Southwest Cost leadership strategy

Cost Leadership Strategy

Cost leadership strategy is one of the strategic management techniques Southwest employs to assure the success of its operations. The lucrative business model is one of the cost leadership strategies used in this instance. Southwest is regarded as the industry leader in low-cost travel and holds the biggest market share measured in revenue passenger miles. Its use of the point-to-point strategy, as opposed to the hub-and-spoke model employed by businesses like AAL and UAL, enables it to increase traffic on most of its routes and also to provide short flight times (IESE Insight, 2016).

Market Penetration

Southwest also has its cost leadership strategy based on the market penetration model it uses? Recently, the company has launched a new brand for the airplanes, which is more refined, snappier, and reflective of color. This brand is a new market penetration adopted by the industry since it does not just bombard the ears and the eyes of the customers, however, it has greater advocacy for the heart of the consumers. From the founder, one strategy adopted is; informality is encouraged, and staffs are also invited to have fun at their jobs so as to ensure maximum output in the firm. It is because the customers can identify with the employees of the company and the business which enhances customer retention (The Saylor Foundation, 2014). The new brand is also comfortable and has affordable rates which are given Southwest a better position to attract customers compared to the other firms which are by the law that the lower the fares, the higher the demand for tickets. Increased demand also ensures that the company also saves money by selling directly through its website.

Market Development

The southwest market development involves a direct focus to the market where new products are taken to new markets, i.e., it stretches UTA market operations beyond the business it has, Rather; it reaches out to many other different customers through their website and other advertisement modes. Another cost leadership strategy used by the company is product development. The product development approach used by the firm is establishing good brands of passenger airplanes, ensuring ease if booking of tickets and also ensuring shorter routes are taken. Product development is a popular strategy used by many firms. However, the approach adopted by the company is such that the corporation has been modernizing its fleets and has been using younger attractive fleets that are more energy efficient and use less fuel which also enables the company saves on fuel costs.

Horizontal Strategies

Horizontal strategies are also utilized in the firm since Southwest has in the recent past merged with smaller airplane industries which have in turn helped it reduce the overall costs of maintenance and marketing. New distribution channels are also achieved due to this approach. The air transport firms in different locations are therefore able to reach out to many different people under the Southwest brand name. Forward vertical integration is also applied here.

Diversification

Relative diversification is also used here since the firm engages in other related transport activities such as cab services and other recreational facilities for the customers using their fleet. Unrelated diversification similarly is used to broaden the brand name if the firm and it’s also a mode used for advertising the company. Other ways that the company uses to cut on costs include retrenchment of workers so as to cut on labor costs and to restructure the job (IBM networking, n.d).

References

The Saylor Foundation. (2014) Chapter 8 from Mastering Strategic Management.

IBM internetworking. (n.d). Retrieved from www.ibm.com

IESE Insight. (2016). Globalization in uncertain times:10 key takeaways. Eurasia Review. Retrieved from http://www.eurasiareview.com/30112016-globalization-in-uncertain-times-10-key-takeaways/