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Airlines: What’s more valuable than a customer?

No 296!.....I am NOT a Number..lol..:O)
Creative Commons License photo credit: law_keven

One of the things that is most frustrating and wonderful these days are… airlines.

Why frustrating and wonderful?

  • They teach us far more than how NOT to treat people.
  • They teach us how not to make a fair number of business decisions.
  • They teach us how not to empower our staff.
  • They teach us how not to save money in our business.
  • They teach us how not to attract more clients.

Wonderful when we see examples of things to never do in our own business. Frustrating when they happen to us.

Powerless

Ever notice that most public-facing airline employees are just about powerless to make a change that makes perfect sense? It’s by design.

For example, a friend recently told me this story about his daughter flying home from college for spring break:

My daughter has an economy class reservation on Frontier for Saturday (less than $300 round-trip and lots of penalties for switching).

She finds out her classes are out early and can fly out on Thursday.

So we check the Frontier website and the flights are booked solid for the spring break weekend and all the flights on Thursday have dozens of open seats.

I call up Frontier and suggest that moving her to an empty seat on Thursday and selling her old seat on Saturday would be gravy for the airline. The one-way tickets are going for $500 on Thursday and Friday.

Even the supervisor can’t make the deal.

He said something about a customer buying a cheap ticket and switching to a more expensive day;  but she wanted to switch from a flight where there were no ticket available to a flight where that has dozens of empty seats.

Classic supply and demand.

Way more important than that, it’s classic supply and demand where the salable asset becomes worthless every day, every hour, every few minutes.

The asset? Empty airplane seats that safely move from place to place in a specific time frame.

Like milk and hotel rooms, airplane seats spoil. Once a certain period of time passes, they’re worthless. And a lot more expensive than milk when they go bad.

Airlines 101: Ignore the customer

We have a customer who is taking a fragile, expendable, time-bound asset (an empty airplane seat on Thursday) and offering to make it more valuable by trading it for a clearly MORE valuable seat on a busy travel day in the future on a prime travel day.

I suspect you’d have to look very hard to find one airline employee who fails to understand the value proposition being offered by their customer. In fact, I’ll bet they all understand it.

Sadly, it appears that not one has the power to take action in the face of that value.

So as my friend says, “Here you have the airlines cutting prices to get people to fly and even the Frontier supervisors don’t have the authority to help Frontier make a profit all because they don’t trust their customers.”

What do you sell?

Every now and then I ask you if you really, truly know what you sell.

Airlines sell fragile, time-bound expendable assets. Surely they know this, but they don’t act like it.

They act, empower their staff and create systems that send the message that they sell something entirely different: Reservations, or something like them.

Why do I say that? Because they treat the reservation with far more reverence than they do the customer.

Once the customer passes by the ticket agent at the gate, in many cases they are treated like cattle at a feedlot. At that point, the reservation is worthless, thus the customer holding it has now become a liability, an expense, and/or a burden.

In extreme situations where a plane has a problem, we don’t hustle the (valuable) customer back to the terminal where they could consume an expiring asset we haven’t yet sold (seats on other planes), instead we devalue them by holding them prisoner on the tarmac for hours.

An empowered captain would return his customers to the gate where they could continue their travel, consume unused and about-to-devalue assets. But that isn’t what happens.

Have you truly empowered your staff? Can they take action to maximize your customers’ experience AND the value of the assets you sell?

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Do your numbers really matter?

Misty Valley
Creative Commons License photo credit: liber

Happens every day.

I see small (and not so small) businesses waste one of their most valuable assets: Their existing customers.

Let’s say you have 1000 customers and you average $1000 per sale per year for each of those customers. That’s a total of $1,000,000 per year. Let’s assume your costs are 34% of sales. More on  that shortly.

Studies have shown that across a random selection of industries, businesses lose 19% of their customers (on average) each year for an assortment of reasons.  That’s 190 customers per year for the company mentioned above.

And you’re thinking “No flippin’ way”.

Here’s the analysis:

  • 1% die
  • 3% move away
  • 5% leave because of a recommendation from a friend or relative
  • 9% leave because they perceive that another company has better products, service or prices
  • 14% leave because they are dissatisfied with your product or service

That’s 32% of the reasons they’ve left your business. The other 68% of the customers go somewhere else for some other reason (probably not the one you suspect).

