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Are your values getting in the way of profit?

We have previously written about how retailer Tesco squeezes premium margins out of a humble sponge cake, and the potential lessons for telcos. We suggested that operators “draw inspiration from outside the industry, and benchmarking against best practice”.

One such success story is Ryanair, the discount airline. There are three important lessons to take away from their business.

The first is that they baked-in a completely different set of values amongst their workforce. Many of their actions would have been heresy to a traditional airline operator: removing pre-allocated seats, breaking down labour divisions, placing adverts on seat backs, charging for using credit cards, and so on. As an operator, now is the time to ask yourself what are the parallel issues in your business, particularly as an increasing proportion of the industry becomes focused on price.

Secondly, they give away over a quarter of their seats. Yet most telcos won’t launch a new service without a revenue model, and will always attempt to charge for all traffic (if only as part of a metered bundle creating breakage or overage). Like a telco, the airline business is largely about squeezing revenue out of a fixed-cost asset base. Consider what would happen if data charges were waived to a selection of innovative new applications. How much faster would the mobile ecosystem grow?

You could imagine this being taken further. It’s a challenge to get people to switch operators, so why not make it easy to “try before you buy”? Offer targeted SIMs to students, housewives, etc., and include unlimited free off-peak calls, no contract required. (Feel uncomfortable? Why?) Once they start to get used to putting your SIM into their handset, you’ve got a chance to SMS them each time with an offer to pre-pay for peak minutes, or adopt a post-paid plan that fits the calling patterns you’ve observed. A customer relationship can precede a billing relationship.

Again, your values may stand between you and profit.

Finally, consider what would happen if Ryanair solely used ARPU as its guiding metric. Their “ARPU” is one of the worst in their industry, yet they have among the highest margins and stock valuations. A rational ARPU-driven decision would be to eliminate that marginal last free ticket. This would clearly be wrong for Ryanair. They need subtler metrics — “ARPU per business passenger booked within 7 days of departure”, or “Concession revenue per free ticket”.

Your best call might be simply to give your product away. After all, it won’t cost you anything but your values.

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