southwest airlines
TRANSCRIPT
I. Current Situation
Following the Deregulation in 1978, a competitive price war ensued among the
airline industry as a direct result of the new freedom for airlines to set their own fares
as well as route entry and exits. This gave rise to the operating structure of the
airlines as it exists today, consisting of the point-to-point system and the hub and
spoke system. With this came the change of focus for major airlines to non-stop,
cross-country routes in densely populated cities, which, in a regulated environment,
would be profitable. This resulted in the obvious outcome of increased competition,
thus lowering the average industry prices for non-stop cross country routes which
were profitable. This caused operating costs to increase, narrowing the profit
margins. During the mid 80's, acquisition led to eight airlines capturing a
disproportionate share of domestic traffic. Due to a recession and increasing fuel
prices in the 90's, bankruptcy and collapse were common to many carriers. As a
direct result, new airlines were formed, and now position themselves as low fare, no
frill airlines.
As a culture, American consumers seem to follow one obvious trend; the need and
desire for maximum safety. This trend has seen a rapid rise in the wake of 9/11, and
seems to show no sign of a decline. This can be further observed in the form of
advanced airport/airline security measures and regulations.
In accordance with this, Southwest has always prided themselves on being the safest
airline in the industry, adapting to the rapidly changing times. This has helped them
soar over competition.
A. Industry
1. Industry Defined and Total Volume
Southwest exists and operates within the air travel industry in the
United States; an industry which has traditionally been based on a point-to-point
flight system. However, this industry has been redefined, evolving into a hub-and-
spoke system which all airlines have adopted; all except Southwest. Hub-and-spoke
flights, called feeder flights, are defined by long-haul, layover flights where
consumers stop at a central hub city and can then either continue the flight on the
same plane, or transfer onto a different plane flown by the same carrier. The point-to-
point system, deployed by Southwest, is non-stop flights, called shuttle flights. The
point-to-point system allows Southwest to cut down on fuel costs as well as allowing
them to run more flights per day. This serves as a huge differential advantage.
This industry is heavily saturated with intense and rapidly evolving competition due
to the relative ease of entry into the market. This accounts for why there are hundreds
of airlines ranging from prominent well-known ones to virtually obscure and obsolete
airlines. There are six primary airlines which compete fiercely and maintain the
majority of the market share and total volume. The remaining fraction of the market
share is then sub-divided and allocated amongst the hundreds of smaller, less relevant
airlines. The only notable trend within the industry seems to be a total lack of
consistency, as market shares and profits fluctuate regularly during any given time
period.
The industry has taken somewhat of a beating economically following the disaster of
September 11. That is, people have not been anxious to fly, regardless of price cuts
across the boards. This is slowly changing, yet in the meantime, select airlines have
been forced to seek government aid, even having to go as far as filing for chapter 11.
2. Company Volume and Market Share
As of December, 2004, Southwest Airlines was the top airline in terms of volume of
business, accounting for 3,615,707 in sales. This is the equivalent of approximately
21% of the market share, making it the leader in the airline industry.
3. Competitors' Volume and Market Share
81% of the market is controlled by seven airlines. The breakdown in terms of market
share held by these seven companies is as follows: Southwest leads the market with
21%, Delta accounts for roughly 20% of the market; US Airways accounts for 11%,
American 10%, Continental and United having 6.5%, and Northwest has 6%. Delta,
totaling 3,567,345 in sales, ranked just below Southwest, making them the primary
competitor. The remaining 19% of the overall market is allocated almost evenly
amongst the smaller carriers, which are all far behind the top seven.
4. Industry Pricing
Because fares vary depending on many stipulations, typical industry rates will be
analyzed using the following criteria: A roundtrip flight for one passenger departing
from Newark, New Jersey on May 10, 2005 to Las Vegas, Nevada, and returning
May 15, 2005. Using this criteria, the rates from the primary seven airlines in the
industry from the lowest to the highest are as follows:
� Southwest- $ 208
� US Airways- $ 208
� American Airlines- $ 390
� Northwest- $ 407
� Delta- $ 517
� United- $ 637
� Continental- $ 688
It can be noted that Southwest has clearly dominated its competition in terms of
pricing and being the low cost provider up until recently. US Airways has since
began a pricing campaign to directly compete for market share, going as far as
lowering its fares to match those of Southwest to the dollar. Other airlines, however,
have been unable to lower prices to such a drastic extent, falling victim to the
recession of the airline industry and suffering from having too much inventory
(planes, seats, etc.) and not enough business.
