Membership and travel volume are key factors in the operations of Social Air. An adequate volume of Member travel is essential to efficient functioning of the system and customer satisfaction.
Volume Thresholds
There are two volume thresholds or milestones to be aware of:
- The profitability threshold (i.e. break even point)
- Customer satisfaction threshold
Given that this is a web-based business with relatively low operating costs dealing with a big ticket item, the break even point will be fairly low. We will reach this point long before we reach the other key milestone–customer satisfaction. But this second milestone is essential to long-term growth. Without happy customers, profitability will be short lived. So we will focus on this second key milestone.
A core rule for Social Air is that no aircraft will go up without at least 75% occupancy. That means that typically Members will need to share the ride and therefore they will need to coordinate the departure and arrival locations as well as the date and time of the flight. It is easy to see that with a low volume of Members, say 100, spread out over 50 markets across the entire U.S. that matching their travel needs would be virtually impossible. If there are 100,000 members, however, finding matches would be relatively easy. The question is, what is that ‘customer satisfaction’ break-even point?
Applying a formula to that question, we can get a rough idea of the volume required:
- Average of 5 departing flights per market per day would likely provide enough volume so that a members have a good chance of getting a flight to their desired destination in a timely fashion. Of course, more popular markets would have higher volume than lower volume markets.
- Average of 5 Members per flight = 25 Members departing each market each day, or 750/month
- With 20 markets there would be 15,000 Members departing on flights each month
- If the average Member flies once per month, a membership volume of 15,000 Members would be required to meet the customer satisfaction level
Of course, the above formula is full of unproven, though reasonable assumptions and is not intended to yield an exact number, especially since the ultimate measurement is customer satisfaction, which is subjective anyway. But it does provide enough of a ballpark range to know that we need to achieve a membership level well into the five-figure range. At that volume, Social Air would have long since surpassed the financial break-even point, but barely has enough flights to ensure moderately convenient service. So the problem to be solved is not how to reach financial break-even, but rather how to achieve high enough volume to provide convenience and efficiency.
Staged Launches
The first strategy to manage this transition is through the use of staged launches, as covered on Marketing » Marketing Strategy. This is strategy is designed to boost membership volume to ‘cruising altitude’ as quickly as possible. Rather than taking a ‘slow and steady’ approach to growth (which has been spelled the doom to other companies that have attempted similar business models) we will generate great excitement and drama for each product launch in order to drive the expansion by an order of magnitude each time. Of course, there will be plenty of solid, block-and-tackle marketing going on throughout the process to set up these events, as covered in detail in the Marketing section. But each successive expansion stage will appear to be an amazing accomplishment that bolsters belief in the company and generates excitement about the next event.
Limited Routes
In the beginning stages when membership levels are low, Social Air will only fly into and out of a limited set of Markets. For example, at the Charter stage (110 Members) it might only serve the Bay Area and Los Angeles markets. This means that all membership sales would have to be focused on these markets as well. If finding 100 members in these markets proves too difficult, the markets could be expanded to other major markets on the west coast such as San Diego, Sacramento, Portland and Seattle. But as we just covered, expanding into more markets means less probability of booking profitable shared flights. So the key is to concentrate promotional efforts as tightly as possible.
The Facebook Effect
By limiting both the membership level as well as the markets served in between launches we will stoke demand for the memberships when they are offered. This dynamic was demonstrated very clearly by the Facebook growth pattern. They began as a membership available only to Harvard, so other Ivy League schools wanted it too. Then they became a membership only for Ivy League schools, so other colleges wanted it too. Then they became the network for all colleges in the U.S. so international schools wanted it too. And so on. The key to this is in stoking demand in advance of the launch events so that demand exceeds supply.