Co-Opetition - Adam M. Brandenburger [63]
As it turned out, most other carriers didn’t follow TWA’s initiative. They were concerned about the “Friday afternoon effect.” At peak travel times, especially Friday afternoons, planes fill up. On those occasions, every removed seat has a real cost. The other airlines decided to keep their seats, even if the seats remained empty during the rest of the week, so that they would be available for peak usage. What the airlines missed is that taking seats out changes the game during the rest of the week. An airline with fuller planes—even if that’s because seats were taken out—has less incentive to cut price. The gain from higher prices could be much more important than the few lost Friday afternoon passengers. Apparently, the other airlines didn’t see it this way.
In fact, TWA forgot its own logic and almost aborted Comfort Class. The strategy was so successful in filling up planes that giving the extra legroom started looking a lot more costly. In 1994 new management came in and decided that the extra comfort didn’t justify the cost, forgetting why the planes were full in the first place. As Cozzi describes it, “Comfort Class was going so well that the new management decided to kill it.”18 The employees rose to defend Comfort Class. Faxes protesting the move, over three hundred of them, came flying in.
Cozzi resigned in opposition to management’s plans. Finally, management retreated, and in April 1994 Comfort Class was scaled back rather than eliminated. Seats were put back only on planes earmarked to serve markets experiencing strong summer demand. In the fall of 1994 TWA returned to full-scale Comfort Class on its domestic flights. It’s not too late for other airlines to introduce their own versions of Comfort Class.
Comfort Class was hardly a trade-off. That was its brilliance. The higher-quality service came at a low incremental cost. More often, quality really costs you. And then you can’t assume that everyone will be willing to pay enough to justify the extra cost. Different people place different values on quality. Some people will inevitably value a quality improvement by less than the increase in cost. Others will be willing to pay a lot extra, even for small improvements in quality. You spend $1 to improve quality. Some people might then be willing to pay an extra $10, others an extra $2, and still others only an extra 50 cents. That makes these trade-offs a bit tricky to manage. It’s a numbers game.
Everyone agrees that the Concorde supersonic airplane is a better way to fly. However, it has a much higher operating cost, primarily due to its extremely limited capacity. There don’t seem to be enough people for whom the three-hour time saving justifies the higher cost. The Concorde has only one hundred seats, and even those are seldom all filled. But that doesn’t mean that the idea of supersonic travel isn’t economically viable. A larger supersonic plane, with lower costs and hence lower fares, would attract more travelers and could be profitable. Back in the 1960s, when the Concorde was designed, a larger supersonic plane might not have been an engineering possibility; today it is.
The flip side of raising quality is saving costs. As you try to save costs, people may have different reactions. Many won’t mind a small reduction in quality. But others will now value your product quite a bit less—for them, the cost savings don’t pay off. Again, it’s a numbers game.
Taco Bell and British clothing retailer Marks & Spencer get the numbers game right. You can get Mexican food that is better than Taco Bell’s and better-quality clothing than Marks & Spencer has to offer. But the higher quality comes at a cost that most people aren’t willing to bear. Taco Bell and Marks & Spencer forgo some customers, but gain many more. In fact, Taco Bell and Marks & Spencer