4.7 Putting It Together: Marketing Strategy

Since Southwest Airlines is a familiar example by now, let’s do a more complete review of its strategy to help with your assignments in this course.

In this module we have focused on the following aspects of marketing planning:

• Evaluate marketing strategies for alignment with the organization’s corporate strategies
• Show how common analytic tools are used to inform the organization’s strategy
• Explain inputs and components of a marketing strategy
• Give examples of corporate strategies
• Explain how the development and maintenance of customer relationships are an essential part of an organization’s marketing strategy

The summary below shows one analysis of the planning process for Southwest Airlines:

Corporate Strategy

Southwest Airlines’ strategy is driven by its purpose (sometimes referred as mission statement).

Connect people to what’s important in their lives through friendly, reliable, and low-cost air travel. ^[1]

Note: Southwest Airlines’ mission is not limited to a focus on leisure travel or even air travel. Rather, the company is driven by a mission to provide the best customer service across all sectors.

A Fortune magazine article describes Southwest’s unique profile in the airline industry:

Starting with just four planes flying to three Texas cities on June 18, 1971, [co-founder Herb] Kelleher built a maverick operation that prided itself on charting a different route from other airlines. It wooed passengers with ultra-friendly onboard service, squeezed more flights a day from every plane, and made money not by raising fares but by lowering them—and hence filling seats with folks who could never before afford to fly. Along the way Southwest evolved from an upstart to a colossus that last year carried 134 million passengers in the U.S., more than any other airline and some 20% of the total. In an industry in which every other major company has gone through bankruptcy, Southwest has never gotten close to Chapter 11 and has made money for 42 straight years. ^[2]

Despite this success, Southwest airlines found its revenue per customer to be low, so it launched a strategy to attract higher-revenue business customers.

Objective: raise the portion of business customers on Southwest from 35% to 40% during the five-year period from 2014 to 2019.

Note: In a competitive industry such as the airlines industry, it is remarkably difficult to gain 1% of market share. Often organizations track .1% and .01% changes.

Analysis Tools

In order to achieve the company objective Southwest needs to bring its strengths to new customers in a way that addresses both its own weaknesses and those of competitors (which create opportunities).

SWOT Analysis

Southwest’s SWOT analysis, below, identifies a number of opportunities and challenges:

Strengths

• Exceptional customer loyalty among price-conscious leisure travelers.
• Strong customer service culture throughout the organization.
• Dominance among regional airports and short trip segments.

Weaknesses

• Lower revenue per passenger than competitors.
• Limited offerings on lucrative “long-haul” flight routes.
• Low awareness among business travelers who exhibit strong loyalties to airlines with frequent traveler programs.
• Product offering emphasizes convenience at the expense of fringe benefits.

Opportunities

• Low customer satisfaction ratings of airlines that serve business travelers. ^[3]
• Increasing monitoring of corporate travel costs by boards and shareholders as an example of excessive perks.
• Increasing costs (threat) have less impact per customer if Southwest can attract new segments of customers that competitors are already serving.

Threats

• Competitor dominance of business hubs such as Atlanta, Minneapolis, and Chicago.
• Increasing fuel costs and labor costs impacting the industry.
• Risk of price wars as existing providers drop prices to hold on to lucrative business travelers.

Strategic Opportunities Matrix

With its objective to raise its share of business customers, Southwest decided to enter a new market. Is this a market development or a diversification strategy? Is the business traveler buying a different product, or benefiting from different promotion and pricing? In this case, Southwest made the choice to pursue a market development strategy that emphasized pricing, promotion, and distribution rather than making significant changes in its product (by refitting planes to add first-class seats or creating new flights for business travelers, e.g.).

Southwest’s company mission likely played a guiding role in arriving at this decision. The airline’s focus on providing great customer service means that it’s less interested in bringing a new product to market than in taking “amazing customer service” to a new market—i.e., the business traveler.

