Low Cost at What Cost?

Anyone who wants to write a book on Service Innovation or indeed improve their own services would do well to keep an eye on Tyler Brulé’s  The Fast Lane column, which appears every Saturday in the Financial Times.  In a piece called “The High Price of Low-Cost” he slams both Lufthansa and Air France-KLM  for launching low cost spin offs and muses on the resulting damage to their brands.

“I fear this will force more passengers into a joyless experience that does nothing to win loyalty and competes purely on price.  Managers at European airlines tend to shrug and suggest that offering less for less is the only way forward .  This however is not a strategy, and nor is it a sustainable business model.  Good brands compete by innovating with their products and services and turning customers into loyal emissaries.  Short-sighted companies risk the possibility of destroying their brand altogether.”

With this in mind I wonder if companies who outsource services ever muse on the potential damage that they are doing to their own brands.  I appreciate that it makes sense for companies to outsource when they do not have the internal capability and there’s a new process involved.  When a company outsources an already existing process the outsourcing partner rarely comes up with a process that, in the customers eyes, is an obvious improvement regardless of the potentially superior technology involved.  In most instances they merely “lift and shift.”  The push for lower cost merely leads to more of the same, with virtually no commitment to any form of innovation.


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