A couple of years ago on a busy Ryanair flight to Riga, I was seated next to an incongruously tweedy gent with a Terry Thomas demeanour. After a particularly heavy touchdown, he turned and asked “my god, did we land or were we shot down?” Clearly more familiar with traditional carriers, he seemed traumatised, which as frequent fliers will know is all part of the Ryanair experience.
I’ve had many similar conversations over the years. Few people have a good word to say about Ryanair, but the airline still continues to attract record passenger numbers.
The reason of course, is the cost. Ryanair’s business model centres on attracting customers with the lowest headline prices in the industry.
Despite some brave attempts at differentiation fierce competition from budget carriers has led to the commoditisation of air travel. Now almost all airlines compete on price alone. The same trend overcame the car hire industry some years ago.
So in these difficult economic times, how is the web industry holding up? A recent survey by Econsultancy of 350 leading UK digital agencies revealed that respondents saw the biggest challenges as increased competition, commoditisation and declining client budgets. This suggests that our industry may soon face similar hurdles seen in other hyper competitive markets.
In some areas commoditisation is a benefit, driving down the price and giving customers a better deal. The plummeting cost of cloud storage is a good example.
But for more complex web design and development, commoditisation carries risks for both agencies and clients.
It is currently too easy for clients to form the impression that most web agencies are largely equal, that one set of code is much like another. In this scenario the main differentiator becomes price, because the services seem so much alike.
Designers do bad things
Coupled with this lack of understanding of the difference between indifferent and excellent web design, the drive to win new business in a highly competitive environment also holds the danger of creating a self-fulfilling spiral towards lower quality and standards.
Andy Budd recently highlighted these dangers:
The culture of winning work at all costs forces good designers and developers to do bad things.
Failure to appreciate value is not confined to the web industry, however. It reflects a general lack of understanding about how much things are worth and what constitutes a fair price (the reason TV-shows like The Price is Right can exist).
In response, we need to make it easier for clients to compare what they’re getting and get better at explaining how our costs are calculated.
An example of the value of clarity and simplicity in pricing is an experiment conducted by Ash Maurya, an entrepreneur for a now defunct startup.
He tested a single, straightforward $49/yr offer against 2 plans ($49/yr and $24/yr) and 3 plans (adding a freemium option).
Surprisingly the single price offer won. He speculated as to the reason:
It does pay to align pricing with your overall positioning. Our proposition was built around being hassle-free and simple and people seemed to expect that in the pricing model as well.
Show the love
As well as simplicity, we must also remember differentiation; engaging and persuading the customer that our products or services are superior and different to those of our competitors. But this isn’t easy when we all offer very similar services.
The importance of differentiation is neatly summarised by Allan Branch and Steven Bristol from LessEverything in their book Don’t Let Your Business Run You.
Marketing is about standing out, being approachable, showing value and giving love.
When differentiation is difficult and time consuming, there is a natural tendency towards competing on price. The danger is that customers will come to see you as being defined in these terms.
Whilst we all need to look at our pricing and make sure we’re competitive, as soon as we start to compete mostly or completely on price, we start down the road towards the commoditisation of web design, something that has had a far-reaching impact on the airline and car hire industries.