The other 68% percent of customers start doing business with another company leave because of a feeling of indifference on the part of the vendor (or their staff), leaving them feeling taken for granted.

What about if the quoted research is only half right?

Think about your own experiences. Can you argue with these numbers? Even if your reasons are different HALF of the time, that still makes 34% of the changes due to indifference. Seems like a lot to me.

If that 19% of customers lost per year number is accurate, that also means that a pretty strong 19% gain in new customer acquisition is just treading water.

You’re better than average, right?

Let’s assume that since you read this, you probably do other things to keep your business in better shape than the average. I’ll give you credit for 5% less loss than the average.

That’s still 140 customers. You’re now down to 860 customers not counting new ones that you have to spend marketing money to gain. At $1000 per year, per customer – your revenue has dropped from $1,000,000 to $860,000.

$140,000 feels like a lot, doesn’t it? That doesn’t even count how the economy might be affecting you (if it is).

On the other hand, that’s $50000 more revenue than the average competitor (5% = 100 customers/year times 5) who is losing 19% of their customers per year.

The good news

So if that was the bad news, let’s look at what a little effort might gain you in the way of good news.

Let’s try a 2% improvement on that 14% number. That takes us from a 14% loss to losing 12% of your customers.

It’s a small improvement, so how much meaning does it have?

2% of 1000 is 20 customers. 20 customers times $1000 per year per customer is $20000 in increased revenue from retained customers.

If you run a $1,000,000 per year business, that 2% is a week’s revenue.

Profit: The number that matters

As a percentage of annual revenue, it’s just a 2% gain, but there’s more to it than that.

A 2% gain in retained customers (ie: retained sales of $20000) at 66% profit/34% cost means a $13,200 profit increase of $660,000 to $673,200.

Over 5 years, that’s a total of $100,000 gross revenue increase and $66,000 net profit increase.

That’s a net profit change over 5 years from $566,000 to $500,000 – and that doesn’t count any other growth except to maintain that 1000 customer level. Doesn’t include lower marketing costs to retain customers vs. getting new ones.

For these numbers, a 2% gain in customer retention produces a profit increase of 13.2%.

2% seems like almost nothing, until you look at the bank account.

What can you do to make a measly 2% gain?

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Amazon Business culture Community Consumer Advocacy Customer relationships Employees Ethics Legal Management Politics Public Relations Regulation Retail Small Business Social Media Twitter

#amazonfail, Niemoller and your business

choc bunny
Creative Commons License photo credit: Asti21

First they came for the chocolate bunnies, and I did nothing because I am not a chocolate bunny.

Quite a weekend we’re having: Passover, Good Friday, Easter, the Masters and a few thousand Easter Egg hunts, to name a few.

Oh, and I smoked a pork roast that turned out totally incredible. But I digress:)

In the midst of all the holiday celebrations, worship, family time and so on, Amazon gets into the act. So much so that they are trending #1 on Twitter (you must be logged into Twitter in another browser window/tab BEFORE clicking this link, sorry but that’s just how Twitter search works).

The hashtag (ie: search term) on Twitter that is receiving all the attention is #amazonfail.

First they came for those with an Amazon rank

It’s been a while since the online bookseller stepped in it and alienated a huge number of people, but they got into the act again this weekend.

Last time it was about Amazon shafting authors who use print on demand services that weren’t owned by Amazon.

This time, it’s some or all of the “adult” community.

At first, it wasn’t clear exactly what was going on (and still may not be), but an official customer service response from Amazon indicates that they are removing sales rank data for content with adult ratings. Amazon now denies this, calling it a glitch.

A growing number of folks in the GLBT (or LGBT) community (particularly on Twitter) are noting some inconsistency of the removed ranking data, noting that it seems to apply more to content of interest to them than to adult material across the board.

No matter what your feelings about the various forms of sexuality, I should remind you about two things:

  • First, the Rev. Martin Niemoller poem, “First they came“. If your business (through you) is willing to take on a group, be careful what you wish for. Be sure of your staying power with your stance on an issue.
  • Second, while there are political and other sensitive issues here, this isn’t why I bring this up. There are business issues intertwined throughout this.

