The idea that you can have only two of the choices between price, service and quality has been an oft-quoted aphorism for decades. It has allowed some companies to justify their inability to compete. Or has been the basis of unfortunate pricing strategies.
As we wrote in our paper Value Priced: Achieving Profits at Any Price Point, price needs to reflect the value received by the buyer. If you remove all costs that don’t add value, it is amazing the level of “quality” and “service” you can provide, while maintaining low costs. Singapore Airlines is a prime example.
Condé Nast awards a World’s Best Airline award annually. Singapore Airlines has won it 21 of the last 22 times. Skytrax named it Airline of the Year three times in the last decade. Their level of service is legendary among travelers who will usually select Singapore Airline when possible.
In spite of this, Singapore Airlines is one of the lowest cost operators in the industry. According to the IATA study their cost per seat kilometer is 4.58 cents, by far the lowest of any full-service airline in the world. In truth their costs were lower than many so-called budget carriers as well.
How do they create so much value and keep costs low? By not adding costs that don’t add value, and by making sure their required costs are kept as low as possible. It might be enlightening to understand how Singapore Airlines invests to serve the customer compared to its competitors:
- Their fleet is newer and kept newer than most other airlines. (Newer planes are in better condition for the customers and have lower maintenance and operating costs to Singapore Airlines)
- They invest heavily in training their people. (As Jan Carlzon learned many years ago when he turned Scandinavian Airlines around, it’s about your people and those “moments of truth.”)
- They staff their flights were more crew than other airlines to allow for better service, and use a bonus-based pay plan to reward their employees. This and the training help keep their staff looking for ways to cut waste.
- Administration costs are kept low. As I learned from my years with Teledyne, you can run a very large corporation with a very small corporate staff if you remember where the value is supposed to be added.
If you want to be a profitable leader in your market, you just have to focus on what matters, remove costs that don’t add value and then your customers won’t have to “pick two.” Easy to talk about, harder to do … consistently. But then, that’s what provides the competitive advantage.
Mitch
