SouthWest Airlines - Profit after Profit!! - Crazy Pricing Model and Strategy

I am always intrigued by Southwest airlines, it is a case of a company whose success story is straight out of a story book and whose simplicity does not cease to mesmerize.

Formed in the early 70's, the airline has raked in profits after profits, year after year even in the turbulence that hit the airline industry on the turn of the millenium

It is one whose strategy is so simple, it would seem ridiculous even to a nursery going kid... but isn't that what strategy is supposed to be? Simple and whose idea is basic, clear and most of all stupid? Keeping It Simple and Stupid?

I beg to be corrected, but these are ideas that can be incorporated locally (Kenya) yet we are consistently treated to a baggage of seminars, conferences, meetings and de-meetings to discuss this animal called strategy, coming up with goals, plan whose end product confuses even the employees themselves. If the employees are confused, then who will sell the company or its products?

Taking a flight back to Southwest, their success story is basically defined by their simplicity, efficiency, and FUN! Yes, FUN!! and loads of it

In the next few days I will delve into the success story bit by bit.

So what does their pricing model strategy have to do with it? Most people maybe directed to think that low pricing = great volumes = more profit. Right? Wrong! Infact, you might just end up with a whole load of * in your face.

The low prices at southwest were executed with genius strategy, that raked in profits and left other airlines shell shocked. Check this out:-

• NO connections between airlines -  The airline did not have the headache of inter-transfers
• NO long haul flights - Faster connnections -  basically it is just like having a matatu from mombasa to nairobi and back - but in the air and faster.
• NO inflight meals -  Only snacks - no hassles for them
• NO seat assignments - First come, first seated. Increased boarding times, translating into faster departures
• NO segregated classes - More seats:  With one class of service, Southwest Airlines could put 137 seats in a 737 versus 128 in a segregated 737.

A Southwest customer couldn’t be treated to first class, couldn’t get food, couldn’t book them as part of a larger trip, couldn’t book with them through an agent, and couldn’t even preselect their seat.  All of these features are exactly what defined a competitive airline at the time.  And, all of these features added COST. Instead, Southwest Airlines selected a specific target customer

Reduced costs translates into MORE profits

Already, we have a mental picture of what flying in the airline is, even though none of us has and probably never will fly the airline. BUT, therein lies STRATEGY....

The service described does not meet the wants of EVERY customer that could have flown Southwest Airlines, but it does describe those of the target customer.  And, given the choice of mediocre satisfying everyone at a high cost or highly satisfying a select few at a low but profitable price, Southwest Airlines rightly chose the latter.

Infact, one customer was sooooo dissatisfied with their service that Southwest had to let go of the customer(FIRED!). Yes, fired... that is a story for another day

Allow me to digress to a more familiar example, Equity Bank. Love them or hate them, hats off to the man who dared to think, and  we are seeing the fruits today.

Back in the day, no one dared touch the low income earners. Focus was solely on the big money, big corporations big individuals, deep pockets. But James Mwangi came in and said, "hey, wait a minute, there is a whole population that is un-banked, and if I can manage to bank them, then......."

Already, he had a STRATEGY... he moved from the norm (strategy should be different). He decided to focus on a totally different market. While banks were closing shop in rural areas, he was looking for office space to open a branch..

Does coining such an idea need a high level board room retreat to Malindi, with all day meetings in air conditioned rooms????

Many years later, this simple strategy has clearly propelled him to great heights. If right now you stopped a kid going to primary school and asked them what is Equity bank, they would probably tell you " ni banki ya mwananchi"

and when that happens, then you know you have won!

next article, FUN and LUV at southwest......