Mind the gap

There are many SMEs that I come across that believe they have a monopoly and do silly things to protect that monopoly.

Ever heard of Braniff Airlines? In the late ‘60s and early ‘70s, it was one of the biggest airlines in the world. Texas based, it flew people into and out of the main airports of Texas from and to major US centres as well as international destinations.

Texas Airlines (ever heard of them?) also operated into and out of Texas. Braniff doesn’t exist today and I think that Texas got tied up along the way with Continental.

So what has this to do with the price of fish?

Southwest Airlines, based in Texas, which came into being in the late ‘60s when Braniff dominated the Texas air passenger market, is now the largest airline in the world and in the United States by the total number of passengers carried. Braniff doesn’t exist.

When the guys at Southwest decided to start up an airline in Texas, all the stats indicated that there wasn’t a market because it was served by Braniff and Texas. To break into the market it was believed that it was necessary to steal market share from the big boys and no one thought it possible, apart from the guys at Southwest.

These guys identified two markets. One, which is relevant to this little story, was the market created by what they called the “quality gap”. Braniff was a national and international carrier. People travelling within Texas would catch a Braniff flight at a Texas airport but that flight might have just arrived from New York. It would frequently be late; the plane would be dirty and the passengers pretty tired and anxious to get to their home destination and frustrated that they had to land at Houston to go on to San Antonio or some other airport.

Braniff had a virtual monopoly on the Texas market and charged accordingly. Its service reflected that monopolistic culture.

Southwest discovered that passengers were fed up with the service and the charges. They were also fed up in that they had to use major airports with all the hiccups of parking, booking in and contesting with all of the passengers going in different directions.

So Southwest started to operate out of and to smaller domestic airports which were easier to reach, less crowded and more suited to the requirements of people travelling within the state of Texas. People who were sick of being messed around by Braniff defected to Southwest. They could get to the airport more quickly, they could travel on a direct flight and not have to wait for an international flight to arrive late, and they were greeted by fresh friendly staff who wanted to make their flight experience a pleasure.

Southwest detected the “quality” gap and organised themselves to fill the gap. Despite the warnings that the market was not big enough in Texas for a new airline, Southwest succeeded by taking market share from people who had abused their monopoly and who failed the quality test.

Just for the sake of completeness in this little story… Southwest also identified another market segment, being people who normally did not fly because it was too expensive. Southwest introduced low cost air travel and picked up an enormous and hitherto untapped market.

But it is this quality gap thing that attracts me. Why?

Even today when people say there is no such thing as a monopoly, there are people who believe that they are still in a monopolistic situation. Microsoft (Internet Explorer stops working so you go to the people who sold you the computer rather than to Microsoft to have the problem fixed); Telstra, which maintain that it has excellent mobile cover in Australia (but go to north central Victoria and try and have a conversation of more than a few seconds in some places) are big examples of corporations that have created quality gaps that one day will be filled by another Southwest.

But there are many SMEs that I come across that believe that they have a monopoly and do silly things to protect that monopoly. For instance, they will expand their geographic presence to keep out competitors. In doing so they place greater demand on existing resources and reduce the level of service, thus creating a quality gap just waiting to be filled.

I say to people that if they believe they have a monopoly, please invent a competitor and run your business as though your life depended on the quality and price of the service, because your business life does in fact depend on how you manage these issues.

It doesn’t matter what business you are in or how insulated you might believe you are from competition, beware of the quality gap and be resolute in consistently maintaining a culture of “a need to compete” so that you never create a quality gap. Otherwise, you might end up like Braniff.


To read Louis Coutts’s newsletter, which goes out once a quarter, go to the Coutts and Connor web site and click on the tab for articles and newsletters. To read more Louis Coutts blogs, click here .



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