In Amazon’s case on this issue, they risk a nationwide boycott from the LGBT community. If they change their mind, they risk a boycott by other groups. If they waffle and end up somewhere in the middle, they might get both.

Yeah but this stuff has nothing to do with my business!

Not really.

It’s 2009. For no cost, anyone can get detailed info about your political contribution numbers and plot them on a Google map and do any number of things with it, including to suggest that people pay you a visit.

Are you ready for that?

If you think your personal values don’t affect your business, think again.

Every business owner will inevitably find themselves taking a side on a political, theological or similar issue at some point (probably several dozen). You need to think through how you will handle situations like this.

  • Will you bring your stance on contentious issues into your business?
  • If you become active on an issue, will it impact your business and if so, are you strong enough to stand firm when the public attaches the issue to your business? It doesn’t matter what the issue is. What matters is how you will handle it and how your staff will handle it.
  • Are you willing to deal with the fact that your staff feels differently about the issue (whatever it is) than you do? Whether you are or not, you should talk to a HR specialist or an attorney who specializes in employment law before hiring people. HR problems are a great way to lose your shorts.
  • Is your stance on an issue going to affect the clients and employees you attract? As long as you are sure of yourself, that’s the primary concern. Well, that and are you acting within the law?
  • Will your ethics on the issue in question suggest that your business ethics should be called into question?

I’m not asking nor suggesting that you temper your views or how and where you share them with others. Only you can make that decision.

Nor am I suggesting that you be hypocritical. Congruent for sure, but not hypocritical.

What I am suggesting is that you need to decide in advance if you are willing to lose your business (or a part of your business) over your stance on an issue. It’s ok either way,  just be sure of yourself before you go down that road.

Some might suggest that you’ll get more business if you show your colors. In some cases, I think that’s absolutely right. One of the easiest examples I can think of where this likely helps a business is Ian’s stance on China, human rights and his Catholic goods store.

More than anything, I am suggesting that you consider the big picture before you step onto the soapbox.

No matter how you feel, it is difficult to get the genie back into the bottle.

PS: It’s all about the malted milk eggs for me.

UPDATE: An interesting theory on what might be happening to Amazon: http://tehdely.livejournal.com/88823.html

Whether this theory is true or not, it’s a valuable lesson for system designers of social media systems, interactive/community feedback systems and the like.

Meanwhile, a bunch of tweets reference people actively tagging conservative books with keywords that might get them de-listed from the sales rank numbers for the same reason that others are being de-listed.

UPDATE: Amazon says the change in sales rankings is a glitch. In social media circles, they arent getting a lot of traction on that. Time will tell.

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25 characteristics of successful entrepreneurs

Success
Creative Commons License photo credit: WTL photos

Today’s guest post comes from Entrepreneur.com, specifically from author and Entrepreneur writer James Stephenson.

You’ve heard many of these things from me, but it never hurts to hear them from someone else.

Start here and dig in!

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Does your job suck? Is it boring? Is it creating value?

179/365
Creative Commons License photo credit: riot jane

First, I’ll ask from an employee perspective.

If you’re the employee, I hope your answers are No, No and Yes, respectively.

If they aren’t, exactly how long do you have before someone figures out that your job can go away? What can you do about it before someone does something about it for you – and it isn’t the action you want them to take?

If you are the employer, ask your people.

For that matter, if you have people in jobs that result in “No, No, Yes” answers, are there ways to make the jobs not suck? Not boring?

Use them, don’t lose (or waste) them

Is there a way that those folks could be creating more value and thus generating profit instead of being an expense? If they aren’t creating value in some way, what exactly are they doing and how far are you from laying them off?

Wouldn’t it be better to use them more productively, making them more valuable to your business vs. letting them go and wasting all the time and money you invested in training them?

You DID train them didn’t you? Even if it was just to your way of doing things…

Pass the Calgon

Business owners should be asking themselves the same questions on a regular basis about the products and services they provide to their clients, much less what each of their staff members bring to the table.

You can also add “How are we taking away the pain?” Are you doing that too?

