In praise of the Customer focused organization (and the best at what they do!)

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When is a good business model a really good business model?


When (perhaps)
… the
customers keep coming back for more (76 million per year)?[i]
… you are
consistently outperforming you industry rivals (record breaking profits in Q1
2012)[ii]?
… the
shareholder value is growing year on year?[iii]
… you
consistently drive out costs and grow revenues?[iv… receive positive feedback from yourchosen
customer base?
… when your
strategy is clearly stated and easy to understand by employees, management,
shareholders and customers alike[v]?
 
By all the above criteria Ryanair
the Irish airline is a terrific and much envied success. And yet you may hear many criticisms
of Ryanair however as Michael O’Leary, their ebullient CEO points out, they are
not Ryanairs customers.
In fact he wishes they never darken his door again as the Ryan Air offering is specifically
not aligned with “picky, choosy time wasters” (his words not mine).
What is the secret?
Part of the magic is a complete focus on understanding their chosen customers successful outcome, and while that may not
include you or me, it is certainly the bulk of travellers in Europe whose
repeat business has helped Ryan Air outperform the sector for the last decade.

So have you personally and has your business really clearly articulated who is
your customer and then defined the business you are in?


[iv] BBC
News 21 May 2012: Budget airline Ryanair has reported record profits as fare
rises helped to offset a sharp rise in fuel costs. Net profit for the year to
March was 503m euros ($643m; £406m), up 25% on a year earlier. Revenue rose by
19% to 4.3bn euros.
[v]
Ryanair’s
objective is to firmly establish itself as Europe’s leading low-fares scheduled
passenger airline
through continued improvements and expanded offerings of its low-fares
service. Ryanair aims
to offer low fares that generate increased passenger traffic while
maintaining a continuous focus on
cost-containment and operating efficiencies. (http://www.ryanair.com/doc/investor/Strategy.pdf)

22 COMMENTS

  1. Steve, thanks for writing this post. I think Ryanair is an interesting example that you don’t have provide a very good experience, or treat customers particularly well, in order to have a successful business.

    The trick, of course, is for those customers not to have better options.

    In the US, low-cost / bad service carriers like Ryanair have come and gone. But Southwest remains successful over the long haul because customers really like the airline. Southwest offers those “picky, choosy time wasters” customers affordable, dependable air travel but also friendly people.

    You say Michael O'Leary deflects criticism because “they are not Ryanairs customers.” Sorry, not the case

    Based on findings by Which?, a British consumer watchdog, Ryanair scored a customer satisfaction rating of just 38%. The results were compiled from an online panel of 8,227 members who answered questions about their most recent flight in the past year. Panel members gave Ryanair just one star out of five for its boarding process and two stars out of five for value for money.

    If you price a product or service low enough, you’ll find customers willing to put up with just about anything. That doesn’t make the company “customer-focused” in my view. Ryanair’s customers are not genuinely loyal — they’ll switch as soon as another low-cost option appears with better service.

    All that said, Ryanair is a good example that customer-centricity is not the only way to succeed. Unless you want to define every company that sells a lot of stuff as “customer-focused.” I don’t.

    For more on Ryanair, see If the Customer Experience is so important, how do you explain the success of Ryanair?

  2. Hi Bob – Again who comes down to who is your customer. Ryanair know that and the CX they receive is precisely what has been designed. That is why the repeat business and seat utilisation rates consistently beat other airlines (for 7 years now).

    So back on point – have you categorised your customers and designed the experience that keeps them coming back for more to make you a more profitable company? Anybody who doesn’t like the expereince is by definition not your customer (and O’Leary hopes you don’t come back!). Now you and I might not like that – good is what Ryanair wuld say. Take your business elsewhere 😉

  3. I read the strategy doc you included with your post.
    http://www.ryanair.com/doc/investor/Strategy.pdf

    In 2000 words, the word “experience” is not mentioned once. And “service” is used only in the context of providing a low-cost seat.

    The Ryanair strategy is all about cost. Low cost and low fares. And they do it by targeting regional airports where there is less competition. In the strategy doc, “cost” or “fares” are mentioned 24 times. That’s the only thing that matters.

    Here’s a snippet that explains how it all works:

    Short-haul routes allow Ryanair to offer frequent service, while eliminating the necessity to provide "frill” services
    otherwise expected by customers on longer flights. Point-to-point flying (as opposed to hub-andspoke service) allows Ryanair to offer direct, non-stop routes and avoid the costs of providing through service for connecting passengers, including baggage transfer and transit passenger assistance costs.

