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Toyota's quality advantage underpins a number of other strengths. It spends the least amount of time to make a vehicle of any car maker and has been the least vulnerable to costly vehicle recalls (although it has had some lately). It also spends the least amount of promotion money per car sold and its vehicles spend the least amount of time on dealers' lots. To top this all off, Toyota has the highest per-unit profitability of any volume or luxury car maker.

Over the past few decades Toyota has shown a greater commitment than any other car maker to the idea that good is not good enough, without ever forgetting the need to be fast enough and cheap enough in customers' eyes as well. Segment by segment, Toyota has leveraged its quality advantage from economy cars to mid-size family sedans, luxury cars, sports cars, SUVs and utility trucks. The most dramatic example of that remains the Lexus and its quick ascent to become the world's number one luxury car.

The more economy cars Toyota,Honda and Nissan sold in the US – the world's biggest car market – the more they wanted to extend their vehicle ranges there. All three sold luxury cars in Japan, and Honda was actually first to market a luxury car brand in the US with its Acura range. There is no question that Acura has been a success, but there is also no question that Lexus quickly overtook it and left it a good distance behind.

When Toyota looked into entering the US luxury car market, it saw two things. First, there was a gap in what might be called mid-price luxury between normal cars and luxury automobiles from the likes of Jaguar and Mercedes-Benz. Second, most luxury automobiles were unreliable and very costly to maintain.

Toyota therefore set out not only to build a luxury car of high quality at an attractive price, but also to deliver a total customer experience that would be second to none.
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After Toyota launched the Lexus in 1989, managers in the company called every buyer a few months after the purchase to confirm that the ownership experience was a good one and to offer to fix anything that was wrong. They not only fixed every little thing that was wrong in addition to whatever the customer reported, they returned the car freshly washed and with a full fuel tank. Toyota didn't rest with building a luxury car that matched or exceeded Mercedes-Benz and BMW in quality; they also made sure that their customer service was nothing short of mind-blowing for the buyer.

Another Toyota flip of special interest here is that 'Fast, Good, Cheap – Pick 3' does not necessarily mean lowest or low priced. Remember my friend the perspex manufacturer. Cheap is not only an absolute measure of price, but a relative measure of value perceived and received. Toyota's products are cheap at the price, because a Lexus, say, works exactly as it should, retains value against the competition over its lifespan and is supported by industry-leading customer service. Throughout its range, Toyota maintains a premium pricing advantage over its Japanese, Korean, European, Australian and American competitors.

Having steadily grown to overtake DaimlerChrysler and Ford along the way, in the first quarter of 2007 Toyota displaced troubled General Motors as the world's number one car maker. To remain at the top, it must continue to be fast, good and cheap at the price in customers' eyes. In other words, it must continue to innovate, offering appealingly designed, highly ergonomic and dependable vehicles.

The extent to which being fast, good and cheap is now the price of legitimacy in the car market can be seen in the growth of Hyundai. It has steadily made progress in acquiring a reputation for quality that in some tables now puts it ahead of Toyota, while maintaining a discounted price structure. But as quality rises in the car industry in general, following Toyota's lead, the standard of excellence – epitomised for Toyota in its Lexus range – continues to rise as well. Hyundai and Toyota are both chasing a moving target.

CHEAP IS NOT CHEAP ENOUGH

Over the past two decades the telecommunications industry has alternately been the darling and the favourite whipping boy of the world's stock markets. Deregulation of telecom monopolies, mergers and acquisitions, and the growth of mobile phone use have redrawn the telecom map several times. Throughout that process there has been steady downward pressure on pricing and margins.

The latest upheaval in the telephone business has come from the ability to bypass both landline and mobile networks and offer phone service via the internet. Start-ups in the US market such as Vonage, internet service providers such as Earthlink and cable television providers such as Time Warner that offer broadband internet connections through their cable networks have all gotten into the business of selling VoIP (voice over internet protocol) telephone service. Engin is pushing hard to succeed in this market down under.

Although these companies have seized a new channel for reaching and serving customers, they are all still practising business as usual, selling phone services for fees billed on a monthly basis. These services are fast and good, and can be much cheaper than those of the established phone companies, although the latter have fought back on price. Having tried VoIP I am convinced that the service is almost cheap enough, but it is definitely not yet good enough for the low price to be compelling.

Engin let you hook up a VoIP box to your home phone and make calls using broadband internet. They offer ten cent local calls, which initially sounded like a great deal, but my traditional landline is now not much different. Because VoIP requires an existing broadband connection, and in most cases a router and a special VoIP phone, a lot of people are going to be sticking to their standard landlines.
Unless
they make VoIP free.

I tried VoIP in my business and found the quality substandard, unless I upgraded not only my plan but my broadband connection too. Fast and cheap are not enough. The product also needs to be good if it is going to get mainstream support. From what I understand, big companies are getting excellent results with VoIP, but not without significant investment. One of the major advantages it offers is that it taps into existing network infrastructure and allows a lot more flexibility than traditional phone lines.

The most prominent of the VoIP providers in the US market, Vonage, seemed headed for as glorious an IPO and subsequent rise in share price as Google. But by the time Vonage did go public, the air was already leaking out of its balloon, thanks to an even bolder newcomer called Skype.

Skype's business model abandoned fast, good, cheap for instant, excellent and free at the entry level of service, which is all many customers will ever use. Two or more Skype users can communicate with crystal-clear digital sound quality on their broadband connections for absolutely no additional cost. And if they want to include someone on a traditional landline phone, that costs about two cents per minute. After eBay bought Skype for US$2.6 billion, the two cents per minute charge to call a normal phone was waived in North America for several months in order to build usage.

