John Akerson's Thoughts

Business, technology and life

The Cost to Convenience ratio

Bradford Cross wrote a great article on Measuring Measures “Why the iPad is Destroying the Future of Journalism.”

He was a bit off the mark in discussing Facebook, and could have provided more useful content by discussing Twitter because Twitter is a competitive microblogging platform that more directly delivers news-ish information.  His point was valuable because he focused on ways that media needs to address how it delivers unique content in a way that allows people to share.

Traditional media needs to ensure their cost to convenience ratio is favorable. 

What is that?  Here’s an example:  Your bank would love it if you, personally, used them for CD, Checking Account, Savings Account, Car loan, mortgage, IRA, online banking, online bill-pay, mobile banking and every other consumer service they offer. They want you to use their atm’s, their branches, and every location they offer.  They want the fees, of course, but they also want to make it more difficult for you to go to another bank and start up all those accounts, at that other bank. If your relationship with your bank is deeper, it is more difficult for you to switch. That convenience has a huge value because of the cost of changing, in terms of time and aggravation.

When your personal cost of switching (in time, and aggravation) exceeds the pain you feel from staying with a bank, they’re a winner.  This applies for ANY business.

If your convenience exceeds the cost you’re charged for that convenience, you, as a customer, might be content to be their loyal customer for EVER. You may slide from being a customer to being an evangelist.  This works for a local newspaper too, which may have a virtual monopoly on newspapers in a regional or local area. In many cases when a local newspaper is the only game in town, it can afford to be sloppy and cheap . The Winston Salem Journal, for instance, recently fired their entire copy desk. For their customers, the cost of finding an alternative far exceeds the cost of staying a customer. In some cases, there IS no alternative.

Look at Hyundai’s new Equus. Car and Driver’s comparison shows that it essentially clones the Lexus LS460L . “When Korean engineers set about copying the modern LS, they swallowed their inventiveness and simply deployed a really good Xerox machine.”  They did it extremely well, and “as-tested LS460L cost 50 percent more than the Equus.”  That is a steep cost for the convenience and pleasures of owning a car with the Lexus name.  Ironically, it is similar to what Toyota did.  “Note the way the Equus undercuts the six-figure Lexus. Just like Lexus undercut Mercedes 20 years ago.”  Hyundai “xeroxed” the LS460L, and it has also copied Toyota’s Lexus business model to a certain extent. (Using Toyota’s business model against Toyota.)

Every business needs to look at the cost/convenience ratio that they provide. It is a real key to deepening customer relationships. Deeper customer relationships increast the cost of changing to competitors.  Successful businesses (Zappos, Amazon, Lexus, Hyundai, etc) aspire to make their customers happy because happy customers are loyal customers. Those customers are loyal, in part, because of the cost to convenience ratio.

Every Lexus’ LS460L that is sold this year is an example that the value of that loyalty… Every person who buys a Lexus LS460L is a person who is willing to spend tens of thousands of dollars for a Lexus, when there is a much less expensive substitute available. Those purchases show loyalty for Lexus’ past performance.

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January 10, 2011 Posted by | Business, Competitive Advantage, Life, Social Media | Leave a comment