by Dr Greg Chapman
One of the most popular articles I have ever written was Are Your Customers Cats or Dogs? In it I warned that businesses can have both Feline (High Value Customers) and Canine (Budget Customers) but you need to ensure that you keep them apart. After all, we know what happens when you put Cats and Dogs together. (I am talking about market segmentation!)
If your segmentation is poor, you find that your customers are looking over the fences and seeing that the grass appears greener on the other side. Perhaps your budget offer might appeal to the customers you previously thought to be premium.
In market segmentation, I often like to compare Qantas and Jetstar. Both, of course are owned by the same company, but one is cheap and cheerful, and the other is focused to the business traveller. While the business traveller is still cost conscious, they want reliability and flexibility. Jetstar does not offer this, with delays far more frequent.
However, within Qantas you have a choice of classes, within which the Jetstar vs Qantas reliability does not exist. Whether you are at the front of the plane or the back of the plane, you arrive at the same time, even though it may take you a bit longer before you are at the taxi rank.
For international flights, this becomes even more difficult to justify in the difference between Business and First Class especially since fierce with competition Business today, is as good as First ten years ago (the margins were very high). About the only reason you would fly First internationally today is because you can’t afford your own private jet (Loser!).
So now we see Qantas is dramatically reducing its first class offer. As a result of competition, the segmentation between First and Business has collapsed and companies find it harder to justify the premium for First except for the very top executives.
How does this relate to small business owners, who are still weighing up the cost of Jetstar vs back of the plane Qantas? In fact it does not just apply to small business.
There was a situation where there was a confrontation between the Australian Government and Bonds on closing down an Australian plant because high union rates of pay had made them unprofitable, and they transferred their production offshore. There was an awkward situation when the minister and the CEO where on the same plane. However, there was no meltdown on the plane, as the minister was seated in first class and the CEO was travelling economy. (Your taxes at work.)
For small business, the message is that if you have both Feline and Canine customers, that they can’t look over the fence. While you have competitors, it is unlikely to be as ruthless as the international aviation industry which is highly subsidised and dysfunctional.
So you can offer both Premium and Economy services, just as long as you can keep the cats and dogs apart.
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Dr Greg Chapman is the Director of Empower Business Solutions and is Australia's Lea ding Advisor on Emerging Businesses and provides Coaching and Consulting advice to Australian Small Business Owners in Marketing & Business Strategies Planning & Systems. He is also the author of The Five Pillars of Guaranteed Business Success and Price: How You Can Charge More Without Losing Sales.
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