B. Marketing Function
Southwest
A. Product
Southwest's product is an airline travel service for relatively low prices within the
United States. The company prides themselves in being number one in safety and
customer service. In addition, Southwest only uses Boeing 737 carriers to transport
passengers, ensuring maximum safety while promoting fuel efficiency. The services
offered by Southwest differ from those of other airlines because there are no class
barriers; there is simply one section on the aircraft where passengers select their own
seats based on a first-come-first-serve basis.
The target market ranges from individuals who are looking for maximum value for
their money, to middle-class families looking to save money on vacation flights and
package deals.
B. Pricing
Southwest tires to offer the lowest industry prices available in order to remain
competitive. Due to their fuel efficiency, Southwest is able to maintain low prices
and stay ahead of competition. Prices start as low as $39 for a one-way ticket and can
reach anywhere up to $300. These prices are determined based on the location of
departure and ending destination. They are also determined and adjusted based on
whether or not the ticket has an option for a refund redeemable at any time.
Another key aspect to Southwest's pricing strategy is their low costs for gate and
landing fees due to their decision to not use commercial airports.
C. Place
The channels of distribution include ticket purchases online, vacation packages via
travel agent, or at the actual airport. As the top airline in the industry, Southwest
maintains a high level of distribution. They offer non-stop flights only to smaller
cities to and from secondary airports to cut costs. Distribution channels are direct, as
there are typically no intermediaries other than a computer.
D. Promotion
Advertising
Southwest allocates very little of its overall costs (1.6%) towards advertising and
promotion. The self-proclaimed �'all-time on-time airline'' bills themselves as being
the most consistently on-time airline as well as the safest airline while promoting a
unique style of air travel. Southwest does not use the traditional style of reserved
seating aboard its flights, but rather operates under a first-come first-serve basis.
One of Southwest's biggest strengths is their continued ability to offer the lowest
prices within the market due to their low advertising expenses and maximum usage of
fuel efficiency jets. In an industry where advertising tends to be relatively low,
Southwest advertises more than its competitors, thus reminding consumers of its
intended advertising message. They make frequent use of billboards, television
commercials, and magazines to advertise to their target market of middle-class
individuals and families. Southwest Airlines is the official airline of many NBA,
NHL, and MLB teams. During these teams' nationally televised games, commercials
are played as well as various ads on the courts, fields, and rinks.
Sales Promotion
Southwest offers 14 day in-advance purchase options within given states as well as
geographical areas daily for a fraction of the normal cost. In addition, they also
promote deals on car rentals, hotels, cruises, and other vacation packages. They also
offer a credit card which works towards a rewards program where �'sky miles''
accumulate and are ultimately redeemable for free flights.
Southwest operates under a pull strategy, retailing their tickets and services directly to
consumers. They do this by offering sales promotions and using successful
advertising campaigns to get their message of low cost and value out to the mass
target market.
As indicated previously, media means of communication include television
commercials, billboard ads, and magazines. With allocation of funds shifting toward
strong advertising campaigns, Southwest has successfully achieved a stronger
presence in the market and an awareness level never before enjoyed.
Sales Force
Southwest runs 2,800 flights a day out of 60 airports in 59 cities and 31 states across
the United States. This results in the employment of roughly 1,700 applicants a year.
This includes pilots, stewardesses, sales associates, engineers, and executives.
Southwest has the advantage of having employees who are trained to perform
multiple tasks and functions. This drastically reduces the amount of cost needed to be
allocated to salary expenses, as the number of employees can be highly reduced.
Public Relations
Southwest has been consistently ranked by Fortune 500 as one of the top ten
companies to be employed by. This comes as a direct result of their close
relationship among employees and impeccable relations with the media over the
years. Southwest has even dedicated a separate website to the posting of news events
as well as a forum for answering any/all public inquiries.
Southwest maintains strong relationships with major public companies serving as a
sponsor to not only increase their image of positive PR, but to spread brand
awareness.
