Market Penetration Strategy and Balance Scorecard Practice: SWOT Analysis of Southwest Airlines - Research Paper Example

BCG matrix of Delta Airlines (Table 1) High Rate of market growth Low Star ASA, Sky-Team and Comair Question Mark World-Span, Orbitz and Song Cash Cow Delta Dog Delta Express High Relative market shares Low BCG matrix of America Airlines High Rate of market growth Low Star Question Mark Cash Cow American Airlines Dog High Relative market shares Low BCG Matrix of Southwest Airlines High Rate of market growth Low Star Question Mark Cash Cow Southwest Airlines Dog High Relative market shares Low a) Prepare a BCG Matrix discuss advantages and disadvantages of alternative strategies. The BCG matrix for Southwest Airlines has been presented in the above section. To evaluate the advantages and disadvantages of alternative strategies, I would use Ansoff Matrix. Ansoff Matrix Existing Products New Products Existing Markets Market Penetration Product Development New Markets Market Development Diversification a. Market Penetration Market penetration strategy if recommended to Southwest airlines because the market for daily flights to cities in U.S. is unsaturated. b. Market Development Although Southwest Airlines is already pursuing this strategy by adding two to three more cities in its travelling routes every year, however, company should focus more aggressively on this strategy. c. Product Development Southwest Airlines is not pursuing strategy and since company has enough margin to penetrate in its own market, therefore, this strategy is not recommended to the company. d. Diversification At this stage diversification strategies are not recommended to Southwest airlines because it will divert the attention of the company from its core operations and the competition in the airline is very tough, which could be harmful for the company. b) Prepare a SWOT Analysis for Delta and American SWOT Analysis of Southwest Airlines Strengths Weaknesses High employee morale because of high job security and less Layoffs Operational efficiency Has been rated excellently by credit rating agencies High profitability and strong financial position Pursuing proactive strategies which are followed by various other airlines Less waiting durations and good on time performance Low fares through controlled costs Good organizational practices and less communication gap Focusing on domestic markets only Using only one plane and less associated with technology innovations Focus on low cost strategy, no frills thereby, losing market shares in other market segments Opportunities Threats Increasing demand of low cost airlines Availability of innovative technologies such as low fuel engines Global terrorism which are increasing security costs, life insurance premiums and taxations Imitation of cost model and business model of Southwest Rise in energy prices SWOT Analysis of Delta Airlines Strengths 1. The major strength of Delta airlines is its established name and brand recognition worldwide. 2. The airline is recognized for introducing innovative strategies, which gives competitive advantage to Delta over the other airlines. For example, Delta airlines joined with other major airlines in the industry to develop a global strategic alliance with the name Sky Team. This alliance helped the company in cost saving through cargo and passengers facilities sharing, sales consolidation, technologies combinations and other means. 3. Delta airlines is recognized for its customer services and it is evident from the company’s industry leading airport model, in which the lobby redesign of airport along with self service technology enhanced the efficiency of Delta’s employees to conveniently and speedily serve the customers. 4. The short waiting timings, on time performance and quality food are some other strengths of the company. Weaknesses 1. Overhead costs are very high for the companies operating in airline industry and labour cost is one of the largest parts of overhead costs. Because of high competition the turnover rate in airline industry is very high and Delta as compared to other airline companies has been facing the largest layoffs. Although the company has been paying highest to pilots still, it has been facing high layoffs, high labour costs and low employees morale. 2. The market shares of the company have declined over the years which show the inconsistent market positioning of the company. 3. In the recent years, Delta airlines have been facing less profitability and the stock prices of the company are also showing a declining trend. Opportunities 1. The conditions in airline industry are changing and the demand for low cost airlines is increasing rapidly. Delta can explore the opportunities in low cost airline industry by competing with Southwest, Jet Blue and other airlines. 2. Technology innovation is a major opportunity for Delta and the company can improve its efficiency through this for example, by installing self service kiosks at the airports. Threats 1. Global terrorism is a major threat for Delta airlines like other airline companies and the incident of 9/11 has increased the security costs, employees’ life insurance costs and taxation costs of Delta airline. Moreover, these costs are expected to increase in future as well. 2. The bankruptcy of other United and US Airways also poses the threats on other airlines. 3. Airline industry is a highly competitive industry and the entrance of more low cost and discount offering carriers is a major threat for Delta airlines. SWOT Analysis of American Airlines Strengths 1. American Airlines is covering most of the major destinations of the world. 2. The size of fleet can be considered as a major strength for the company. 3. American Airlines pursue strategic strategies by working in partnerships. 4. The IT infrastructure of the company appears as a competency for the company 5. American Airlines has developed strong relations with government. Weaknesses 1. The financial position of American Airline is not very strong. 2. The company is facing unprofitability by targeting unprofitable routes. 3. The cost structure of American Airlines needs improvements as compared to the strong cost structure of Southwest Airlines. Opportunities 1. The air traveling demand in increasing which creates and opportunity for American Airlines. 2. The government backed loans are available to the airlines with low interest rates. 3. The innovation in technology is providing process reengineering opportunities to the company to increase efficiency. 4. The partnership opportunities and strategic alliance are some other opportunities for America Airlines to survive in this industry. Threats 1. The security costs are increasing thereby, increasing overall costs and security related traveling inconveniences for the customers. 2. The tightening of security checks may reduce the number of air travelers. 