Southwest's Competititve Advantage
STRATEGY IMPLEMENTATION AND MEASUREMENT METRICS
ASSIGNMENT-1 SOUTHWEST AIRLINES CASE STUDY
QUESTIONS 1. How does Southwest Airlines get its competitive advantage? 2. How does Southwest Airlines execute its strategy?
1. How does Southwest Airlines get its competitive advantage? Southwest Airlines uses a Cost Leadership Strategy, however most pricing strategists would agree that having a low price does not, in itself, constitute a competitive advantage. In fact, thinking that low prices are always a good strategy for competition is deeply misguided. However, at times, targeting low prices can lead to a strategic focus which delivers tremendous results. Modern competitive strategy will often examine firms from a resource-based view. According to this lens, competitive advantage derives from leveraging an inimitable resource to deliver value at a lower cost than the competitors. Price is a completely imitable resource. Any company can match the prices of its competitor if it so chooses. Hence, arguing that a low price is a strategic resource, or that it leads to a competitive advantage in and of itself, is illogical. Southwest Airlines has used the target pricing and utilized a marketing orientation since its infancy in 1971, even though these concepts were not fully defined back then. First, starting with the customers and the value they sought, Southwest Airlines initial target was customers traveling between cities in Texas, specifically between Dallas and Houston, Dallas and San Antonio, San Antonio and Houston. While Texas is larger than many countries, it isn’t so large that people can’t drive from city to city. Hence initially, the most comparable alternative to Southwest, and therefore its prime competition, wasn’t other airlines. Instead, it was the car. In uncovering the car as the competing alternative, Southwest was able to also identify the target price of its offering. Second, to compete with the car, Southwest Airlines had to price their
ASSIGNMENT-1 SOUTHWEST AIRLINES CASE STUDY
QUESTIONS 1. How does Southwest Airlines get its competitive advantage? 2. How does Southwest Airlines execute its strategy?
1. How does Southwest Airlines get its competitive advantage? Southwest Airlines uses a Cost Leadership Strategy, however most pricing strategists would agree that having a low price does not, in itself, constitute a competitive advantage. In fact, thinking that low prices are always a good strategy for competition is deeply misguided. However, at times, targeting low prices can lead to a strategic focus which delivers tremendous results. Modern competitive strategy will often examine firms from a resource-based view. According to this lens, competitive advantage derives from leveraging an inimitable resource to deliver value at a lower cost than the competitors. Price is a completely imitable resource. Any company can match the prices of its competitor if it so chooses. Hence, arguing that a low price is a strategic resource, or that it leads to a competitive advantage in and of itself, is illogical. Southwest Airlines has used the target pricing and utilized a marketing orientation since its infancy in 1971, even though these concepts were not fully defined back then. First, starting with the customers and the value they sought, Southwest Airlines initial target was customers traveling between cities in Texas, specifically between Dallas and Houston, Dallas and San Antonio, San Antonio and Houston. While Texas is larger than many countries, it isn’t so large that people can’t drive from city to city. Hence initially, the most comparable alternative to Southwest, and therefore its prime competition, wasn’t other airlines. Instead, it was the car. In uncovering the car as the competing alternative, Southwest was able to also identify the target price of its offering. Second, to compete with the car, Southwest Airlines had to price their