Competitors
The six primary competitors to Southwest are trying to deploy similar strategies to be
able to offer similar, if not better, prices to consumers as well as promotions to build
on their public relations in order to directly compete with Southwest and thus, gain
market share. Their marketing mixes are modeled after Southwest's. For example,
Southwest was the first airline company to make use of an internet homepage. After
seeing 59% of Southwest's sales came from online means, competition followed suit,
and now the internet has become a staple in sales distribution. Competition now
offers special deals that are positioned to compete directly with Southwest. This has
even given rise to airlines dealing exclusively via online. In some areas, competition
has been forced to discontinue routes and increase fares in head-to-head competition
with Southwest. Competition within the airline industry remains intensely fierce.
Specific differences between Southwest and its competitors are as follows:
� Better at being on time due to the less amount of air traffic in the secondary
airports they use
� More efficient on fuel due to short-haul flights
� More flexibility with seating options, as they are the only airline which allows
customers to pick their own seats
� Their costs are typically lower than competitors
� Employees are able to do multiple jobs
� Don't offer any meals and very few amenities
� Not hub-and-spoke oriented
� Operate off point-to-point system
Target Market
Southwest's target market consists of high growth: price-conscious leisure travelers.
Their core customers are small-business travelers looking to keep travel expenses
low, and leisure travelers. Therefore, Southwest has positioned itself as an innovative
and fun airline that takes passengers on short, inexpensive excursions. By doing this,
Southwest will be able to directly connect with their target market and convey a
message to their target audience that makes them want to use their service.
II. SWOT Analysis
Strengths
� Southwest maintains operating expenses per available seat mile at 15-20%
below average (www.southwest.com, 2005).
� The company has no baggage handling, no meals, no central reservations, and
no assisted seats to keep costs at a minimum (www.southwest.com, 2005).
� All of Southwest's planes are Boeing 737s making maintenance and training
costs low and turnaround quick (Maynard, 2002).
� Company's online booking tool lets business travelers plan, purchase, and
track travel (www.southwest.com, 2005).
� Southwest's direct call booking reservations save company from travel agent
commission (www.southwest.com, 2005).
� Southwest ranked # 1 in Customer Service for the 6th consecutive year
(www.southwest.com, 2005).
� The company won the Department of Transportation's Triple Crown 3 years
consecutively for on time performance, baggage handling, and overall customer
satisfaction (www.southwest.com, 2005).
� Southwest has an employee-oriented culture which is strong and fun loving.
This results in a loyal employee base, which is willing to work hard to achieve the
company's goals (www.southwest.com, 2005).
� The company encourages employees to build relationships with the company,
with each other, and with customers to ensure the success of the business (Hollis,
2003).
� University for People provides Southwest's professional and personal
development for entire workforce through the Pathlore Learning Management System
(Hollis, 2005). The company places emphasis on extensive training and continuous
learning for its workforce (Training & Development, 1995).
� Southwest Airlines offers an Adopt-A-Pilot educational program where
Southwest pilots mentor students (www.southwest.com, 2005).
� Programs were implemented to retain employees, which include the first
profit sharing plan in industry (www.southwest.com, 2005).
� Southwest employees share responsibilities and have flexible work schedules
(www.southwest.com, 2005).
� Employee turnover is low compared to others in industry
(www.southwest.com, 2005).
� Southwest has enjoyed 31 straight profitable years (Hoover's, 2005).
� For the fiscal year ended 12/31/04 revenues rose 10 % to $6.53 billion
(www.yahoofinance.com, 2005).
� Southwest has consistently used unconventional advertising that incorporates
today's slang language. This has allowed for easy to remember, catchy slogans that
consumers will remember when they are looking to fly (Thompson, 2004).
� Sporadically, Southwest runs special fare promotions i.e. for its 30th
anniversary 2001, the company ran a special $30 one-way fare to 30 destinations
offering $30 a day hotel rooms (Thompson, 2004).
� Southwest advertises its relationships with other businesses by designing and
painting their planes accordingly. For example, the company is connected to the Sea
World of California and Texas; therefore some planes were painted to look like
Shamu the killer whale (Thompson, 2004).
Weaknesses
� Passengers sit wherever they like, on a first come first serve basis, and are not
offered any frills, while competitors cater more towards the business class
(www.southwest.com, 2005).
� Southwest does not offer first class seating, which lowers its customer base
and excludes higher-end business travelers (www.southwest.com, 2005).
� For 2004, Southwest Airlines experienced its second-smallest profit in 8
years. 2005 profits do not look a whole lot bigger (www.southwest.com, 2005).
