Differentiation Strategies of South West Airlines - Case Study Example

Marketing Name Course Lecture Date Introduction Differentiation strategies refer to the strategies that are adopted by businesses in a bid to gain competitive advantage in a given industry and over their competitors. Through differentiation, the company’s products or services stand out among other products that are offered by their competitors. Therefore, differentiation in essence refers to a scenario whereby, a company offers products or services which are unique or have features which are unique and which makes them stand out among its competitors. The airline industry is termed as an industry that experiences rapid and volatile changes amidst growing competition among many competitors in the globe. With this in mind, different airlines have to adopt different strategies that are to differentiate them among the many competing airlines in the world. This paper will focus on South West Airlines in the discussion of the differentiation strategies that it has adopted. Also, recommendations will be made will be done in reference to Southwest Airlines. I choose the topic on differentiation strategies in the airline industry with a focus on South West Airline primarily because of the volatility experienced in the airline industry and most especially due to globalization. There are many competitors in the global market, and the airline industry is experiencing the heat of competition. Different airlines are adopting the strategies of being low-cost fliers, disability friendly among other strategies employed in the airline industry in a bid to gain a competitive advantage. The fascination in finding out how the different airlines employ differentiation strategies in gaining competitive advantage in the industry is among the reason as to why this topic is of major interest. In addition, the fact those airlines have gone through the tough economic crisis with many of them adopting several strategies aimed at maintaining their operations. The topic of differentiation strategies in the airline industry comes in handy. It provides an opportunity to learn how an airline can gain a competitive advantage amidst the tough economic crisis and still maintain its strong operations within its region of operation. For instance, my choice of airline through the extant literature shows that, it has always maintained that there are no meals that are served during the flights. The extant literature also shows that the airline has maintained being a low-cost flier the whole time. Also during the tough economic crisis, the airline did not retrench its employees, and opted to cut back on their salaries rather than retrenching them. However, the airline has very loyal employees, and this raises the question of what differentiation strategies that South West Airline uses in such a way that, in the event of a pay cut, the employees would rather have their salaries reduced than work for another airline. The area of interest here is that, I would like to work for such a company where employees are so loyal to the company. In this regard, it can also offer information to other airlines those wanting to have a similar success story as the South West Airline. Success that I believe is attained through the differentiation strategies that the South West Airline employs. Literature review of differentiation strategies of Airlines In this era of globalization, competition between firms in the same industry seems to be foreseeable regardless of whether they operate international or domestically. Though products and services offered by firms may be the similar, differentiation strategies play a major role in making one of the products to have a competitive advantage over the other. It is commonly acknowledged that service differentiation by the use of helpful market segmentation guarantees that survivability of the organization in the drastically changing business world. A lot of literature has propounded of the benefits associated with service and product differentiation to achieve a wide range of customer groups (Aaker, 2008, Johnson, Scholes and Whittington, 2008). Businesses have to recognize that they cannot appeal all their customers and thus they need to recognize the various groups of customers and their specific needs. Based on these, they will be able to serve the different groups effectively and separately and thus gain a competitive advantage with each group of customers. Differentiation strategies in the airline industry have taken different forms. As cited by Proussaloglou and Koppelman (1999), there are various ways that airlines all over the globe have been looking for what they can differentiate themselves so as to achieve a competitive advantage over the other airlines. Airlines have adopted the differentiation strategies such as differentiation in pricing, frequent flyers programs and capacity control implementation. For a considerable number of years, the airline industry has mainly operated two main facets that are revenues and costs. By focusing more on cost, the budget airlines such as Ryan Air, Jet Star Asia and Tiger Airways have gained their competitive advantage. On the other hand, the full-service airlines for instance, British Airways and Singapore Airlines have for a considerable amount of time been competing against the cost-efficient airlines. They do so by developing overall travel experiences, and this has been through service differentiation. This includes aspects related to adding convince and comfort features, beautiful gourmet in the in-flight cuisine, as well as custom built seats, and these features have been confirmed as substantially differentiated ideas. Shaw 2007 has additionally suggested that, the establishment of long-term affiliations with core customers as an essential aspect in the successful differentiation between various airlines. Various studies have acknowledged the advantages of making the customer satisfied (Kandampully, 2000, Skogland and Siguaw, 2004). For example, the longer the amount of time that the customer engages stays in the firm, the more utility that the customer