    So far as I can tell, O’Leary decided to go low cost, and whatever experience the passengers get is by accident, not “designed” in any way.

    You should read passenger comments. Yes, they like the low prices. But no, they don’t like that poor experience of flying Ryanair.

    In the fullness of time we’ll see just how brilliant this strategy really is. It seems on the regional routes, Ryanair has found an opportunity to appeal to price shoppers and the competition hasn’t responded.

    Also, the low prices marketed may not be as low as actually received. Customers are starting to wise up. For example:
    http://gospain.about.com/od/transportation/gr/ryanairreview.htm

    Even with all the extra charges added, flying with Ryanair is may be the cheapest way of getting to Spain, but the amount you pay is rarely anywhere near the advertised price and you may well end up a long way from your destination.

    Again, I’m not knocking the strategy. It’s brilliant. But it’s not about the customer experience. It’s about selling a low-cost product (a seat) and finding a market for it. Ryanair’s customers are in a “trapped” position — they are loyal is the sense of repeat purchase due to lack of options. But not loyal in an emotional sense due to poor service.

    The door is open for a competitor who can match the low cost and and provide a decent experience.

  4. Of course if I need to declare an interest here let it be so 🙂
    I can assure you the RA work is very focused on the CX and creating and managing Expectations. The internal metrics, the reward structure, the consistent drive to improve service and provide the best deal in the market.

    If it looks like a duck, quacks like a duck… so I suppose we have to agree to disagree 🙂

  5. Steve,

    I agree with you that Ryanair is customer-focused. They have a clearly defined target customer and have aligned their whole business model around that customer. Ryanair’s strategy is crystal clear and Michael O’Leary ‘dramatises’ this through his outrageous PR. It is a very successful business model, particularly in a recession.

    The issue for me is one of brand affection. Whilst I agree with you that many Ryanair customers are repeat customers I have yet to meet any who actually ‘like’ the brand. And in the absence of brand affection you are vulnerable to competitors matching you on price but offering a better experience- and the experience CAN be good at a low price. For example Southwest Airlines and AirAsia X. AirAsia X has started flying to London and has been voted best low cost carrier in the world and provides a terrific experience by the way.

    In the research for my latest book ‘Bold- how to be brave in business and win’ we concluded that brands have to do three things to be successful:

    1) Stand Up for something – have a clear purpose beyond profit. Ryanair does not.
    2) Stand Out- be dramatically different from competitors. Ryanair does.
    3) Stand Firm – create a brand enthusiasts among your people and customers so that you can sustain your advantage in the face of threats. Time will tell but my guess is that if we ever get through the recession Ryanair will struggle to maintain its growth.

    So in short, I completely agree with Bob’s last comment.

    Shaun Smith

  6. Politicians are famous for saying one thing and then changing their approach later — called a “pivot” by political wonk. I guess is “lying” would be too harsh a word to reflect changing your mind.

    Steve, you imply that you have some inside knowledge about Ryanair. I can’t find any evidence in the strategy docs, annual reports or user comments that Ryanair cares one bit about the customer experience. I’m sure they think a lot about setting very low expectations — you’ll get a cheap seat and nothing else. That’s not much of a CX strategy in my book.

    But maybe this is all part of the master plan. The current strategy is designed for the recession, and it’s working beautifully. When the economy improves and/or serious competitors emerge, Ryanair will unveil a kinder, friendlier airline. And O’Leary will depart, because that’s not him.

  7. I will add the following:
    1. Have you defined your customer and their Successful Customer Outcome (SCO)?
    2. Have you aligned yourslef to create the Customer experience that your customer needs?
    3. Are you consistently innovating your offering to better deliver the SCO?
    4. Do you eradicate anything that does not align to the SCO?
    5. And above all do you successfully deliver the triple crown consistently? (reduced costs. higher revenues and improved service).

    In my book Outside-In we discuss extensively these challenges and also outline the ways and means of creating and maintaining Customer Needs (even when the customers don’t know their own). RyanAir is just one of many case studies illustrating pragmatic Customer Focus 🙂

    For anyone wishing a complimentary copy you can download the book here: http://bit.ly/Outside-In_SteveTowers

  8. Steve, my feathers are lying smooth and sleek. 🙂

    I’m really happy you posted about Ryanair because it shows that you can be focused on customers and build a successful business without delivering a good experience. It’s tough to find these opportunities, but O’Leary did in the European market.