� Southwest has faced disagreements over pay. Pilots are said to be receiving
30 to 70% lower pay rates then other airlines (Maynard, 2002).
Opportunities
� Southwest Airlines is one of the few in the industry that has not felt a large
negative impact from the 9/11 terrorist attacks. The company has managed to avoid
layoffs and financial troubles, unlike other airlines (Hollis, 2003).
� Southwest currently operates in 60 cities in 30 states, but there is still room
for the company to enter new markets both domestically and internationally
(Hoovers, 2005). Recently, the company has added its service to Pittsburgh and has
expanded nonstop flights between Houston Hobby and Los Angeles International
(Beldon, 2005; www.money.cnn.com, 2005)
� The consumer continues to seek convenience and timesaving. Therefore,
flying rather than driving, will meet that need if the airline is reliable and the price is
reasonable (Kalenoja, 2001).
� U.S. population is growing in the direction of leisure travel as an interest
(Kalenoja, 2001).
� Southwest Airline's new Boeing 737 has the ability to travel longer without
stopping (www.southwest.com, 2005).
� The company's new product, "DING!" is a downloadable product that lets
Southwest's customers know directly when hot, new deals are available. This product
can be downloaded from the Southwest website directly onto your computer's
desktop and will notify you when the airline is offering deals (www.southwest.com,
2005).
� A large capital investment is needed in order for a company interested in the
airline industry to begin operations (Beldon, 2005).
� Existing airlines continually launch counterattacks against each other. For
example, they significantly lower fares in response to new competitors (Beldon,
2005).
� Southwest is now the official airline of the Super bowl giving the company
worldwide recognition (www.southwest.com, 2005).
� ATA Airlines has joined Southwest in a partnership following the airline's
file for bankruptcy (Huettel, 2005).
� Southwest Airline's is offering its customers a chance to take a cruise with the
characters of AIRLINE, a new show on the A&E network (www.southwest.com,
2005).
Threats
� 81% of Southwest Airlines is unionized, making labor costs extremely high
(www.southwest.com, 2005).
� The cost of fuel has risen drastically and is expected to keep up this trend
(www.southwest.com, 2005).
� After September 11th, government has cracked down on safety regulations
which have become costly (Hollis, 2003).
� The Wright Amendment, currently, bans Southwest from offering long-haul
flights at Dallas Love Field (Okada, 2005).
� Southwest's business model is being adopted and followed by other airlines.
United Airlines, is just one example (Thompson, 2004).
� The airline industry is facing consolidation, where larger carriers buy
competitors. This allows them to gain access to markets without investing in aircraft
or employees (Huettel, 2005).
� American Airlines is threatening to move a substantial number of flights to
Dallas Love Field to make it a congested airport and try to take away some of
Southwest's customers (Banstetter, 2005).
� Some of Southwest's competitors, like JetBlue Airways for example, now
offer "personal" technology on planes. "Personal" technology refers to a television
set for each seat, which includes movies and games, along with phones
(www.jetblue.com, 2004).
� Southwest's emphasis on short-haul trips has resulted in considerable pressure
from ground providers like cars, trains, and buses (Thompson, 2004).
III. Key Marketing Issues
� Southwest is not satisfying all the needs of key consumers.
The majority of airline consumers are business professionals and families. While
Southwest offers a no frills flying experience, business professionals tend to want
more. Over the years professionals have become price sensitive when choosing
airlines but remain having the same needs. Since there is no business or first class,
those professionals lose the opportunity for more seat room and privacy even through
a quick flight. While Southwest has no assigned seating during flights, families or
groups may want to sit together. If there are small children or maybe a group of three
or more, they are apt to have random seats on the plane which causes the group or
family to be separated.
� Southwest has untapped markets outside of the United States of America.
As of 2005, Southwest flies to over 60 cities in America. Because of the success it
has due to a low pricing strategy, there is an opportunity to expand their market. All
major airlines such as Continental, Delta, and American Airlines fly internationally.
If Southwest expanded their business into other markets, their market share would
increase immensely. This is to say that Southwest could operate a separate Southwest
Airline flight service as well as the already successful U.S. operation.
� Southwest is lacking the important partnership with travel agents/travel tours.
Southwest does offer ticket less service and gives consumers the ability to purchase
tickets via travel agencies but there is still a lack of awareness from consumers.
