Simply Cutting Back Does Not Grow a Business…

I dined for lunch with a companion recently at a local restaurant; and one of the items which I typically enjoy is ravioli, as I do not eat it very often — but my last experience was disappointing primarily because of significant cutbacks on the food.

Simply Cutting Back Does Not Grow a Business…

When I started dining at this particular restaurant, the dish contained six ravioli with a significant amount of lobster filling; six shrimp; and a Caesar salad. A small loaf of hot fresh bread comes with the meal…

…but the meal I received no longer comes with salad; has only five ravioli; and less filling stuffed in each ravioli — to the point where parts of each ravioli were flat with no filling at all. Even the olive oil for the bread no longer has pepper freshly ground on it for that slight extra kick of flavor.

The person who served us apologetically explained that salads no longer accompany the entrée at lunch. The meal was still good — although not as good overall as when I first started dining there — but I was not full when I left; and that was the first time that happened.

With these new policies in place, the value for me no longer exists. I will likely stop dining at this particular establishment…

…and in case you were wondering, the cost of the meal was still the same.

As an indirect comparison, I recently purchased a package of frankfurters from the supermarket; and the price for the package was slightly less expensive — but the package also contained one fewer frankfurter. The lowering of the price of the package at least helped to offset the loss of one frankfurter.

Cutbacks in the Travel Industry

Over the years, travel companies have been implementing similar cuts in products and services — one of many examples was the uproar over the devaluation of the American Airlines AAdvantage frequent flier loyalty program back in March of 2016 — and on some of the particularly egregious cutbacks over the years, consumer response was strong enough that the company was forced to restore value — partially, at the very least.

Then again, I believe in many cases that is a ploy: have the customer lose what he or she enjoys in a product or service in order to appreciate it more when only some of the value returns to the product or service.

This sort of slicing costs is nothing new to airlines. Remember the famous story of when Robert Crandall — once the chief executive officer of American Airlines — had the idea in 1987 to remove an olive from each salad served to passengers, resulting in a savings amounted to at least $40,000 a year?

For the record, Crandall did not conjure the idea to remove the olive from each salad. Rather, a member of the flight crew — who noticed that passengers rarely ever ate it — was the brainchild of the cost-cutting measure. At the time, American Airlines had an incentive program where employees could report ideas which save money — and get a portion of the savings as an incentive…

…and the airline may still have this program — except one does not get any return on successful ideas, which likely resulted in significantly fewer ideas submitted to the airline by its employees. That — in and of itself — is cutting back which likely does not benefit the airline in return for the nominal savings in cost.

Speaking of which, remember the uproar by employees of United Airlines when the introduction of a new incentive program was announced through which instead of receiving a guaranteed small bonus, employees have the opportunity instead each quarter to win a significantly larger prize — such as one of ten employees to receive a choice of a Mercedes-Benz C-Class sedan or $40,000.00; or perhaps the sole winner of a grand prize of $100,000.00?

Anyway, 1987 was eleven years before the current iteration of FlyerTalk was born. Airlines are less successful with stealth cost-cutting moves such as the disappearance of one olive when there are FlyerTalk members “in the wild” reporting on such minutiae. In fact — back in 2001 — FlyerTalk member AA SLF wondered if American Airlines was once again tossing olives from the salads served during flights simply to save on some “lettuce”.

Remember the Great GrapeGate Grate of 2014 when groups of FlyerTalk members grappled with the gripping story of griping about groping fewer grapes — or lack thereof — during meal service aboard aircraft operated by United Airlines? How about when the airline purportedly bade farewell to garlic bread, ketchup, and Sprite Zero?

Many other cutbacks have occurred with not only airlines, but also lodging companies, rental car companies, and other businesses of which the travel industry is comprised.

Summary

Cutting back on the value offered on a product or service is certainly understandable when the cost of providing those products or services increases — but when overall value is decreased significantly enough, the customer will likely be dissuaded from further patronizing the company. This is especially true when the experience itself has degraded significantly enough.

Devaluations are certainly not the end of the world — especially when put into the proper perspective, as is the case of a FlyerTalk member who was devastated when he recently lost his daughter — as life is all about maintaining perspective and adjusting your expectations

…but unless a company offers such exceptional value to its customers that the cost of maintaining it is unrealistic — and that most customers will still patronize the company regardless of the reduction in value — history has repeatedly proven that simply cutting back solely to save money does not help to grow a company.

In fact, quite the opposite effect could happen: cutting back could actually cost the company significantly more money than it saves — especially if enough customers are dissatisfied enough to conduct their business elsewhere. More often than not, cutbacks typically eventually sound the death knell of a company — or, at least, substantially shrink a company which once thrived. The present financial situation of Sears is a good example

Photograph ©2016 by Brian Cohen.

2 thoughts on “Simply Cutting Back Does Not Grow a Business…”

  1. Christian says:

    The US airlines are fortunate that they’ve overconsolidated, which allows for an ongoing worsening of value to the customer, since the customer has fewer and fewer options. In the interest of fairness, I should mention that LCC’s have helped keep base fares low in some markets, but even then the customer gets hit with a plethora of additional charges, and must either work hard to avoid these or just pay up. On other routes where there is less competition, the airlines squeeze the customer badly. For instance, I checked into a flight to Jamaica late this Summer, and got airfares from $700-800 per person in coach, from the Southeastern US. Frankly, that’s awful. And indicative.
    Meanwhile, potential new airlines face a steep barrier to entry with landing slots being guarded jealously by the legacy carriers. Without these slots at prime airports, it would be extremely tough to create a viable airline from scratch. Hopefully, some solution will be arrived at, but if so, it will be a while coming.
    As to the Sears analogy, their problems were not a result of cutbacks. Sears simply had a culture of resistance to change. That, combined with new more flexible competitors such as Walmart and online selling, made for a very difficult circumstance for any established retailer, let alone a stodgy middle market mainstay like Sears. They were caught with legacy costs and legacy thinking while the market for their product shrank quickly.

    1. Brian Cohen says:

      No argument from me, Christian — except that with Sears, the solution has continually been closing stores rather than to adapt, which is the worst type of cutback, in my opinion.

      As for the airlines, a disruptive technology or solution may be the only way to loosen the stranglehold on the public which they now have, thanks to that overconsolidation…

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