Profitable Choices

ocean_sunrise“So, any new revelations from your trip, sir?” I asked, pleased that I had gotten the conversation started this time.

“Eh? Sorry Watson, I was lost in thought regarding some lessons learned during these travels,” replied The Effective Detective in a way I was sure was meant to annoy me. “Each time I cruise, I am impressed with the choices the company has made to make your trip an experience while at the same time ensuring that they make money in the process.”

“In what way, sir?” I asked, curious about the direction our conversation may take.

“What they do that is a great lesson for businesses large and small is touch the emotional side of their passenger which in effect distracts said passengers’ attention from things that they must pay for that also have extremely high margins. A simple thing like a beautiful view, or a more solid example, highly attentive service, and some interesting shows, cost only marginally more than if they reduced the size of the crew or had less impressive shows,  but goes a long way towards distracting the passengers from noticing they pay for every soft drink – where the margin is fairly high; Americans especially feel that free refills are their birthright.”

“Why not do both and make even more money?” I ventured as The Detective paused.

“Bah!” spat The Detective. “A comment worthy of a know nothing MBA!” he exclaimed with obvious distaste. “The idiotic, if somewhat logical sounding, assumption that if cutting some costs is good, then cutting a lot of costs is even better! I would have expected you to have your head out of a spreadsheet, Watson,” The Detective glared at me dourly.

“Sorry sir, I was just presenting a thought,” I said meekly.

“Of course Watson. I should not have exploded so. I see and hear such stupidity so often, I sometimes speak without thinking. When you look at everything in your business as an entry in your profit and loss statement, it is easy to forget that your customers are not just results added into income, but flesh and blood beings that make decisions about your business based on their perceptions. If you take something away from them, you need to replace it with something. If they perceive a fair trade, then you have struck the correct balance. The more emotional the connection you can make, the greater the chance you have of perception of a fair trade,” The Detective took his characteristic pause.

“Which is why service is such a good choice I would assume. Since it adds a human touch to the transaction. It makes a person to person emotional connection,” I volunteered.

“Precisely Watson! In the case of our cruise ships, the more shows they provide can also make emotional connections. Ones of pleasure, or perception of value – ‘Hey I saw them in New York! Paid thirty dollars to see them too. I get to see them free on the ship!’ Yet drink prices – especially for non-alcoholic sodas are relatively high. Yet, who cares when the bartender or server smiles nicely, is prompt, and asks if you are having a great time? A great combination of service and value.

“Could they make a fraction more money by cutting back on such things? Less crew per passenger, lower quality shows? Of course. At least in the short-term. As word got around of the shortage of value, customers would bolt. The cruise line would either have to change – and for most businesses in this situation is too little too late, or cut price – which may or may not work, and at any rate defeats the whole purpose of the cost cutting exercise, ” The Detective finished.

“So give up a little here and there to make a lot more, eh sir?” I ventured, more confident in my question this time.

“Quite so, Watson. Let us move on.”

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