I arrived back in Indiana today via the new airport. I followed the signs to the ground transportation area, also new. I found the trusty old Bloomington Shuttle Service, with the little machine that spits out ticket cards for $25. And surprisingly, next to the kiosk with the familiar logo was a second kiosk with a big new sign that read "Bloomington EXPRESS Shuttle Service," and "Only $15."
Competition.
Hmm... I had to talk to someone about this. What was going on here? Was there a difference between the services? How was the new service suddenly able to so drastically lower the price? Did they have a competitive advantage that made their costs lower? Or had the original shuttle company been making huge marginal profits, and the new company was willing to reduce marginal profit, in favor of volume of sales? Did the second service evaluate the market and decide there was a big share to be had? In what way was the current service not meeting demand? (It seems there is always enough space on the busses.) And what will be the result: Will students gravitate to the new service because it's cheaper, or stay with the old one, because it's familiar and dependable?
The guy at the Express kiosk, of whom I began to ask these questions, was not very helpful. But I gambled on the new one, and got the exact same service, for a lower price. The bus was the same, the stops were even exactly the same. The driver did have to ask the ticket guy how to collect money from passengers with credit cards - he didn't know you can only buy tickets inside, before you get on the bus; so clearly they're still learning the system. They're copying the old service exactly right now.
Competition, but no innovation.
I was interested enough I found their website. It does say they're committed to improving the service, not making it identical to the old one. Their website says "After our trial run [of Thanksgiving weekend] we are working to make it bigger and better," and they welcome your ideas.
So competition drives innovation.
And funny enough, the old shuttle service website says "Bigger is not better when it comes to personalized service..."
So maybe it's a positioning issue, in the 4 P's marketing mix, on a quadrant grid. One will position as low-cost, basic service, the other will position as higher-cost, more personal service. Or maybe you can't really differentiate levels of service on such a straightforward product. So the original will just have to lower prices in order to compete.
The inversion is also true: Innovation drives competition.
I thought about this during the hour-long shuttle ride, before I opened my laptop and watched online episodes of Seinfeld; but that's a topic for a different post.
Next time you're standing at the kiosks thinking, $25 known, $15 unknown, know that they're exactly the same, pre-innovation, anyway.
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2 weeks ago
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Interesting thoughts (wow, look at all that fancy strategy/marketing jargon!)
The original shuttle company must have been making enough LT profits to justify the new shuttle to enter the market. More suppliers--lower price trends towards MC=MR. But enough Econ. I noticed this happen in NYC for a bus service to Boston.
For years, Chinatown buses provided a crappy service to go to boston from nyc. They charged $15 for a pretty bad experience (there are stories of non-english speaking bus drivers deserting the bus and speeding/getting into accidents). Recently, however, two new legit companies (not owned and operated by chinese immigrants) entered the market (one, oddly, owned by grayhound buses), that actually use variable pricing, but on average charge about $15 a ticket (the same price as Chinatown buses). The buses are very clean, you can purchase online and guarantee a seat, and are equipped with WIFI and plugs.
The level of service and value (wifi, plugs, friendly) is unheard of on the chinatown buses. What drove the innovation? If we're going to pick a Marketing P, it's probably product...but that's BS anyway. Chinatown (or perhaps the Bloomington shuttle) had inferior value for the price charged. Anytime this happens, entrepreneurs everywhere will be on the prowl. There's no reason to innovate unless you can compete. This is why companies that have no competition (monopoly, natural monopoly) usually have horrible service (think Secretary of State DMV, DTE Energy, etc.)
What surprises me here is that a new service was *allowed* to compete at all. Typically the incumbent firm will find it worth the effort to lobby the powers-that-be to permit only "authorized" firms from providing service. Since airports are highly regulated environments, I would have expected this to be relatively easy. But I'm happy to be surprised in this case.
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