When a consumer goes to a travel agent, the agent gives the consumer the best airfare
option. Since Southwest does deal with those agencies, they are gaining exposure to
consumers. However, many tour groups and vacation packages offered under one
company typically find the best airfare for their groups. Southwest has yet to be the
official carrier for some of these groups and is losing a massive amount of free
publicity and a new segment of consumers.
IV. Marketing Objectives
� To increase the awareness of Southwest's new services
Southwest has been typically known for its low fare, no frills airline service. To
solve the issue of not satisfying all of the company's consumer needs, new services
will be introduced in the year 2006. In order to increase the consumer awareness of
the new services as compared to the current services, proper media vehicles need to
be chosen. If the new services become a characteristic that is a part of the Southwest
image, awareness will go beyond the existing customer base and reach the untapped
markets. In return, the goal of satisfying all consumer needs will be achieved by an
increase of sales and conversion.
� To expand Southwest's operations into a foreign market
A low fare airline like Southwest has been a successful in the United States because
of its economical pricing strategies. When evaluating new markets for entry it was
important to find a lasting location of profitability. In some major markets, low fare
airlines already exist and have been doing extremely well for decades. Although
Southwest could compete in those markets, it would be more beneficial to be the first
to enter and in turn dominate the market. If Southwest entered an untapped market
that operated solely as an extension from the original Southwest, it would be easy to
compare the two based on the fact that it is the same business operating in different
markets.
� To enhance the brand image of Southwest through partnerships
Southwest deals with travel agencies like their other competitors. However, other
airlines do not go beyond that partnership by collaborating with travel tour
companies. If Southwest did collaborate with travel tour groups that were well
established in their industry and had a positive brand image, this could lead to an
augmented image of the company. When a company participates in joint business
efforts with another profitable company, the benefits are threefold. For example,
Southwest will get free publicity, enhanced brand image, and more consumer
segments. Evaluation of success will be done through comparing the sales volume of
business through the new partnerships to the sales volume of current travel agency
dealings.
V. Alternative Strategies
� Market Penetration Strategy
Southwest has a range of consumers each with a homogenous characteristic. Their
business segment seeks low cost travel but with some extra amenities. One way to
satisfy their needs is to offer a business class. Within the layout of a plane, this
section would have more seat room; possibly one seat for every two in the first two
rows of the plane which would give more leg room and work space. Also, curtains
would be helpful to give consumers privacy.
Families are considered to be two adults and at least one child. Groups are also
considered to be an extended family of 4 or more. When traveling, this segment
would presumably prefer to be seated together. Southwest does not have assigned
seating that is bought through reservations in advance. Seating is first come, first
serve. A concept Southwest should consider is offering families and groups that fit
this segment priority seating. This would give the segment the chance to sit together
and also allow other passengers to seat more quickly since a large amount of families
and groups will already be seated.
� Market Penetration Strategy
One way to satisfy the business segment of their market is to offer just business class
flights in those secondary airports. Southwest can still satisfy those business
professional needs and also maintain their business and image of being a low cost
commercial airline. To fulfill the family needs, Southwest could offer a two row
reserve seating in the back of the plan for families with children. This would also be
a first come, first serve option though.
� Market Development Strategy
Southwest's untapped markets are also the major hub airports in America that their
flights do not travel to. If Southwest did occupy those airport hub markets, then the
company would have direct competition with those major airlines that are very
expensive.
� Market Development Strategy
The untapped markets for Southwest include Western Europe, Latin America, and
Canada. With Southwest's low pricing strategy in America, their international pricing
strategy may have to be slightly more expensive due to fuel and more employees.
However, Southwest will gain international recognition and also higher market share.
Southwest has the potential to steal competition away from those area's major airlines
by offering a competitive pricing strategy.
� Forward Integrative Growth Strategy
Travel agents tend to deal with tour companies and offer package deals. Southwest
could take advantage of this partnership by being the official carrier for certain tour
groups. Therefore, Southwest is guaranteed more sold seat tickets and also receives
recognition among those consumers in the group which may use Southwest for their
next travel needs.
� Forward Integrative Growth Strategy
To gain more relationships that spur profit, Southwest could team up with one
specific travel agency. This would limit the complexity of partnerships and rather
focus attentively on one agency. By going with one agency that is well known with a
positive brand image, there will be a lesser chance for Southwest to become
associated with too many agencies that may make Southwest look negative.
