Photo: The can of soda I got for £1.80 on Ryanair by dizarillo on Flickr
American readers may not know Ryanair. It doesn't operate in the States. But it's Europe's largest airline, legendary for its cheap flights and its aggressive disdain for its customers.
Which other company would relish the PR it garnered as the CEO announced that he wanted to charge passengers for using the toilet on flights? The list of other customer-unfriendly behavior is long, from its "puerile" charging policies for certain credit cards as well as more familiar-to-Americans charges for bags, drinks and most everything else.
As the Irish Times reports, this belligerence to customers has had its effect. In a recent reputational ranking of 581 companies, Ryanair ranked near the bottom. Still the passengers keep coming in record numbers. Henry Farrell wonders how "shafting your customer" can be an effective business strategy in a consumer-oriented business in a competitive sector?
Some interesting theories are put forward in the comments section of his post. I think "Barry" is right when he says:
"I can think of two – first, the reputation contains a strong implication of ‘cheap’; people who areSay what you like about Ryanair but, in its defense, it is clear and upfront about its relationship with its customers. Many other companies want to have it both ways and are deeply conflicted. They want customers to love them but they are stuck with business models that their customers hate.
cheapskatesfrugal will be attracted. Second, people might figure that they’re smart enough/tough enough to take advantage of the cheapness, without being tagged by the add-on charges. Most, of course, will be mistaken."
As described by an article in HBR called "Companies and the Customers Who Hate Them:"
"One of the most influential propositions in marketing is that customer satisfaction begets loyalty, and loyalty begets profits. Why, then, do so many companies infuriate their customers by binding them with contracts, bleeding them with fees, confounding them with fine print, and otherwise penalizing them for their business? Because, unfortunately, it pays."This article reviewed the financial results of companies in a range of industries and showed that many companies depend for much of their profits on customers "shooting themselves in the foot." They make money when people don't act in their own best interests. These companies give their marketing teams the challenging assignment of trying to disguise the unpalatable truth of their business model behind shiny examples of where they are doing good.
These are also the companies, according to Bill Taylor, most likely to suffer in the current climate of "business populism" where people are upset about the economy and want to stick it to the business establishment. He sees this time as being a great opportunity for companies that challenge the norms and accepted practices of business-model-hated industries. He cites two examples: Southwest Airlines, which decided not to charge for checked bags while the rest of the industry was collecting $1.7 billion for doing so and Life Time Fitness, a relatively new company in the Fitness industry.
Life Time Fitness has decided not to follow the industry model of: "Bait-and-switch pricing, punitive contracts, and shoddy service" in favor of a customer-preferred model of low up-front fees and month-to-month membership.
Life Time Fitness CEO Bahram Akradi says:
"Almost everything we looked at in terms of how this industry did business was designed from the club's point of view: What's good for me, not what's good for you. We were treating customers the wrong way, selling memberships the wrong way, serving members the wrong way. So we asked, 'What would this industry be like if we did things the right way? What would a club look like if members designed it? What would the membership offer look like if the customer wrote it? What would the hours of operation be if customers set them? What if we let customers dictate how we did things?' That's why we did away with contracts. A contract makes you fat and lazy. We have to win over every one of our customers every month. It forces us to keep getting better."So far, this strategy looks like it's paying off. Life Time Fitness is growing quickly while some of its competitors are falling by the wayside. Which other industries could be reinvented by challenging the customer-unfriendly status quo?