generates. Satisfied customers tend to add some value to the organization by frequently buying. Thus, they are willing to pay a high price, but they are always willing to offer positive word of mouth to their friends (Poon and Low, 2005). Additionally, a great number of airlines have placed more emphasis on the digital insurgency so as to distinguish their services. Web applications have enabled customers to have the same kind of information and data on airlines timetables and also fares. Airline carriers also started selling tickets through the web, and by so doing they are using cheaper distribution channels as compared to the standard computer reservations that were used previously. Through the use of the internet, the carriers can achieve a noteworthy competitive advantage and economic benefits, and these benefits tend to surpass those on e-commerce. Other airlines make use of their Human Resource management so as to distinguish their services. According to Swiercz and Spencer` (1992), HRM is an essential aspect when it comes to the effectiveness of an organization. A lot of discussions relating to competitive advantage typically take place in strategic planning and in this regard, questions relating to services or products attributes, customer needs, competitor analysis and industry analysis are usually highlighted (Yau, McKercher & Packer 2004) . In his value chain approach, Porter (1985) termed human resources management as an essential support activity that when coupled with procurement and technology development serves to maintain the primary activities of organizations. Other airlines have also applied the porter’s generic model to achieve their differentiation that is cost leadership, focus and differentiation. Successful differentiation leads to better and successful firms. The strategies are most effective in instances when consumers are not price sensitive. Some airlines pursue the cost leadership strategy in the aim of outperforming their rival airlines by offering services and products at lower costs. There are two probable rewards associated with this strategy. The first is related to lower costs structure; based on this advantage the cost leader can choose to charge a lower cost as compared to their competitors and an airline can still make a profit (Porter 1980). The airline can also opt to charge the same price as that charged by the competitors and make a higher amount of profit. The other advantage is to let price wars to develop, and the airline will have a better opportunity to endure competition that is more prices driven. In relation to differentiation, airlines making use of differentiation strategies, mainly seeks to have a competitive advantage. This is done by developing services and products that are viewed to be exceptional by the consumers, and thus the customers are willing to pay premium prices for them (Porter 1985). Airline using this strategy can place a high price for their services and products. The other advantage is that the consumers are also prepared to pay a high cost based on the uniqueness of the product or service. They also tend to be more loyal since the purchasing decision is more related to the quality rather than on the price (Mazzeo 2003). The focus strategy used by airlines tends to differ from the supplementary standard strategies since it is more aimed at to serve the requirements to a subtle consumer group. Airlines using this strategy mainly concentrate on a certain niche market, which may be defined by segment, geography or also based on the customer type. When airlines choose their focus, they may prefer to contend with its function on the basis of differentiation or low pricing (Skogland & Siguaw 2004). Through this, the airlines have a competitive advantage that meets the desires of their market segment. Main findings A main discovery of the literature review is that different airlines operating in the world take different forms of differentiation, and they do so in a bid to increase their competitive advantage over their opponents in the market. Most airlines usually adopt differentiation strategies such as frequent flyer programs, differentiation in pricing as well as capacity control implementation. Another finding is that the airline industry operates in two main facets that are revenues and costs. The budget cost airlines such as Ryan Air, Jet Star Asia and Tiger Airways. On the other hand, the full-service airlines such as British Airways and Singapore Airlines have for a considerable amount of time been competing against the cost-efficient airlines. These airlines do so by developing overall travel experiences, and this has been through service differentiation. Marketing theories also supports the establishment of long-term affiliations with core customers is an indispensable aspect in the successful differentiation between various airlines operating in the modern day business world. A number of studies have also acknowledged the advantages of making the customer satisfied (Kandampully, 2000, Skogland and Siguaw, 2004). For example, the longer the amount of time that a customer stays and conducts business within a firm, the more utility that the customer generates for the organization. Satisfied customers tend to add some value to the organization by buying, and they are willing to pay a high price. But they are always willing to offer positive word of mouth to their friends, and this adds more customers to the organization (Poon and Low, 2005). Another major finding of the literature review is that human resources management seems to be essential for airlines. It offers a lot of support to a difmferentiation and more so when it is coupled with procurement and technology development and thus in these case serves to maintain the primary activities of organizations. Recommendations In making these recommendations differentiation strategy theories will be applied. The differentiation strategy that southwest airline can apply is that they operate point-to-point flights in the most profitable destinations. This strategy has worked well for the airline in that they have been able to generate strong