.

Yesterday in Small Business CEO, I read a story about a small business that was calling it quits due to “high oil prices and the economy” (my paraphrase).

A couple of comments in that blog post really rubbed me the wrong way, mostly because the owner appeared to be stuck in a mental trap about the state of the economy (more on that in a minute) and the economic conditions that she felt forced her to close up shop.

A poisoned mind

The first quote was the most poisoned thing I could think of that a business owner could get stuck in their head:

Small home based businesses like mine really don’t stand a chance in the current market.

Horse hockey.

In the Great Depression of the 1930s, more than 25% of Americans were out of work. On the other hand, 75% were employed and continued to buy. While that doesn’t make life easier for the 25%, it does mean that the market didn’t simply disappear, even in times as bad as that.

For every stock broker who leaped from his Wall Street office window, there was at least one who did well, and the same for investors.

The reality is, a lot of businesses got started back then. In the so-called worst of times. In fact many of today’s most successful businesses had their roots in those “bad” days. Krispy Kreme, Saab, T. Rowe Price and many many more local businesses. Try Googling for “founded in 1930″, “founded in 1931″ and so on. Tons of new businesses that exist to this day that were started during that period, more than SEVENTY years later.

They didn’t give up or quit because of their state of the economy. They saw opportunity in it.

BUT, thing is, the state of the economy really isn’t the point. Your market, your products, your clients and your prospects are. Your focus, your marketing, your creativity of thought and action. Those are far more important than the state of the market.

Raise prices or quit?

The second quote wasn’t much better, but I do have to admit that I have heard this from other businesses this year – from restaurants to craft-type businesses like this one:

Forced with the decision of either raising my candle prices sky high or temporarily closing, I chose the latter of the two.

The problem with this isn’t a lack of concern for the client, it’s that she is projecting her own mental limitations about her pricing onto her clientele. In other words, she’s saying “No” for them without giving them a chance to consider their purchase.

First of all, everyone understands that prices have gone up with fuel prices, either due to shipping, due to petroleum-based ingredients, or just because those two things roll downhill to the buyer. By making the decision to stop producing items because one of the component prices went up 40% assumes that the clients don’t feel the items are still worth that much without even asking them.

While these are primarily mental issues, there are also practical ones. Because I am tangentially involved in a business that uses beeswax, this isn’t armchair quarterbacking.

Due to Colony Collapse Disorder, I’ve seen 40-50% increases in the price of (among other things) beeswax over the last several years. In fact, prices have done so more than once. What was $3 something a pound is over $5 a pound. Not to mention that beeswax is dense. It’s heavy. Yes, Virginia – it costs a lot to ship.

Yet the clients who buy those beeswax-based products not only haven’t complained, but they’re buying more than ever. We didn’t make the decision for them, we simply raised prices to reflect the economics of the product line and let them decide. They decided to keep buying.

Sometimes quitting is the right thing to do. Just don’t do it for the wrong reasons. Don’t let the pundits, the media and Presidential candidates poison your mind.

Make decisions for the right reasons. I hope she decides to get back in the game for the right reasons as well.

Today’s guest post from the UK offers more insight on why prices with .99 work in the US and UK and why .88 works in Asia.

There are long-standing rules of thumb that advise how to set prices, but the wise business owner knows to test everything, including pricing.

The only results that count are the ones you see from your clientele.

During our stay in Missoula for the granddaughter’s arrival, we had the pleasure of spending the night at the Missoula Comfort Inn.

When I arrived at the front desk to get a receipt for the visit, the bill came with the now-obligatory $1.75 charge for using the safe in the room.

The buck seventy five isn’t the point.

It’s the annoyance of constantly having to be vigilant so that you aren’t the one getting taken by the corporate hotel chain management group who thinks that slipping this little charge (or some other little fee) by the majority of their clients is going to  make their profit numbers.

And maybe it will, but it’s a bad idea.

Yes, I’m well aware that you know that most people are too timid to say anything about it. Heaven forbid that we get pissy about a 1.75 fee on the bill. It might make us look cheap or chintzy to the desk clerk.

