Sunday, April 28, 2013

Southwest's strong positioning with simple strategies

This week we discussed about how organizations can achieve competitive advantage using Cost leadership and Differentiation. This brings up an interesting point on how customer attaches satisfaction to different needs and wants, and how organizations can exploit this fact. 

Differentiation reminds me of a job negotiation workshop that I went to, couple of months ago. The workshop was about how employee-recruiter can reach a win-win deal by evaluating different factors, which are valued differently by different employees/recruiter, involved in the offer. This approach applies to organizations where in they can evaluate different ways they can provide value to the customer and become efficient in the one where their expertise is. 

Southwest Airlines is a good example on how successful companies can be by differentiating themselves while providing value to the customers at such low costs. Right from very beginning Southwest had single main motive, to provide 'low-cost' flights to as many cities as possible. This was against the then existing belief that customers values service more than cost. 

Southwest achieved operations efficiency with a strategy which is difficult to imitate by existing players. One of their strategy is to use only a particular (Boeing 737) type of flights. This helps them save on training costs that increase when carriers multiple varieties of flights, interchange flights when there's maintenance issue. This approach is difficult to replicate by an existing airline who are already invested in different types of flights.

While, on face of it, Southwest's differentiation seems to be their low ticket prices, but there's lot of other factors that help them maintain their low cost, for instance their operation efficiency, simple in-flight services and talented and satisfied employees. Over years many Airline companies tried to replicate Southwest's strategy, but failed miserably. Few even went out of business. The failures can be attributed primarily to the fact that these airlines tried to compete with Southwest at the price level and not with the operations efficiency, employee satisfaction and other factors which helped Southwest maintain its low cost and have a satisfied customer base

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