If the firm is able to maintain high service quality to go with low rates it would be hard to beat. Failing to maintain service quality would make price its only competitive advantage.
The critical capacity variable for a service business is the service capacity.
Service capacity is a composite of:
- personnel skills, experience and morale
- organizational structure
Inadequate service capacity can be masked, to a degree, by growth in total head count.
The strategy should be to sustain growth in revenues and profits, maintain high service quality and expand service capacity at a pace in balance with demand. The key is building service capacity. This is best done by limiting growth and commitment to service quality.
One approach could be the firm to increase prices - both to slow down growth and to increase profits to invest in building service capacity. Slightly higher prices would leave the firm with more room to maneuver when competitors start lowering prices.
Another approach could be the firm to find investors with capital to invest in building service capacity. But the growth should be limited anyway because training people takes time.