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Why You Should Stop Cutting Costs and Focus on Your Best Customers

Companies seem to be obsessed with cutting costs these days, shedding employees-and generally making their customers' lives as difficult as possible. But that may not be the best route to success, as my wife and I found out on a recent airplane trip from Madrid to Barcelona. For those who have never experienced it, the Puente Aereo (or air bridge) service operated by Iberia Airlines is a completely unique travel experience in today's world. Both the Madrid and Barcelona airports devote a separate section to this shuttle service. There you will find a desk to buy tickets-with no line. Check-in counters to leave your bags-no lines. No lines at security. Flights that leave about every hour, and that fly on time (even on the day we flew, when flights from Madrid were being disrupted by volcanic ash). New planes. Great on-board service. Rapid baggage delivery at the other end. Very full flights. And, by the way, comparatively high fares-about $300 for this one-hour trip.

This is not a one-time experience. Every time I've flown between Barcelona and Madrid, I marveled at how painless and pleasant the experience was. Several knowledgeable people told me that Iberia makes more than 100% of its profits on this heavily traveled route, even as it faces new competition from high-speed rail service between Madrid and Barcelona and from another airline, Vueling, that flies the same route. Yet Iberia is the same airline that is in the process of merging with British Airways because of its financial difficulties. Its other routes mostly provide the same poor on-time performance and lousy customer service we have all come to expect from virtually all airlines.

Businesses seeking to earn money in these difficult economic times can find several lessons in this tale. First, it is apparently possible, even for companies that normally don't have high-quality operations, to do extraordinary things if they put their minds to it. The assumption that passengers must face lines, hassles, and operating issues is belied by what happens on the Puente Aereo.

Second, to make an obvious but frequently overlooked point, businesses should go where the money is. Clearly, some travelers are willing to pay (or have their companies pay) for convenience, comfort, and a reliable, hassle-free travel experience. Some people must be willing to pay for similar high-quality experiences in hotels, restaurants, retail stores, and many other places. Instead of chasing volume and ignoring margins, as most companies seem to do, many businesses would be well-served to find the high-margin customer segments and pursue them with every means possible.

This is not as easy as it sounds. It can be tempting to cut back-maybe just a little. Take out one check-in counter, say, or fly a little less frequently. Then cut back the baggage handlers so bags don't arrive in 15 minutes. This is how many so-called high-end experiences have morphed over time to become something much-often very much-less.

Discipline and focus are the keys to avoiding the seemingly small but important compromises in staffing and other components of the customer experience that start companies on the road from being truly exceptional to being just one of the pack. Charging a high price and relying on a good brand image won't work if you bely those efforts with what you do on a daily basis.

Of course, the high-end market is limited. But actually, all markets are finite. In the last couple of years, most newspapers have shed reporters, cut their content-and lost readers. Many higher-end retail stores have cut staff so that it is now difficult to get sales assistance. Banks, the same. Even Lexus, the upscale automobile brand, now has quality issues. Brand image is like trust: it takes time to build, but can be destroyed very quickly.

So beware of the temptation to make the seemingly small compromises that end up compromising your value proposition. And eschew the idea that outstanding quality is impossible to achieve. Even in the world of airline service, the Puente Aereo illustrates that truly, anything is possible.

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