How Southwest used Porter’s five test
In the world of business, it is survival of the fittest. It is either the business stays competitive or it dies a natural death. This applies across all the industries including the Airline industry where Southwest has been an example for other companies to follow. Being successful like Southwest demands a lot of dedication and commitment by all the people involved. The management and the employees have to work together like a chain. Southwest, since its inception has made leaps and strides in the airline business. The extraordinary performance of Southwest is demonstrated by the 44 years of consecutive profits. This is almost unheard of in any industry, and for a company to achieve such an amazing feet deserves a lot of credit. This essay looks at how Southwest used Porter’s five test of an excellent strategy to achieve such heights.
To begin with, Southwest made use of distinctive value proposition. Right from the onset of the company, the owners, Herb Kelleher and Rollin King, knew what they wanted to do with Southwest. Kelleher and King identified the Golden Triangle of Houston, Dallas, and San Antonio as the airline market segment that was not served by the mainstream airlines. This section of the market had been neglected and as such, the two saw an opportunity to exploit. On line with offering distinctive value proposition, Southwest management divided its target market segment into two. This was done in order to ensure that the company could offer services to customers depending on their needs. The two categories of customers were convenience, time-oriented travelers, and price sensitive leisure travelers. This was then followed by identifying the appropriate price to charge each category of travelers. The company was going to use price differentiation in order to appeal to appeal to each class of travelers. Moreover, Southwest also considered the prices that its competitors were charging. Being a new company demanded use of competitive prices that will attract customers who want to save some money. For each category, the company placed a price that was lower than what was being charged by other airline companies. For example, when other companies were charging $28 to fly between Houston, Dallas and San Antonio, Southwest was charging $20.This was a highly successful strategy since the company started having customers and grew to what it is today. Even when the company expanded, it maintained its attributes of serving short-haul as well as point-to-point flights. Other companies like Us Airways and United States tried to imitate Southwest but they failed. This shows that the company had identified a specific market and learnt how to serve customers in that section well, something that other companies could not imitate.
Secondly, Southwest tailored its activities to its value proposition. For example, it offered its seats on first come first served. The company did not have the options of people booking seats. Through this, Southwest was able to have many flights within a day. The hours of delay were also low which further encouraged travelers who were time-conscious to prefer it. The company also used internet ticketing as a way of selling tickets, which was successful. Additionally, Southwest airline also did not charge luggage fee, which other airlines in the industry perceived as revenue generating. Therefore, in keeping with its policy of low fares it had to look for other ways of reducing costs such as reducing turnaround time. The company had the lowest turnaround time among major airlines. This is huge in the airline industry. It is another way that the company used to reduce its operating costs. Its planes were able to make on average 6 trips in a day.How Southwest used Porter’s five test
Third Southwest used to make trade-offs. This can be the hardest decision to make n a business since most people consider diversification as a positive thing for any business. However, it pays to draw lines on what one can do and what one cannot do. In airline industry, there are two major market segments; short-haul and long-haul and companies have to decide which sector they want to serve. In line with this, Southwest decided to serve the short-haul segment. The management of the company realized that this was a profitable area to venture into. The company started by serving travelers in three cities because the management knew that focusing in a single area can be more productive. Even when the company started to expand it did not immediately become international it remained local and continued to serve cities in the United States. For instance, in 2007, it was serving 64 cities in the US and in 2016, it had increased the cities to 98 and 7 other cities outside the US. The management restricted what the company could do. They selected specific towns since they wanted to serve certain customers. This indicates that they knew what Southwest could do and what was beyond its capability. It did not go into serving cities in other countries where other airlines such as Delta and American had presence.
Southwest has also utilized great strategies that pass the fit test. The company has several strategies that complement each other. The company has a unique culture, which instilled on all the new employees to ensure that they perfectly fit into the organization. The employees are like a chain and they support each other. For instance, pilots assisted in unloading bags and flights helped in cleanup of airplanes between flights. This indicates a strong working relationship among employees as well as people working in different departments complimenting each other to ensure that flights are on time and customers enjoy their flight. The company also had ticketless flights, which was unique in the industry. This saved time for both the airline and passengers.How Southwest used Porter’s five test
Finally, Southwest survived the continuity test because of the way it was run. The company had many opportunities of going big, but the management did not rush in making such decisions. Even when times were good, Southwest did not buy new planes but it maintained a conservative approach. The management adopted a strategy of managing the good times for the bad times. Any decision pertaining to expansion into new territories or acquisition of new airline like Air Tran was made after thorough analysis. Even when faced by hard economic times, Southwest did not change its strategy of charging lower prices. It looked at other ways of minimizing costs and increasing profitability. Similarly, Southwest did not lay off employees because of rough times. When other companies were trying to imitate its operating model, Southwest did not copy anything from its competitors. It remained true to its business model and the management never rushed to make quick decisions. This is the reason it took so long for it to venture into markets outside the US. Thus, the management did not make decisions too quickly but took time to observe the business environment.
In countering the competition, Southwest has remained true to being unique. It has continued to charge low prices in the midst of competition but at the same time reduced its operating costs. Southwest has also continued to serve the same market segment and offering point-to-point flights. This serves it well since travelers take less time to reach their destinations. The company has also maintained a good relationship with its customers and has had the lowest rate of customer complaints, which is a sure way of keeping a positive image. The company’s unique culture has also been important in attracting customers. For example, during flights passengers are entertained by flight attendants who are allowed to sing, dance, and joke. This is the Southwest spirit; it allows employees to go out of their way to ensure those customers are served and happy like in the case of the gate agent who volunteered to watch over a dog.How Southwest used Porter’s five test
I think, Southwest airline can maintain its position in the airline industry. Even though competition has been increasing, Southwest has always come up with new solutions to the competition. Even with new entrants that charge low prices, Southwest has managed to make a profit and be on the growth. This is an indication of the strong strategies that it has used over the years. The danger signals that may wound Southwest include increased competition due to entry of new firms such as JetBlue Airways. This will reduce the profits made by Southwest since it is offering same services at prices that are also competitive. Southwest’s cake will get smaller and with continued threat of new entrants, the cake will keep on getting smaller. Another threat is the prospect of foreign airlines being licensed to operate in the US. This will affect the whole airline industry and not just Southwest. Companies will have to charge even lower prices due to increased competition. I believe the acquisition of Air Tran Air is a great move since the company is getting out of its comfort zone and trying new markets. Such actions are important if Southwest want to remain profitable in the airline industry. Equally, the decision to operate in other cities such as Baltimore, Boston, New York, and Newark are also geared towards increasing the revenues and thus profits generated by the company. This will continue making Southwest a force to reckon with in the airline industry.How Southwest used Porter’s five test