    However, I would challenge him to come to the US and try the same thing.

    Where we differ is that you seem to be saying that the CX was part of the strategy. How is the Ryanair CX part of the Successful Customer Outcome? The driver of customer loyalty (retention) in this case is function (a seat from point A to B) and cost.

    You haven’t convinced me that the CX is an intentional part of the Ryanair strategy. The CX is something that happens by accident (every company delivers an experience, whether intentional or not) and customers will tolerate it to get a low priced flight. Conclusion: in this case (and perhaps for a limited time), the CX really doesn’t matter.

  9. Hi Bob – I am not trying to convince you. No need to. Customers who like Ryanair go back again and again, those who don’t realise the experience wasn’t designed for their needs (and by definition O’Leary would say they are NOT his customers).
    Now don’t get me going on Southwest (another case study in my book) as they have done the same – defined their SCO and aligned themselves to try and consistently deliver it. I would also add they are not even in the same business as Ryanair. They may do similar things but they are not in that business 🙂

    The SCO is a formula we create through the SCO Mapping process and as such defines the real need and specific measures of customer success. I am not going to say more as we spend several days on the subject during our experiential programs, and we are getting too close to advertising for that!

    My stated view remains. You design the Customer Experience by going Outside-In. In my experience that is precisely what Ryanair have done/continue to do and in doing so win the fabled triple crown.

  10. Thanks, Steve. Where I’m struggling is positioning this as a “designed” experience. I really don’t see that.

    One thing is for certain, with all the complaints about the poor CX (from frequent passengers, not just pundits and non-customers) it re-enforces the low CX expectations that O’Leary is trying to set. When expectations are so low, it’s hard to not beat them!

    It would be far worse if Ryanair went about proclaiming their devotion to a great flying experience and then treated passengers as they do. I would say Ryanair is delivering exactly what’s promised “on the tin” and their business performance speaks for itself.

    Thanks for the dialog, it’s been fun!

  11. Hear Hear!
    I would say Ryanair is delivering exactly what’s promised “on the tin” and their business performance speaks for itself. We are incongruence 🙂

  12. Ryanair does exactly what it says on the tin and I agree that their business model is entirely congruent with their low-cost strategy. O’Leary is to be admired for his single minded focus although not his disdain for customers.

    As I said in my earlier post though, in the absence of brand affection you are left with just a transaction, satisfying though it may be in the short term. I would liken it to a one night stand, they work for a while but soon you begin to expect a bit more from the relationship.

    I agree with many of the points you make as shown in this article I wrote about two airlines.

    http://www.customerthink.com/blog/what_s_the_biggest_obstacle_to_implementing_customer_experience_successfully

    However, consumers are looking for brands that have a purpose beyond simply making money and research indicates that consumers will favour brands that they have affection for. For this reason, I will make a small bet with you that within a year or two AirAsia X will be thriving and Ryanair will be declining. Want to take me up on it?

  13. Definitely, however I will also put money on another upcoming Airline – Indigo (the best offering in India current, but then I have an interest there!).

    Any business offering can only be as good as your alignment to Successful Customer Outcomes, so once you have figured you category(s) of customers start managing their expectations and deliver things they didn’t even know they needed! They will keep coming back for more.

    Zappos, Zara, Emirates, BMW, Jaguar et al.

    What do you propose for the wager?

  14. I detect a certain theological instance in this thread that a) experience has to ‘managed’ and b) that while their luck is so far good, Ryanair will fail since they ain’t experience focussed as expected by the designer class.

    Ryanair and Japanese reality shows, in which contentants submit to painful and humilitating endurance tests, show the human propensity to put up with all forms of discomfort if they see a suitable prize as outcome.

    Their experience of the event might even reframe it as a positive. Who knows.

    Experience in my book is very old school. It’s uniquely individual and irrefutable; which is why it’s neither a feeeling not a thought that can be disputed. Hence experience is not something to be designed. But hey that just the experiental trainer inside of me talking.

    What we do know is that all the evidence shows there are enough folk who prize the ability to travel short haul at prices that allow them to spend whatever discrectionary budget remains on other stuff.

    Demographics suggest there are enough of them to keep the shareholders more than happy.