Instant, excellent, free: what kind of business model is that? But if you wonder how Skype will ever make enough profit for eBay to justify paying US$2.6 billion for it, you're missing something. Sooner or later the technology that Skype used to create its service was bound to be exploited in a similar way by someone. Once that technology existed, the genie was out of the bottle. Not only that, but as with Google's purchase of YouTube and News Corp's of MySpace, the value was in the network and the relationship the brands have built with their customer base.More on this in chapter 4, 'Business is Personal.'

Skype's founders were willing to act first and strategise how to exploit the technology as they proceeded. The enthusiastic response of customers all over the world made Skype the gold standard of internet calling and created several revenue streams, including calls between Skype users and regular landline and mobile phones, business tele- and videoconferencing and business phone services. For eBay there is the chance not only to grow the Skype brand in those areas, but to grow its core e-auction and e-commerce business by plugging Skype telephony into the eBay network along with PayPal's financial transaction service.

No one can be certain yet if this is going to pay off at a level that justifies a US$2.6 billion purchase price, but I love Skype for trying and eBay for trying harder (or should I say for paying). An indicator that Skype will be profitable for eBay, in my view, is the growing universe of third-party products made specifically for use with Skype. Before the iPod there were many Mp3 players on the market, but none generated the add-ons from third-party vendors that are now available for playing the iPod in a car, on a portable boombox or in a home entertainment system. Likewise there are other VoIP platforms, but only Skype is generating products from third-party vendors such as the Skype-ready wi-fi phones from Philips, Netgear and Belkin.

Just after I wrote the last paragraph, I saw that eBay had released its first quarter numbers for 2007. First quarter net revenues for the entire company rose 27 per cent to a record US$1.77 billion, and net income rose 52 per cent to US$377 million. First quarter net revenues for Skype rose 123 per cent to US$79 million. CEO Meg Whitman said of Skype, 'This is a very young business growing very fast.'
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Vonage has very clever ads that say it is 'leading the internet telephone revolution'. Likewise, Engin has the appealing brand label of 'enginious'. But again, Vonage and Engin are halfway revolutionaries, trying to use a cheaper channel to conduct telephone business as usual. They are caught between the established phone companies' ability to match or nearly match them on price on the one hand, and Skype's ability to profit by providing the same or better service for free. In Vonage's case, the market has responded by making its heralded IPO and subsequent share price lacklustre, to say the least.

Skype's challenge to the telephone business as usual does not mean that you have to give away your products and services for free, even at the entry level of a tier of products and services. My point is instead that Skype shows you can't take the customer value of your pricing for granted. If I'm going to be on one side of the change outlined above for the telecommunications industry, I want to be on Skype's side, not Vonage's or Engin's. I want to be so fast, good and cheap at the level where customers are uncomfortable with how much they are paying for something that they willingly pay me a premium for what I deliver on top of that. That's the formula eBay is following with Skype.

Sooner or later, somebody or something is bound to come along and yank the price floor out from under your entire industry. Flipstar Richard Branson has made a career doing just that. His most notable achievements in this regard are taking on the European, trans-Atlantic and Australian airline industries with his Virgin Express, Virgin Atlantic and Virgin Blue airlines. The result was a substantial reduction in the price of air fares in all three markets. Onya Rich! Unfortunately for Branson, the launching of Virgin America (for air travel within the US) is still hitting regulatory brick walls, but by the time you read this he may have managed to break through.

In any case, remember that cheap today is not cheap enough for tomorrow. Virgin Express opened the door for Ryan Air and other low-cost air travel competitors in the European market. And Tiger Airways, backed by the founder of Ryan Air, will be giving Virgin Blue and Jetstar a run for the low-cost air traveller's dollar in Australasia, which has always been a very cutthroat market. At the time of writing Brett Godfrey had a proposal in front of Virgin Blue's board to launch a super-low-frills discount service to combat Tiger Air. It will require no increase in capital expenditure, as Virgin Blue already has more than twenty new aircraft on order.

FAST, GOOD, CHEAP AND MORE!

The price of entry in every market today is undeniably 'Fast, Good, Cheap – Pick 3'. But because a satisfied need no longer motivates and expectations keep rising, the price of entry will soon be 'Fast, Good, Cheap, X-factor – Pick 4'.

The ante to get in the game keeps rising, the table stakes keep getting bigger, because of the feedback loop between increasing compression of time and space, increasing complexity and ambiguity, increasing transparency and accountability for actions that have to be performed in conditions of high uncertainty, and increasing customer expectations. You can't escape that challenge. You can only flip it to your advantage by meeting it sooner than your competition. You can attune your behaviour with the psychology of human expectations in a time of constant technological development, or you can be left by the side of the road.

As this chapter's examples illustrate, if 'Fast, Good, Cheap – Pick 3' is not yet the price of entry in your market, it soon will be. And if you want to top the league tables when that happens, you must not only ensure that you are fast enough, good enough and cheap enough for today and tomorrow, you must also offer customers something else as well. With that in mind, let's look closely at the flips that are needed to create the value customers want in addition to fast, good and cheap, beginning with the fact that
superficial is anything but!

Five Things To Do Now

1. Go to five of your smartest people and put the following scenario to them individually: you have to speed up your service delivery or out-of-the-box performance by 20 per cent in the next three months. Ask them to figure out how they'd do it, then get them together to discuss the different approaches they've come up with.

2. While you have your best and brightest together in the one place, you should also ask them to suggest two possible ways to improve the quality of your product or service that would leave your competitors for dead. Then give someone the project of figuring out how you could make these improvements as cheaply as possible

3. Using some creative thinking tools, develop at least three potential Skype-like scenarios that would completely rip the margins out of your business – even though your industry dares not consider the possibility. Who knows? You may find a new opportunity.