3. The competition because of low cost airlines is increasing along with the availability of price information 4. The airline industry is also threatened by overcapacity. c) Recommend specific strategies and long term objectives. Low fare, no frills and on time performance are the major components of the positioning statement of Southwest Airlines. The combination of these strategies has provided a comparative advantage to Southwest Airlines. Since most of the companies are imitating the strategies of Southwest Airlines therefore, it is the time for Southwest Airlines to come up with more competitive strategies. Based on SWOT critical factors, following strategies are recommended to the company. 1) Southwest Airlines should define specific market segments and the company should target more than one segments. Since in the airline industry there are different attributes which may vary from segment to segment, therefore, company should define five attributes to target its customers. 1 2 3 4 5 Attributes Safety Comfort Service Convenience Price In consideration to these attributes, the company can pursue different strategies. First, safety is a very important attribute and focusing on this attribute is important for Southwest because of one-plane strategy of the company, increasing security threats etc. Southwest should pursue low cost strategy however; flexibility should be introduced in no frills strategy. The company should offer extra services by charging some extra money during flights. The customer can pay the amount at the time of purchasing the tickets by selecting the option of having food or not during the flight. 2) Market penetration is very important for Southwest Airlines. Since the airline seats are the perishable inventory for Southwest airlines like other airlines, therefore, it is very important for the company to achieve the highest possible load factors. Although the company is already achieving load factor greater than breakeven analysis, however, the changing airline industry conditions1 may threaten the company in the long run. 3) The company is ranked high in operational efficiency however; it should also concentrate on improving and rebuilding customer services. At every terminal of the airport served by the company, electronic automated gates should be installed and the transportations security administration should coordinate with initial security gate to enhance passengers flow. To further increase the customers’ experience, they should be provided maximum comfort. The company has replaced its seats’ cloth with leather covers to reduce installation and maintenance cost and to increase durability, however, the seats of Southwest are slightly uncomfortable. The seats can be also designed according to target markets. Moreover, all seats are same and people with more weight face problems on these seats, therefore, different sizes of seats should be introduced. d) Show how much your recommendation will cost, clearly itemize the cost for each projected year. Not applicable e) If possible compare your recommended strategies to actual strange is planned by the company. Southwest Airlines is incurring the lowest operating cost structure in the domestic low cost carriers industry. The cost structure of the company is being followed by various other airlines. Before comparing the recommended strategies to the company with the current strategies, following is an overview of the current strategies of the company. 1. Most of the other airlines are employing hub and spoke approach like Delta and American Airlines however, Southwest airlines is pursuing point to point or short haul strategy. 2. To reduce labour costs which are one of the major problems of the airline industry therefore, the company pays the crew based on trip. 3. To increase on time performance, Southwest only serves less congested airports for example, instead of Washington’s Dulles, it serves Baltimore and instead of Mass of Boston, it serves N.H of Manchester. 4. Currently the company is only targeting the customers who prefer low cost traveling, however, the recommended strategy is that the company should target other market segments as well. 5. Southwest Airlines offered two options to customers to select low fare or normal fare. In normal fare, the company used to offer thank you gift (containing liquor or ice bucket) to customers. However, our recommended strategy is to target the customers not based on prices but based on the mentioned attributes. f) Recommend specific annual objectives and policies The recommended annual objectives to Southwest Airlines are as follows: As the given table (Table 2) compares the critical factors of three airlines, therefore, based on this information, I recommend that company should enhance the quality of its services because it has been rated 3 on “product quality” as compared to 4 rating of other two airlines. The company should allocate more budgets to advertising and promotions because it is the critical factor for Delta Airlines. The company needs to improve customers’ loyalty because it is achieving very low rating in this section. Therefore, Southwest should give focus on customer relationship management programs. Although market shares of the company have improved in year 2009, however, the increasing growth of market shares of Delta airlines could be threatening for the company. The rewards for the employees should be increased to improve the rating as compared to the other airlines (currently it is same for all three). g) Recommend procedures for strategy review and evaluation For review and evaluation of the strategies the company should continue with its balance score card practice. In addition, the company should keep comparing its passengers load with the competing airlines each month. To determine the impact of service quality, the feedback of customers can be taken during the flight. A final report can be prepared after each month regarding the service quality of the airline. Second, for determining the impact of advertising and promotions, the customers can be asked about the source through which they heard about the company. Third, to increase the loyalty of the customers, a customer history database should be maintained, and if a customer travels more than thrice then he/she should be welcomed warmly or by offering a small discount. Therefore, through these ways, the company can evaluate and review the impact of its strategies. Bibliography Maxon, T., (2007) Southwest’s Load Factor Slips. [Online] Available from: http://www.dallasnews.com/sharedcontent/dws/bus/stories/050307dnbussouthwesttraffic.2d07aae6.html [Accessed 30 April 2010]. Achtmeyer, W. F, (2002) Southwest Airlines Corporation. [Online] Available from: http://mba.tuck.dartmouth.edu/pdf/2002-2-0012.pdf [Accessed 30 April 2010]. Appendix Table 1: Airlines Market Shares 2009 Source: http://www.transtats.bts.gov/ Table 2: Critical Success Factors for Three Airlines Read More