The announcement today that American Airlines (NYSE:AMR) is adding a $15 fee to the first bag of luggage, underscores the importance of looking ahead for online marketers, and seeing where significant cost increases could affect your business.
In the airline industry, the always well run Southwest Airlines (NYSE:LUV), made a fantastic move by hedging oil when it was at a low price, counteracting the rise in prices. That will allow them to keep from having to increase baggage fees, adding another competitive advantage to their service.
The point is to consider the major cost points you have, and project out what would happen if they started to increase in a major way. From there, make up alternative plans, or plans that would balance out the increases, so you can remain competitive.
We must realize that consumers will only continue on with us to a certain price level before they decide to do something different. While being a strong brand helps, it only helps to a limited degree in tough times; and we're in tough times.
So we need to ask the question of what will happen if our costs rise significantly, and then have alternative plans ready to respond if they do.
Like Southwest Airlines, have contingency plans in place that are aggressive and can counter the rise in prices. Don't just have plans in place that are simply responsive and a result of being acted upon; that will mean the increase in prices control your business success, and not you.
What will you do if bandwidth rises by 5%, or 10%? You need to know before it happens. Again, passing on costs to your customers only works to a certain point. Having other ways of generating revenue beside the normal business outlets is something that should be strongly considered.
By that I mean have your cash on hand working strong for you in other investments, or, depending on the industry you're in, invest in a similar way that Southwest did by hedging the very commodity that was increasing in price.
Look at equivalent things in the industry you serve, or simply have an investment program in place, making the best use of your cash. This is basically what Warren Buffett has done throughout the years, and which resulted in him being one of the richest men in the world, year after year.
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