It’s not just the timid.

It’s the busy or inattentive clients who don’t notice it.

It’s the express checkout clients who never see the receipt.

Your defense is limp. It really makes no difference that you notify us at the front desk (via a sign) that you will charge $1.75 per night and that it can be removed by asking at the front desk. This is particularly so since it is automated and can only be removed at checkout, NOT at check in time.

The point is that chipping away at your clientele with sneaky little charges like this – particularly for services that they rarely use – is a bad idea and leaves your clients with a bad taste in their mouths about your business.

Is that what you really want?

If that extra $1.75 is necessary for your business to reach the necessary profit margin to pay the front desk staff minimum wage, then just do it. Add it to the room fee. These days you could call it a fuel charge. At least that is believable, when it floats with the cost of fuel.

Do you really think your guests are going to choose another motel because you charge $125.75 instead of $124?

Answer: Only if you do it by Post-It noting it onto the bill at the end.

Not only do you waste your guests’ time by forcing this little “please remove it from the bill” exercise, but you also slow down the checkout process and waste your employees time.

You aren’t tricking anyone. You’re just ticking them off.

Your little $1.75 fee – and really not even the fee, but the act of how you tried to get it, regardless of how common this technique may be – is the one tiny little negative aspect of a trip to Missoula to meet my first grandchild.

Just because everyone else does it doesn’t mean it’s a good idea.

One of the industry-specific discussion groups that I belong to was recently discussing a $5 million fee (for three years of effort) paid in exchange for bringing $34 million worth of value to an organization.

Just so there’s no mistaking the result: we’re talking about the receipt of $34 million dollars in funds.

Oddly enough, it was felt by some that this fee was out of line, and several considered this fee patently unethical simply because of the amount, regardless of the circumstances.

If you own a business and have employees, you probably pay them by the hour. If so, I suspect you are aware that “paid by the hour” thinking is not the road to success, though it can get the bills paid.

Most people don’t start a career with a big audacious goal of “I want to get the bills paid”, or “I want to make $17 an hour”.

That kind of thinking will get you nowhere financially in the long term.

Generally speaking:

• Successful people get paid substantially more than whatever is “normal” for their expertise, training, investment in themselves, experience, ability to deliver and value delivered.

That’s a major reason why we talk about stepping way beyond the value delivered by anyone else in your business by thinking harder and being creative and innovating in how you think about what you do for other people or their businesses.

You want people to believe – in fact, KNOW in their hearts – that you can deliver that $34 million (because you have in the past, repeatedly) and as a result, they’ll gladly line up to pay the $5 million to get it, and they’ll feel like they got a deal in the process because they were confident of your ability to deliver value that (possibly) no one else can.

Likewise, if you know you can deliver that sort of value more often than not, you’ll fully guarantee the fee and charge nothing if you don’t deliver.

That’s positioning you – and your clients – can take to the bank.

If I told you I could deliver $34 million in sales to your business, what’s that worth to you?

$50 or $75 or $125 an hour is the wrong answer.

Yes, it’s a play on the now-untenable “Something special in the air” that American Airlines used to use – back when they really were special.

Southwest Airlines announced changes in their business model that are easy for any air traveler to understand.

Click the image below to see the entire graphic from Southwest.com:

Now I had to admit that flying Southwest used to make me nuts because there was so much difference between the cattle car experience and what everyone else did.

Since those days year ago, they’ve made boarding changes to make things far more normal, and given that everyone else has cut service to the bone, now the other guys are the cattle cars.

Rather than follow the industry – Southwest has always tended to take a page from Earl Nightingale, that is, watch what the mainstream airlines do, and do just the opposite.

That’s just where this is coming from.

Instead of making their business complicated, they’ve made it simpler.

That’s not exactly news. They’ve done simple all along – such as using the same model of airliner across the entire company.

They do simple for a reason: They understand that eliminating all this complexity makes it easier for their staff and their passengers, but that isn’t the real “secret” to all this simplicity.

