A lofty idea on margin improvement comes crashing down.

It hit me all at once, and so fast, like a speeding bullet – an epiphany of how to fix a whole bunch of problems that have plagued my company and our industry for too long.

And where did it happen? On an airplane, of all places. And in the very small “extra room” seat I had treated myself to. (Actually, my “treat” wasn’t by choice. When I booked the ticket, the only available seats on the then mostly empty flight were “extra room” – and extra cost - seats. Kind of ticked me off at the time, but that’s another story.)

So there I was, crammed in my seat, setting to review my company’s budget. We were having a pretty good year, I thought, but for some reason margins were thinner than expected. What could I do to improve margin, optimally by increasing pricing, as we have been hacking away at costs for as long as I could remember, with little left to cut?

I did not get far in my thoughts before the flight attendant tapped my shoulder and began asking if I was “able, willing and capable” of assisting the flight crew in the “unlikely” event of an emergency landing. Seems that my “extra room” seat was in an emergency row, and I had to respond positively that I would and could assist. I nodded, then resumed my thoughts regarding margins, pricing and the bottom line. As I was jotting down some ideas, the flight attendant leaned over and asked to take my drink order. He also offered a choice of various snacks, any of which I could purchase for a mere $5 fee (no cash, please). I rifled through my wallet, found a credit card, purchased my “flight meal” and munched away as I got back to the challenge at hand. What a frustrating dilemma: Cut costs and I cut into the organizational marrow. Raise prices and my customers will push back. What is an entrepreneur to do?

As we were about to land, I started to pack away my calculator, pad, pencil, and laptop into my briefcase. I also decided to grab my jacket from the overhead bin. I would need that extra time: I did not want to pay the fee for checked bags, but there was no room in the luggage compartment above my seat, so the flight attendant found a place for it – in an overhead bin six rows behind me. I would have to wait until most of the 15 rows behind me were off the plane before I could shuffle back for the bag.

And that’s when the epiphany occurred: In my ire over having to wait to fight my way down the aisle for my bag, the $10 fee that prompted the situation, a lousy seat where I was also responsible for the safety of passengers and crew, and a lousy snack that used to be free – the solution to my eroding margin (not to mention the industry’s declining “value proposition,” as manifested in ever lower prices), was right in front of me. All we have to do is price product (or “service,” for design or EMS folks) as the airlines do! So simple, so elegant – such a solution!

Just imagine, it matters not what the price of the “circuit board” is. Like the airlines, discount the hell out of the “seat price,” since that’s not what customers pay for. And they don’t pay for solder mask, or for the number of holes or technology, either. Give them the most dense umpteen layer microvia, mixed construction, embedded, gold-plated HDI board you can imagine. Drop that price; it does not matter!

What does matter is charging fees for all the things that customers have come to expect, but are willing to or by necessity must pay for. Want a quote? Sure: You can talk to one of our technologically savvy customer service staff, who will charge you a premium, or go to your computer to access our web portal for the “best available price.” Have questions about that quote? Pay a small fee, per question. More than one question, more than one fee!

It gets better. Want to convert that quote into an order? No problem. Just a couple of questions and you will be on your way. First, what delivery do you want for how many panels? Three-day (a big upcharge fee), 10-day (a smaller fee), three weeks (an even smaller fee) or, for no fee, there’s “standard?” Oops, no more standard deliveries are available, so you automatically need to pay the fee for three-week delivery! Will you pick up the product or have it delivered? For pickup, you pay just for boxes (as many as are needed) and packaging material, on top of a fee for our handling (packing the box). For delivery via UPS, FedEx (or whomever), you pay whatever they charge and a fee for printing the label/paperwork, as well as the packaging fees. Certificates of compliance? It’s a fee for each one: material(s), electrical test, impedance, plating thickness, ISO, MIL, AS, ITAR, etc. – all are available, each for an additional fee. And finally, how will you be paying for this? Credit or debit cards only.

At $25 each, it really adds up! Let’s see: two tech questions ($50) plus three-week delivery for one panel order ($25) utilizing one box – and packing ($50), plus shipping via UPS, plus paperwork ($25) with certificates for plating, material, ET, impedance, the quality documents ($200) all paid by credit card (which fixes cash-flow issues), for a total of $350 in fees on top of whatever the board price is. Now that’s what I call an epiphany!

Or is it? Industrial customers, like consumers, get ticked off when fees are applied. However, the difference is that, unlike us consumer fools, the industrial world won’t stand for it, and any company that embraces such pricing will be on the fast track to oblivion.
Maybe it wasn’t such a hot idea after all.

Peter Bigelow is president and CEO of IMI (imipcb.com); This email address is being protected from spambots. You need JavaScript enabled to view it.. His column appears monthly.