Ryanair learns the power of social media – profits dip 29% despite a 600% increase in marketing budget
Editor’s note: This is a guest post by Shaun Smith, who has been a key catalyst in expanding management focus from the tactical issues of customer service to the much wider and strategic issue of customer experience. Shaun is also the author of “BOLD”. Find out more about him here.
Sometime ago I wrote a blog in which I predicted that there would come a time when Ryanair’s performance would begin to falter because of increasing customer dissatisfaction with its business model. That time may have arrived because of the power of social media.
€300 for printing boarding passes?
The airline recently became the focus of a Facebook campaign criticising the brand’s tendency to fleece customers for extra services. Suzy McLeod flew with her family and was charged €300 for printing five boarding passes. Her Facebook entry read “ When flying from Alicante to Bristol yesterday, I had previously checked in online but because I hadn’t printed out the boarding passes, Ryanair charged me €60 per person!!! Meaning I had to pay €300 for them to print out a piece of paper! Please “Like” if you think that’s unfair”. Over 500,000 people did. In addition there were more than 20,000 comments posted, most of them in support of her.
Now to be fair to Ryanair, its terms and conditions clearly state that passengers will be charged for printing boarding passes but its policy also only allows passes to be printed out two weeks in advance of departure. Because Suzy McLeod’s trip lasted 15 days it wasn’t possible for her to print passes for the return. So she wrote to Ryanair asking for compensation. So what was Ryanair’s response?
In the words of Michael O’Leary, its Chief Executive, “She wrote to me last week asking for compensation and a gesture of goodwill. To which we have replied, politely but firmly, thank you Mrs. McLeod but it was your f**k-up.” He claimed that 99.98 per cent of Ryanair passengers did print their boarding passes in advance.
To those who don’t, we say quite politely: ‘Bugger off’”. The Ryanair boss went on to conclude; “We think Mrs. McLeod should pay 60 euros for being so stupid.” He fails to say whether her ‘stupidity’ was in choosing to fly Ryanair in the first place or failing to print boarding passes.
Lessons in branding from Ryanair
Whilst in no way condoning O’Leary’s behaviour, his response does demonstrate some important principles of which brands should take note:
1) Be clear what you stand for and be single-minded in sticking to your strategy. O’Leary’s response clearly demonstrates that its low cost business model of unbundling air travel and selling each component separately is not negotiable even in the face of wide-spread criticism.
2) Know who your target customers are and don’t try to be all things to all people. Telling customers to “Bugger off” if they don’t like your policies is a fairly extreme form of customer focus but does send a message about the kinds of customers you want to attract.
3) Practice zealous leadership. O’Leary doesn’t hide behind a customer complaints department. He leads from the front and isn’t afraid to put himself in the firing line to defend his airline. This is one of the characteristics he shares with Richard Branson, Chairman of Virgin Atlantic. Understanding PR is another.
So all that is good for Ryanair then? Well no, not really. Because there is one vital principle that Michael O’Leary ignores:
4) Create affection for the brand. This is something that brands like Southwest Airlines (that has recently announced its 39th year of straight profit) and Virgin Atlantic have long understood; if you make customers care about your brand they will defend you and stay loyal to you in the face of competitors. Virgin has always positioned itself as the ‘challenger brand’ taking on the big guys on behalf of the customers and seeking to give a better experience for a similar price.[In 2009], in my blog I concluded,
“Customers will slowly start drifting back to those airlines that make them feel good again and who can put the fun back in flying. Airlines like Virgin Atlantic for example.
Of course Ryanair’s response may be to try to upgrade its service on the basis that it cannot drop its fares any lower, but the problem is that when you have spent so long forging a strategy and culture that places cost reduction way above customer service that avenue is essentially denied.” See http://www.smithcoconsultancy.com/2009/12/)
It has taken longer than I thought but my prediction may be coming to pass.
The adverse impact of social media
In July Ryanair reported a 29% decline in profits despite a ‘six-fold’ increase in marketing expenditure. At the same time, its closest rival, easyJet, reported better than expected results based on a strategy of steadily enhancing the customer experience. It will be interesting to see if this strategy is sustainable for easyJet. I am pretty sure that longer-term Ryanair’s isn’t.
What has changed? In two words, ‘Social Media’. More than 110 million smartphone users in the U.S and Europe now access social networks and blogs on their phones. And whilst it took smartphones seven years to reach 40 million users in the U.S it took tablets just two years to reach this figure. With such easy access to the web we shouldn’t be surprised at the growth in customers sharing views about the brands they use whether this is known to the brands or not. A RightNow paper ‘Socialisation Of Customer Experiences’ concluded, “Brands are frequently left out of critical discussions, and when they don’t participate or respond, the discussion continues without them – for better or worse”
The RightNow research found that nearly a quarter of British Adults have posted a negative comment about a company on a social networking site. Of these ‘detractors’, 65% want to inform others about their negative experience, 46% want to vent their frustration and 30% want to discourage others from buying from the company – and they frequently succeed. The study also found that a massive 39% percent of consumers decided not to buy from a company following something they read on the social web.
We used to say that a dissatisfied customer would tell 9 – 10 others. In today’s socially connected world that factor has multiplied several-fold. Convergys, the contact-centre company, found that the average detractor will tell 45 friends via a social media site. However, that figure hides a wide range of potential impact as Suzy McLeod told 500,000 ‘friends’ and who knows what impact that may have had on Ryanair’s bookings for better or worse.
So perhaps we have reached the point where the free PR generated by Michael O’Leary’s highly quotable statements and the €51.6m spend on advertising is starting to be eroded by the negative word of mouth generated by disgruntled customers as a result of poor experiences with the airline.
Maybe it is time for some of that above-the-line budget to be diverted to a social media strategy?