Friday, December 19, 2008

The Case Against Customer Service

It is not often that I see an example of a business being successful when the underlying business strategy is to not adopt customer service. Michael O'Leary, CEO of Ryanair is a skeptic about the value of customer service and when given the opportunity to turn around Ryanair Airline as he took over the helm, he looked at the business model for Southwest Airlines, an airline he believed was successful, and then bench marked Ryanair against Southwest. Once he saw how Southwest had succeeded, he adopted their model except that he chose NOT to include customer service. His view which he backed by research suggested that the primary factor and almost sole driver for customer choice of an airline in the European coach and economy segment is low, low fares.

Since he has instituted this philosophy Ryanair has posted record growth and a reasonable profit over a sustained period of time. When he was interviewed by the Wall Street Journal in 2004, it is reported that his comment was that in head-to-head competition, low prices will always beat out "value services."

The bottom line for Ryanair is their business model that seems to be working is "low price versus competition is the driver to business success and profitability; not satisfying customer service for building customer loyalty." While this might not be the formula for success for other businesses or even other airline market segments, Mr. O'Leary has found the primary, and possibly the only driver for success in his market segment. This is a lesson for those of us who believe that we must always have a strong customer service component to achieve business success.

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