returns. But the strategy does not assure the long-term sustained growth. In regard to these, I would recommend for Southwest airlines to achieve the growth they need to venture into new markets, and at the same time increase the available seat miles. Southwest airlines have already started their operations in various demand markets, and they have also established their dominance on the most profitable routes. There may be concerns on the profitability as they enter new markets, and they need to make use of the weaknesses of various legacy airlines to their advantage (Wheelen & Hunger 2008). Another recommendation relates to the in-flight operations. Southwest Airlines needs to ensure that all their cabin crews are highly visible to their customers throughout their stay in the flight. This can be done by having a smaller cabin crew and customer ratio. Research has shown that this leads to a greater level of customer satisfaction and thus having return customers will be the norm in the airline. Through this, the customers will in a way act as advocates for the airline and thus they are likely to propose the airline to their group of friends and thus will have a greater customer base. Good customer service is essential for airlines and when Southwest airlines adopt these they will have an advantage over the other airlines operating on the same routes (Werden, Joskow & Johnson 2006). Also, in a bid to enhance the customer service, southwest airline can also develop and implement electronic seat controls in the passenger’s seats. In regard to these, the passengers will be able to adjust their seats to achieve the required level of comfort. In relation to entrainment, southwest airlines can offer USB ports to every passenger in the plane. This makes it easy for the passengers to be able to plug in and play songs based on their preferences. This would work well as compared to when passengers are offered with no option, but they have to view and listen to the same music and watch similar stations as other passengers. In addition to improving the customer service southwest airlines, can also add seat massage functions on their seats and they may include lower back massage and upper back massage. This will act as a way of attracting customers since they will be offering an additional service to them at no cost (Veal 2006). The massage will offer the passengers with a lasting experience and thus they will be more willing to use the airline services at a later date and recommend it to other passengers. Southwest airlines can also form alliances with other airlines that seem to be performing well (Kleymann & Seristö 2004). This will offer a great number of benefits to the employees and customers of the airline. Consumers will benefit through the seamless travel and stronger networks. Also, passengers will be able to book an international itinerary by the use of a single network (Thompson & Strickland 2008). Southwest airlines can also introduce a first-class sleeper service for the customer’s travelling long distances. Based on these the customers will be expected to eat prior to boarding the plane and then sleep on-board. The airline needs to make it comfortable by using materials that are comfortable to sleep on. It can also offer limited lighting or no lighting for all passengers when sleeping. Upon arrival, they would use the lounges at the airports to take a shower and change, thus preparing for the day ahead of them. When all these strategies are coupled together, they will offer the customers with a lasting experience, and they will offer a good basis for southwest airline to differentiate itself from the other airlines. Companies irrespective of the industry, they operate in they need to adopt and make good use of differentiation strategies that suits their business (Saloner, Shepard & Podolny 2001). By so doing, companies will gain a competitive advantage over their competitors in the market. Thus, they are likely to have a greater number of customers leading to greater sales and eventually greater profits. References Aaker, D 2008, Strategic Market Management, John Wiley & Sons, NJ. Johnson, G. Scholes, K & Whittington, R 2008, Exploring Corporate Strategy – Text & Cases, Pearson Education, Prentice Hall. Kandampully, J 2000, ‘The impact of demand fluctuation on the quality of service: a tourism industry example’, Managing Service Quality vol. 10, pp. 10 -18. Kleymann, B & Seristö, H 2004, Managing Strategic Airline Alliances, Ashgate Publishing Ltd, United Kingdom. Mazzeo, M 2003, ‘Competition and Service Quality in the U.S. Airline Industry’, Review of Industrial Organization, vol. 22, pp. 275-296. Poon, W & Low, L 2005, ‘Are travelers satisfied with Malaysian Hotels?’, International Journal of Contemporary Hospitality Management, vol. 17, pp. 217-227. Porter, M 1980, Competitive strategy, The Free Press, New York. Porter, M 1985, Competitive advantage: creating and sustaining superior performance, The Free Press, New York. Saloner, G. Shepard, A & Podolny, J 2001, Strategic Management, John Wiley & Sons, New York. Shaw, S 2007, Airline Marketing and Management, Ashgate Publishing Ltd, United Kingdom. Skogland, I & Siguaw, J 2004, ‘Are your satisfied customers loyal?’, Cornell Hotel and Restaurant Administration Quarterly, vol. 45, pp. 221-234. Swiercz, P & Spencer, B 1992, ‘HRM and Sustainable Competitive Advantage: Lessons from Delta Air Lines’, Human Resource Planning, vol. 15, pp. 35-47. Thompson, A & Strickland, J 2008, Crafting and executing strategy: The quest for competitive advantage, McGraw-Hill Irwin, New York. Veal, A.J. 2006, Research Methods for Leisure and Tourism, A practical Guide, Prentice Hall, New Jersey. Werden, G, Joskow, A & Johnson, R 2006, ‘The effects of mergers on price and output: two case studies from the airline industry’, Managerial and Decision Economics, vol. 12, no. 5, pp. 341-352. Wheelen, T & Hunger, J 2008, Strategic Management and Business Policy, Prentice Hall, New Jersey. Yau, M, McKercher, B & Packer, T 2004, ‘Travelling with a disability More than an access issue’, Annals of Tourism Research , vol. 31, p. 46-960. Read More