4 Growth Strategies: The Strategic Opportunities Matrix

The following is a list of the four growth strategies in the Strategic Opportunities Matrix:

• Market Development Strategy: New market and current product
• Diversification Strategy: New market and new product
• Market Penetration Strategy: Current market and current product
• Product Development Strategy: Current market and new product

Components of the Marketing Strategy

In order to appeal to corporate customers, Southwest must focus all elements of the marketing mix on a new target customer that is less cost-conscious and less patient with the inconveniences of travel.

Marketing Mix

Southwest did not implement a separate strategy for each of the four Ps. Instead, it brought the elements of the marketing mix together into major initiatives that touch all aspects of the marketing mix. We are going to explore two of those marketing strategies here.

The Business Select Offering

Southwest’s Business Select provides an additional layer of service that emphasizes the convenience and comfort that business travelers require, at a higher price. A traveler from Los Angeles to Norfolk, Virginia, can select a budget fare of $351 or a Business Select fare of $583. For the higher price, the customer gets early boarding, access to faster check-in and security clearance, a free alcoholic beverage, and extra frequent-flyer points. The price is $232 higher for travelers who are willing to pay for these conveniences. For a lower price, travelers can buy only EarlyBird check-in, which moves them to the front of the boarding line but does not include the additional features.

The marketing mix includes a new price point and a series of new services that are packaged in one new offering. It is worth noting that competitor airlines provide these benefits to their frequent flyers through free first-class upgrades for unfilled seats in first class. On those airlines, first-class passengers also get a higher class of customer service. Southwest has found a way to introduce a higher price and provide a comparable set of benefits to business travelers while leveraging the customer service it provides to all travelers.

SWABiz

For leisure travelers, Southwest only sells tickets through its own distribution channel—its phone line and Web site. Many other airlines also sell through distributors such as Expedia, Hotwire, and CheapTrips, which all require additional discounting to cover their mark-up on the ticket price. Instead, Southwest has kept its fares lower and drawn customers to its own Web site to make purchases.

In the SWOT analysis, we see that Southwest does not have good awareness among business customers. How can it draw business customers to its Web site or get to the places where business travelers will book? SWABiz was the solution. SWABiz provides a free travel-booking and management tool for companies that do the majority of their travel on Southwest. It provides companies that often book travel for their employees (or direct employees to a single place to book) with a tool to manage flights, hotels, and car rentals. SWABiz also enables participating companies to monitor spending and enforce corporate travel policies.

Southwest also expanded its distribution network for corporate travelers. The company sells flights through Concur, a travel-booking and management system  used by many corporate travel organizations that want to book across many airlines.

SWABiz is a new distribution strategy that creates an opportunity to promote its business offering to corporate travel offices and managers.

Through these marketing strategies, Southwest is building a network of business customers who have a relationship with the airline. Southwest’s frequent-flyer program creates an opportunity to track customers’ purchases and preferences and to bring this understanding into future strategies and plans.

Evaluation

Are these strategies successful? Southwest Airlines is actively monitoring its progress in attracting business travelers and adjusting its strategy accordingly. As with most aggressive strategies that span multiple years, the results are mixed, and there is room for new approaches.

Southwest’s chief operating officer, Robert Jordan, sees the potential: “The combination of these factors has led to “double-digit growth” year-after-year in managed corporate bookings.” He adds, “[O]ur [Southwest’s] corporate business is growing faster than our base business.”^[4]

CEO Gary Kelly acknowledges that there is still work to do, noting that it is not yet adding enough business travelers to its fare mix. From the first half of 2012 to the same period in 2015, Southwest’s average passenger fare increased just 6%, to $158, even though it was adding longer flights to lure business customers.” ^[5]

Southwest has begun a strategy of adding more long-haul flights to its schedule, entering new airports, and competing head-to-head with its competitors in America’s busiest airports. The work of defining, implementing, measuring, and adjusting strategies is never done.