  15. Martin, I don’t think the customer experience has to be managed. It can just ‘happen’ as an outcome of how a company does business.

    So far as I can tell from public info, Ryanair’s CX is not part of any design. They focus on cost, cost, cost, and the CX that passengers get is a result of that.

    Nor do I think Ryanair will fail because it doesn’t design or manage its CX. Unless a competitor shows up that can give customers what they seem to value most — low price — and also give them a more pleasing experience.

    As Shaun said, there’s no affection for Ryanair. They are selling a product and people are buying, but they don’t “like” the product very much. So they’ll leave when there’s a better option.

    As a quick personal example, I used to shop at low-cost consumer electronics store. The experience was terrible, but I shopped again and again because I knew what I wanted and the price was all that mattered. But when Amazon.com enabled me to buy the same things with a pleasing online experience, I immediately switched.

    In the retail business, Target has built a truly loyal following because they provide low prices AND interesting merchandize in nicely designed stores. Southwest and Jetblue have great following because low prices is not the only thing they offer.

    I see Ryanair as a one-trick pony that won’t, and can’t, perform well against a rival that can master a low cost/price and good experience model, like Southwest has done in the USA. But it remains to be seen whether other competitors will want to take on Ryanair in those secondary European markets, when apparently price is the main driver.

  16. Bob,

    They do work hard at being the lowest cost provider and are probably safe relative to any obvious sources of competitive threat.

    For the sakes of discusion I’ll add a quote from someone who recently flew Ryanair and said the following in response to being gently ribbed by me for choosing the brand.

    Context he wanted to fly the family over the the UK for a weeked break

    Before The Trip.

    “I head off to London tonight with the family – £8 each way with Ryanair was too much to resist…And for £8 – I expect nothing, so will be pleasantly surprised.”

    After The Trip.
    “A brilliant set of trips incredibly. Early both ways and on 45 minute flights cant ask for much more….”

    To give credit where it may not be due, maybe customer expectations are so low ue to brand notoriety that when the basics are done right (being on time), everyone feels happy!

  17. It occurs to me that Steve and Shaun assume that I’d a business is doing well then it is customer centric and/or customer focused,

    and Wiersama suggest that a business can do really well because it excels at one of three dimensions (great product, cost/operational efficiency, customer intimacy) and does adequately on the other two dimensions. On that basis, I put Ryanair in the cost/operational efficiency bucket.

    Why is Ryanair doing well? A value proposition (cheap flights) that meet the needs of people who want to travel and do o cheaply. The people who can swap coach for plane and/or travel several times rather than once a year, or can now take family to holiday in Europe rather than stick to UK. In short Ryanair meets a need and in meeting this need it does not have to be nice to the customers. The customers put up with the poor experience to get access to their desired end outcome: cheap flights.

    The CEO of a medium sized company told me recently hoe he had taken his family over to Europe for a holiday. There were issues with the flight, it landed late. They missed the connecting flight … Ryanair refused to anything to help. In the end this CEO bought tickets for family on different airline that cost a fortune. He told me hat he will never book flights with Ryanair. My sister and her family had a similar type of experience and has never flown with Ryanair again.

    Final point, we can argue that EVERY business that is doing well is customer focused, even customer-centric. And that renders the definition of customer focus or customer-centric redundant, useless all we are sayi g is that by definition a company that s doing well is doing right by customers. In which case please explain RIM, Nokia and Tesco. These companies were clearly customer focussed or customer centric yesterday and suddenly not today.

    Philip Rozenseig, in my view, has written the most useful / definitive book on the key delusions around business. He called it the halo effect, I suggest that Steve is trapped in the halo effect. If you want to learn more then here is the link:

    http://en.wikipedia.org/wiki/The_Halo_Effect_(business_book)

    Incidentally, I am not making truth claims. If you wish to argue that Ryanair is customer-centric then please go ahead. If you say that Ryanair is customer focused then that is a,so fine by me. It simply shows how meaningless and useless these labels are – at least to me.

  18. Maz

    I do not claim that Ryanair is customer-centric because it is doing well. I said that it has a low-cost strategy and is clearly focused on the budget passenger and that has driven its results. So to that extent it is customer-centric. i.e It is organised around providing cheap air travel for those customers who are on a budget. A clear case of differentiation through operational efficiency if there ever was one. (As defined in the Discipline of Market Leaders)

    The mistake you are making Maz is that you are placing a value judgement on the phrase ‘Customer-centric’. It does NOT mean that the customer experience is great-merely that the organisation is focused on providing value to a clearly defined group of target customers. For me providing a great experience is much more about customer intimacy as a strategy. So Southwest Airline’s primary strategy is operational efficiency closely followed by customer intimacy.

