SouthWest Airline Case
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SouthWest Airlines: Balancing the Price-Value Equation.
1. Customers seek many benefits when they buy air travel tickets. Most of them look at all of the airline companies, and since every single airline tries to differentiate itself this can be hard. The common benefits customers seek are: – Low prices
– comfortable place to sit
– variety of amenities
– attentive customer service
SouthWest Airlines has been meeting the benefits customers want in some way. They are number 1 at low prices, which is the most important benefit customers seek. Secondly, they give the customer the ability to choose their seats if they are on time. Thirdly, they have an attentive customer service. However, SouthWest Airlines has not a big variety of amenities but it never said it had it in the first place, in this way it cannot disappoint the customers if something for which they thought they paid is not working.
2. Soithwest executes value-based pricing in one simple way. It has been offering flights without any luxurious amenities. Therefore, the price is low compared with its competitors and the customers know exactly what they get for their money. And since almost all of the flights go on time, and the amenities stay the same the value has been on the same level for a long time now.
3. Cuttings costs bring benefits and risks as in any business. The benefit is clear and simple: increasing revenue. However the risks can be huge. First of all the quality of the product or service can drop and if the customer notices this you can lose them. Second of all if the company tries to invest in something, in this case fuel, with the idea that the prices will rise the coming years and buys a lot of it at once and the prices wont rise but drop, you are looking at a big loss. If you want to reduce your prices, you need to reduce your costs as well in order to make it profitable.
4. SouthWest does currently truly differentiate itself from its competitors, in the past months Southwest was experiencing an identity crisis, since most of its competitors were also focusing on being a low fare airline. So it decided to turn its back to it, and try something new. The prices increased, and the motto “low fares and prices” faded away. It now focuses on being a regular airline instead of the cheapest. Recent study found out that Southwest hasn’t been the cheapest of them all for some time. Therefore it doesn’t want to present them self for something which they aren’t.
I think the Strategy is sustainable because it tells the truth, for a long time it has been the cheapest airline around, but since that changed they changed as well. And I think that as long as you speak the truth with your satisfied customers they will follow you and stay satisfied.
5. I would recommend SouthWest Airlines to continue with what they are doing right now. Speaking the truth. For decades it has been customer focused, reliable and friendly and therefore gained a large market share. To throw it all away now would be the biggest mistake ever made. The beauty of SouthWest Airlines is that it is honest, and as long as it stays honest they will be one of the major American airlines.
Focused on pricing I would stay in the middle mode where they are standing right now, and only change it when they can. The crisis will fade away slowly in the coming years, and when it’s completely gone; reduce your prices when the competitors raise it. Claim back your title!