Remember those old Calgon bath oil bead commercials? “Calgon, take me away…”

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Hugh’s advice for entrepreneurs

If you strongly prefer a G or PG post, this isn’t going to be your favorite guest post.

Or maybe it will.

Today’s guest post comes from Hugh MacLeod, and in fact, it’s part of his upcoming book (June 2009).

You may know him from his cartoons, which he pens under the name Gaping Void.

What I will tell you is that even if a few four letter words bother you, you’ll be better off reading and discarding them because quite frankly, this is a pretty important read to any entrepreneur or wanna-be entrepreneur.

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The Cure for “The Culture of Cant”

[audio:https://www.rescuemarketing.com/podcast/pollyannaprinciples.mp3]
Droopy dog

It’s not unusual for small business owners to be involved in community organizations, so in that spirit I have something a little different from our every day discussion here – yet still completely applicable to your business – no matter what that business does.

Rather than Friday’s normal Hotseat Radio show, today I had the pleasure of interviewing Hildy Gottlieb, long time friend and author of the newly released book “The Pollyanna Principles“.

Hildy is a nationally-recognized consultant and President of the Community-Driven Institute in Tucson AZ, and has been called “the most innovative and practical thinker in our sector”.

That sector is what folks in Hildy’s business call “non-profit organizations” – which unfortunately describes exactly what those organizations are NOT.

One of Hildy’s missions is to change the mindset inside these organizations is to encourage them to call themselves “Community Benefit Organizations”, which describes what they are and do. The result of that subconsciously takes the “Droopy dog” attitude out of the picture.

You may feel that this is outside of the normal bounds of BIP, but in fact, it strikes at the core of it: business fundamentals, attitude and a number of the other things we talk about here on a regular basis.

You need to run it like a business

No doubt you’ve heard people say “non-profits need to run like a business” – and in fact we examine the pros and cons of that assertion, why it’s true, false and doesn’t necessarily mean what you might think.

After listening to my conversation with Hildy, I’m hoping you’ll grab a copy or 3 of her new book and provide them to the orgs that you support and believe in.

No matter what you do to encourage (convince, coerce, etc – you make the call) your favorite board member to read The Pollyanna Principles, the ultimate goal must be to make it happen. Hildy has created a great piece that organizations can use for motivation, strategy and like it or not, to arrive at the real long-term, more than a calendar quarter away, community-changing vision and a roadmap to get there.

Profit is evil? Horse Hockey.

The temptation by some in these organizations might be to ignore the great business books and their strategies, simply because they are supposedly all in the name of profit and thus not applicable to the charitable organization.

The fact of the matter is that neither assertion is true.

Still, if you prefer to stick to strategic books about the charitable sector rather than crossing over that supposedly evil profit line, then The Pollyanna Principles will be right up your alley because it was written just for you – because it’s all business. Your business.

Buy The Pollyanna Principles here

Please accept my apologies for the audio quality. We had some volume dropouts, an odd hum here and there, as well as some cool coffee shop environmental noise as I spoke with Hildy from a coffee shop in Missoula (Break Espresso, if you’re taking notes). Hildy and I have what appears to be several sessions left before we are “done” discussing her book, so I will make sure we have better infrastructure in place for those sessions.

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Which of these four types of businesses do you own?

Bye bye baby!
Creative Commons License photo credit: smlp.co.uk

Scott McKain, author of Collapse of Distinction, is also the author of today’s guest post, where he talks about the four different types of businesses as categorized by today’s economy.

Which business is yours?

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Grab a Bounty and wipe it up. NOW.

Today’s guest post comes from the legendary Tom Peters.

Tom’s comments relate well to a post here at Business is Personal about a famous Donald Trump restroom maintenance story – and probably to a Leona Helmsley story or two.

Details. Details. Details.

Can you find 10 little details today?

Imagine how much better your business will be if these 10 items are better, cleaner, sharper or faster tomorrow, much less next week.

Those 10 little details are marketing – and the best part of that is that most competitors will never see it that way.

Yet Disney does.

Here’s another detail for you: If you aren’t reading Tom’s blog, you should be. I could be more blunt about it, but I shouldn’t have to be.

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Ryan Air cant even afford to flush?

last signal
Creative Commons License 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:

ryanairreceipt

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.