    Whilst I may appear to agree with some of what Steve says, personally, I loathe Ryanair. I think they are a miserable brand and Michael O’Leary is an objectionable braggart. I for one would never fly them if there was a viable alternative. However, I am not their target customer and never will be but it does’t stop me admiring them for their clarity of focus or their business model which is suited to the current environment.

    Clearly your friend the CEO is not a target customer either ( I am surprised he ever thought he was) because he expected more than just cheap-as-chips flights.

    In the case of RIM and Nokia, I would say that they are both product focused and got out of step with what their customers wanted hence their current difficulties. In the case of Tesco it has lost the sharpness of its focus and has got ‘caught in the middle’ between truly low-cost retailers like LIDL and quality retailers like Waitrose.

    Final point, because you don’t agree (or perhaps understand) a term doesn’t render it invalid, it just means that it has little utility for yourself.

  19. Hello Shaun

    I enjoyed meeting you, I value you, I value your point of view and I enjoyed reading your latest book. I wish you well and look forward to our next encounter.

    Onwards to customer-centricity, I find myself in agreement with many of your points, I do not find myself in agreement with you on the essentials. That is no big deal there is plenty of room for diverse perspectives and there is value in plurality – plurality makes the world more interesting to me.

    As I see it:

    1. Coming up with a value proposition that speaks to a target market segment is the essential requirement to be in business. That by itself does not make a business customer focussed nor customer-centric. Neither does it make you not customer focused or not customer-centric. Unfortunately, the business press works back from success then ‘finds’ qualities in the Tops and the organisation. In short creates stories that we love to consume.

    2. I am placing a value judgement on customer-centricity. I ask myself how the ordinary person on the street thinks about customer-centricity. Based on that ‘research’ I come to the same conclusion as Don Peppers & Martha Rogers in their latest book Extreme Trust. Customer centricity is founded on three pillars:

    A. Do the right thing by the customer;
    B. Do that proactively;
    C. Do things right.

    I wrote about that here in this post:

    http://thecustomerblog.co.uk/2012/05/18/extreme-trust-can-honesty-be-a-means-of-competitive-advantage-part-1/

    So the essential question to be grappled with is what constitutes “doing right by the customer”? I am clear that means treating customers fairly, equitably, being open/honest, not making money at their expense.

    3. Words and labels do matter to me. When words and labels mean something distinctive and there is agreement on that then it increases workability. If you and I do not have the understanding of ‘let’s meet tonight at 9pm’ then it is unlikely that we will meet. Which is why labels such as customer focused or customer-centric show up as useless in my world.
    That does not mean that words are valid or not – we, as a collective, give validity to them. And I say that there is no collective agreement on customer focused or customer-centric – a ‘dog’s dinner of stuff’ is pushed under these terms.

    All said and done, I can allow you to have your point of view and express it. All I ask is that you grant me the same. At the end of the day life is about people, relationships, love, music, dancing, sharing, laughing, adventure – at least for me. So I content to leave it here, I have made the contribution that Bob requested and which is the only reason that I commented. The first time around I ‘ignored’ Steve’s post as I was and am happy to let him have and share his point of view.

    I wish you well. I value you and your work!

    Maz

  20. Maz,

    Of course, I totally respect and value your point of view.

    You are right in that there is no universally agreed definition of customer-centricty which is why debate of this kind is so useful- it is in the debate that real meaning emerges.

    Forgive me, I am sometime deliberately provocative in order to generate comments- it sounds as if I may have pushed it a little too far!

    All the best,

    Shaun

  21. Hi Guys – great contributions, enjoyed the discussion 🙂

    At the end of the day the Customer Experience has to be engineered. Regardless of the theories and the interesting anecdotes from academic perspectives the real truth is how you do that. Remember in theory theory is great but in practice theory doesn’t work 😉

    As someone practically involved in helping leading organisations deliver the CX I am proud to be associated with Ryanairs engineering, BMW’s Joy, Zappos Wow etc. All very different however sharing the same idea that the Customer Experience is the Process. Power to their success……

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