Southwest Airlines, Strategy, and Competition - Report Example

Southwest Airlines - Strategy and Competition SWOT Analysis - SWOT analysis will help to identify the main challenges and benefits of the current position of Southwest Airlines. Strengths The main strengths of Southwest Airlines are unique brand image and style, egalitarian strategy and unique treatment of all customers. This brand obtains a very competitive position on the market proposing unique services and low cost. Selling history and non-price competition which takes form of branding, advertising, promotion, and additional services to customers and product innovation are the main strengths of Southwest Airlines. Opportunities Southwest Airlines, the market opportunities include high potential to growth and profitability of the company, and professional management team, fast growing market segment and high prices. Also, the opportunity of Southwest is to become a leading international company operating of the global scale. Weaknesses The main weakness of Southwest Airlines is seasonality. Competition strategy takes place on either a price or a non-price basis. Price competition involves businesses trying to undercut each others prices; this will, in turn, be dependent upon their ability to reduce their costs of production. This can require changes in competitive strategy to remain in an industry and, under some circumstances, it can occasion the decision to exit a business or an industry (Kotler & Armstrong 2005). Threats On the other hand, there are a lot of threats and weaknesses that can prevent Southwest Airlines from rapid growth. The international situation on the airline market suggests that airline companies are searching for new ways to impress buyers and create a core of loyal supporters. This situation increases competition and demands new investment in research and development and innovative technologies. It is possible to assume that competition can lead to decrease in prices on the beer in near future. Another threat is deregulation in airline industry and high fuel costs, terrorist attacks and labor strikes. Porter’s Five Forces Following M. Porter effective combination of competitive strategies and company’s strengths can be any corporation to obtain a leadership position and create a strong brand image. The case of Southwest Airlines shows that the company has a strong position on retail market creating unique value for its customers. Five force model enables the competitive environment in which Southwest Airlines operates. Competition among existing firms is fierce in airline industry based on improved efficiency and inventory management (Hollensen, S. 2007), Threat of new entrants is low because entry barriers are high and competition among companies is strong. The problem is that volume size does not significantly change the cost base. Competitors provide `commodities with little differentiation and customer loyalty is low. In addition, high inventory costs and competence barriers prevent many companies to enter this market. Threat of substitute products is possible thus the majority of buyers will not easily switch purchasing to the substitute without penalty. Bargaining power of suppliers is high because Southwest Airlines relies heavily on high quality products and on time delivery. Southwest Airlines suppliers have a unique availability product they can exert a strong influence over prices and conditions of supply, therefore potentially putting pressures on the businesses purchasing their product. as the most important, there is a limited number of suppliers in this industry. Bargaining power of buyers has a great impact on Southwest Airlines because there are a limited number of buyers who can afford its products. These facts show that competitive forces are strong and the rivalry is based on inventory management and ability of companies to deliver their products in the shortest period of time. Fixed costs are high, and Southwest Airlines has fewer inventories relative to annual sales than other companies (Hollensen, S. 2007), Evaluation of Each Alternative Strengths and Weaknesses Alternative A Southwest could continue its egalitarian strategy, and renovate, or perhaps innovate in other part of its business. Strengths Weaknesses Competitive position on the market It will require heavy investments in R &D Strong brand image The company can lost loyal supporters Opportunities for grow Long-term projections which are difficult to predict and foreshadow in airline industry A possibility to enter new markets and industries Increased competition from other industries Alternative B Southwest could abandon its egalitarian strategy and start treating its best customer differently. Strengths Weaknesses It will remain profitable for a definite period of time It will loose a lot of its loyal customers Alternative 1) Best customers could pay some more and gain better services. Strengths Weaknesses It will help the company to follow differentiated strategy and keep it strong brand image It will have a negative impact on profits and growth opportunities of the company Alternative 2) Best customers could gain better services without paying more. Strengths Weaknesses It will attract more customers and create a core of loyal supporters It will require investments in R & D and service quality Alternative 1 Best seats in front for the airplane Strengths Weaknesses No strengths The company will loose the majority of middle and low class customers Alternative 2 More space for the legs Strengths Weaknesses Improved customer services Less space for passenger seats Alternative 3 Meals Strengths Weaknesses Better service for customers Higher ticker price Alternative 4 Internet connections and telephone Strengths Weaknesses Better service for customers Prohibited by many airports Alternative 5 Luggage transfer services Strengths Weaknesses Better service for customers Higher ticker price Alternative 6 Easier booking Strengths Weaknesses More customers will use the service Additional staff is needed Alternative 7 Easier rebooking to first flight available Strengths Weaknesses More customers will use the service Additional staff is needed Conclusions and Recommendations The best alternative for Southwest Airlines is to follow its current egalitarian strategy and innovate. Acceptance of an innovation is closely related to both managerial activities and acquisition of a hospitable attitude of mind on the part of management and customers. This is the crux of the problem. In helping the customer accept innovation, marketing managers should consider the following guides: (1) the customer must be motivated to acquire new skills or patterns of thought necessary to accept and use new products and services in a favorable manner; (2) the assistance required to help develop such an attitude must be furnished by members of the marketing system -- manufacturers, wholesalers, retailers, and facilitating institutions; (3) attempts must be made to change the cues in the customers environments that elicit congruent types of consumption behavior; (4) changes in customer-reward systems must be recognized so that the acceptance and purchase of products and services is encouraged (Hollensen, S. 2007), The proposed strategy best meets the company’s mission statement and will help to compete on the market for a long period of time. At one end of the scale, management may choose to push the product through the distribution channels to the market. It may do so by undertaking expensive advertising campaigns. Maintenance of high standards is a key factor which influences company’s performance. The purpose of maintenance of high standards is to attempt to maximize the performance of service by ensuring that it performs regularly and efficiently. The effective operation of any system is dependent on the maintenance of all parts of the system, e.g. buildings, services. Indeed, company welfare or personnel practice is designed partly as a maintenance activity, e.g. training and retraining to maintain the availability of appropriate skills, facilities to maintain human capacity, counseling to maintain interest and motivation. Recent years, Southwest Airlines is faced with strong competition from such companies as Delta and Northwest. It has no financial resources to invest in its fleet and improve customer service. The most important factors for change include changing life style of consumers and demand patterns. Such phenomenon as cultural globalization receives the development from technological revolution and economic globalization which together create a stream of the cultural blessings. Buyers are forced to buy cars in order to remain stylish. They value status and quality in the brands they buy, and are largely and they place more emphasis on material and professional goals than the other groups. Taking into account information mentioned above it is evident that Southwest Airlines has adopted unsuccessful strategy which prevents the company to compete on the market. Still, Southwest Airlines is influenced by external factors which determine industry’s trends and approaches. Internal influences do not a great impact driven by innovations and technology improvements. Bibliography Hollensen, S. 2007, Global Marketing: A Decision-Oriented Approach. Financial Times/ Prentice Hall; 4 edition. Kotler, Ph., Armstrong, G. 2005, Principles of Marketing. Prentice Hall; 11th edition. Southwest Airlines. Home Page. Available at: :www.southwest.com (accessed 19 September 2008 ) Read More