While the major airlines in the United Stated were making a lost of approximately $8 billion, Southwest was the only airline company that was profitable as well as facing a rapid grow-with a 25 percent sales increase in 1992. In 2005, Southwest was the sixth largest airline in United Stated. The success of Southwest is mainly linked to its pricing strategy, it positioned itself as a low-price, short hauls and bare bones operation.
There are numerous distinctive characteristics that had lead to the success of Southwest’s pricing strategy, this report has summarised these characteristics into four key categories and followed by a detailed explanation. These key factors appear to be niche marketing, cost containment, employee commitment and conservative growth.
While every company is experiencing drastic competition within the airline industry, Herb Kelleher had explored a niche, a strategic window of opportunity in the industry. Since Southwest is not try to match or even really hard to match its resources and competencies with other large major airlines such as US Air, America West and others, Herb decided to be a domestic dominant rather than fight to shares part of the international or long-distance market segment. In revealing to the niche marketing strategy, Southwest is targeting their customers who are short-distance frequent flyers and, valuing low fare prices.
By focusing on the niche market, Southwest is able to targeting on customer’s particular needs. It helps Southwest saving largely on its R&D costs since it is not diversifying its services to satisfied different customer needs and wants. Focusing on a niche market means Southwest will provides everything about the airline has been adapted to serving that market segment in the most efficient and economical way. The niche market that Southwest had discovered becomes its differential advantage for Southwest. The lower the costs of investment, which is appreciated first step...
Please join StudyMode to read the full document