What is the level of service your customer is willing to pay for?

In moments of crisis such as this that we, as a society, are living we are urged to discuss what we want to receive from the government in terms of products and services. It will be the answer to this fundamental question that will define the size of the government and therefore its cost. As companies we are, equally, urged to question ourselves what we will offer to our customers. And, as a result, discover if the customers that we serve are willing to pay for them.

The Business Model is the basis over which a company is built. It must be understood as the rational whereby an organization creates, delivers and captures value. This rational is comprised of the following four basic elements:

Infrastructure: critical capacities, processes and people;
Offering: the value proposal, or the benefits offered to the customers at a given price;
Clients: who are them and how to start, develop and maintain a relationship with them; and
Finances: the difference between the generated income with the customers and the costs to offer and distribute the products and services. This is the sustainability test of the model.

Understand a company’s business model is the starting point of the path to success as by doing that one will be forced to identify its competencies and advantages and be sure that may offer value to the elected customers.

A successful example of understanding and practice of business model may be seen in a company operating in a sector in which is tough to be profitable, the air transportation of passengers. The leadership of this company focused on delivering only those attributes valued by the targeted group of clients: low price tickets, punctuality, few flight cancelations and few lost luggage. And on that they were “fundamentalists”, to the point of being truculent with their customers. A famous statement of the company’s CEO was along these lines: “Our customer service is different than that of any other company in our sector that has that image of ‘We want to kneel before you so that you may pass over us, the customer is always right’ and all this non sense.” Shocking, no?

The company, since then and after be involved in many controversies has become more “customer-friendly”. And it continues to be extremely lucrative.

So in summary, what this company offers?

  1. Value Proposition: Low ticket (-75% below competition); punctuality; few flight cancellations; few lost luggage.
  2. Critical capacities: low cost; few amenities (no free food, no connections); short routes and point to point (medium sized cities and secondary airports); standardized airplanes; “extra” charges (for check-in at the airport; for paying with credit card; fees over car rental, bus tickets and hotels). The vision is that in the long run tickets will tend to have a “zero” price, being funded by “extras”.
  3. Clients: low budget; young; light travelers (without luggage), including executives.

In Brazil such called “low cost” airlines have difficulties in replicating such a model!

And what is the relation of the above with customer service? Everything, as it is necessary to understand the company’s available competencies (knowledge, processes and technology) and departing from that design the benefits to be offered having as a limit the cost/price.

In the end the price that the customer is willing to pay will define what they really can receive in return!