How Far To Go With Cost Reduction

Here is Seth Godin's blog post 'The tragedy of the last 10%' . 

"In a competitive market, if you do the work to lower your price by 10%, your market share grows.

If you dig in deep, analyse, reengineer and make thoughtful changes, you can lower your price another 10%. This leads to an even bigger jump in market share.

The third time (or maybe the fourth, or even before then), you only achieve a 10% savings by cutting safety, or quality, or reliability. You cut corners, certainly.

The last 10% costs your workers the chance to make a decent living, it costs your suppliers the opportunity to treat their people with dignity, and it costs you your reputation. 

The last 10% isn't worth it. We're not going to remember how cheap you were. We're going to remember that you let us down."


As for the airline industry, the second step is far from achievable. This is not because airlines don't try to dig in deep, analyse, reengineer, and make changes, but because their access to the right cost information is limited. Not to mention self induced complexity and uncertainty that only exacerbate the problem. 

Related:

'Managing Costs We Don't Understand'