The key to this latest simplification move isn’t just making the other airlines look like idiots (as if they need help), but that it allows Southwest to chip one more little piece away from their turnaround process (land, deplane/unload, clean, board/load, takeoff) without slowing things down to check for paid tags, or capture a credit card or make change, and so on.

Plus it’s a heckuva lot less annoying to the passenger.

Result: More on time departures, faster turnaround, more flights, less planes, happier customers who met all their connections, and far lower expenses for feeding/housing travelers stranded by their inability to manage their on-time arrival.

Southwest is the Apple Computer of the airline business – except perhaps in price.

Simple is better.

What can you do to simplify YOUR business?

Last Friday, we talked about the surging rate of fuel surcharges for ocean-going containerized freight and how it will soon affect the price of imported goods.

As you might expect, fuel surcharges aren’t just going up for seagoing freight customers.

It’s hitting air travel customers as well.

This Times UK article talks about the recent, substantial increase in per-ticket airline fuel surcharges. On the flight they checked, the fuel surcharge was about 218 Pounds Sterling for a London to San Francisco flight. That’s $424 using the exchange rate on June 5, 2008.

$424 per seat? Man, I must have packed on a few pounds lately. Let’s look at a little rough math and see what impact this fuel surcharge has on the airlines.

Assuming that a Boeing 767ER (Extended Range, often used for long international flights) flies this route and uses every drop of fuel that a 767ER can carry, the price for that flight’s fuel is $91603.60. That’s 23980 gallons at $3.82 per gallon for Jet A as of May 30 2008, per IATA.

A 767ER’s range is 12,200 kilometers or 7580 miles, according to Boeing. Assuming that means a full tank, then we get 3.16 gallons per mile (rather efficient, aren’t they?) or a current fuel-only cost of $12.08 per mile to fly 7580 miles. Given that we have a couple of hundred people on the plane, that’s not bad.

The trip from London to San Francisco is 5357 air miles, according to InfoPlease.com.

According to Boeing, a typically configured 767ER holds 224 people in a 2 class configuration, IE: coach and first class. 224 people paying a fuel surcharge of $424 add $94976 to the gross receipts for that flight if it is full (as most planes are these days).

Unfortunately, even that $95k of fuel surcharge isn’t covering the 90% increase in Jet A fuel prices in the last year. Not even close. If that flight is full, you aren’t paying for the difference in fuel prices since 2000 (what the IATA calls their baseline or “100 points” price).

You’re paying the entire fuel bill for the flight.

Presumably there has always been a fuel cost component of the airline ticket. Apparently that is no longer the case.

Only thing is, you only flew about 5400 miles. Remember, a full tank flies the 767ER about 7600 miles. A little more rough math means that we left 883 gallons of $3.82 Jet A in the plane upon arrival at the gate in San Francisco (about $3000).

But I’m a generous guy. We’ll call it even for the $3000, assuming that extra 883 gallons over the average gallons per mile fuel efficiency is burned during taxi and takeoff. And we need to keep in mind the safety margin to have the fuel to steer around storms and/or circle incessantly because of delays caused by weather and Presidential candidates using the same airport.

Finally, you might want to lay off the donuts and pack lighter clothes. The airlines are also allegedly considering a weight-based fee.

If there are any airline pilots reading this that have better numbers on fuel, I’m all ears. I’m sure YOU aren’t seeing any of that extra money.

Are the economics of your business this transparent? What would your clients say if they could do this kind of math on your fees? Are you delivering so much value that they don’t even think about it?

The airlines aren’t. You had better be.

Related articles:

NY Times article about steps airlines are taking to make planes more efficient. Smart stuff. Kudos to them for looking at everything, but not just cutting for the sake of cutting.

Quoting from the article:

“Our fleet is over 500 airplanes,” said Beth Harbin, a Southwest spokeswoman. “If you can make a difference on one airplane on one flight, and multiply that by 500, in this day and age that is significant.”