VI. Recommended Strategies
� Market Penetration Strategy
As a group, we recommend that Southwest could achieve growth with in the
company's current business by implementing an intensive growth strategy where the
airline will create a business and family class section on its airplanes. Choosing a
market penetration strategy will allow Southwest to increase the market share of its
current products in their current markets. By doing this, the company will not only
attract, but they will encourage and cater to more business class travelers as well as
groups and families.
We chose this market penetration strategy instead of offering exclusive business class
flights due to the fact that it is more economical. By providing room on existing
airplanes for groups, families, and business people, Southwest can save money and
continue to operate its flights on the company's existing airplanes. This way
Southwest can apply this strategy to its already stable business.
� Market Development Strategy
We recommend that Southwest could achieve growth inside the company by
implementing an intensive growth strategy. The market development strategy that we
recommend for Southwest Airlines will help the company reach new markets whose
needs are not being met by the airline's current product offerings.
Establishing a low price airline presence in Canada, will allow for Southwest to gain
some international recognition with fewer competition. It would be easier for the
airline to establish itself in Canada than in Latin American and Western Europe
where there is more competition Having a presence in Canada will not only give
Southwest the potential to gain new consumers, but it will also help aid the company
in becoming a part of Canada's business world. Canada is a country known for
business and commuter travel. Implementing the market penetration strategy along
with the market development strategy, Southwest will be able to establish itself as an
economical way to travel within Canada. This is to say that Southwest should operate
a separate airline service within Canada and still operate its United States operation.
� Forward Integrative Growth Strategy
We recommend that Southwest Airlines could also achieve growth through an
integrative growth strategy. Using this type of strategy will help the airline to acquire
businesses that are related to company's current business. Our recommendation is for
Southwest to team up with travel vacation companies in order for the airline to
become a part of touring packages.
By offering group priority seating along with establishing Southwest as the primary
carrier for the tour group; Contiki Tours, the airline will be able to reap the benefits of
the touring agency without having to become a direct part of the travel agency.
Southwest has been doing a very profitable job of being a low fare selling airline
without having to share a large part of these profits with travel agencies.
In order to become a carrier for tours, the airline will have to work along with travel
agencies who have these promotional tours. Doing so will help Southwest Airlines to
expand into the market of touring travel, establish partnerships with travel agencies,
and promote their new group seating arrangements. Working with these tour groups
will help Southwest gain more exposure to a new market segment.
VII. Marketing Tactics
� New Services Advertising Campaign
Target Audience
The new services Southwest will offer target strictly families and business
professionals. Families are considered to be two adults and at least one child.
Groups are considered to be an extended family of 4 or more. This market segment
tends to prefer to be seated together. The age range varies from infant to senior
citizens. The demographics of this market are very scattered across the country.
Their purchasing behavior is mainly based on family vacations or group activities.
The business professional segment is males and females between 24-60 years of age.
Most traveling businessman/women live near or in metropolitan cities therefore
marketing will occur in those major cities across America.
Frequency
The television commercials will run separately for each concept but will run
simultaneously with each other on indicated channels and networks. The running
schedule of the commercials will be set up according to high flying seasons.
Tentatively, the schedule is for the months of March, April, June, July, August,
November, and December. To compliment the television campaign, billboard
advertising will begin in January and will run all year long because we plan on
buying the billboard space. Billboard advertisements only get the attention span of a
couple seconds, which is why this type of advertising must be used as a reminder not
as the sole method of advertising. Having the billboard throughout the year will
reinforce the intended message and serve as a reminder when the other forms of
advertising are in the off months.
Message Theme
The theme of the television and billboard advertising will be the same two concepts.
To promote the new business class, the ad will tentatively show a new spacious
business class area on a Southwest plane. The slogan will be, "Privacy. Comfort. All
at a low price. Now that's Professional." Details about the new service will follow
this tagline. For the family priority seating policy there will be a family getting on
board their flight along with the flight crew. The tagline for this will be; "Priority
Group Seating. Keeping the family together." Details will follow later as well.
These concepts were based on the Hedonic Experiential Model which taps into the
consumer's want and desires. The taglines are to make the consumer feel that if they
are a professional, or a part of a vacationing family, they will need that Southwest
experience.
� Promotional Incentive & Personal Selling Strategy
Target Audience
The customer base for Southwest Canada will be business professionals. The
targeted working class tends to travel often and their employers tend to be price
sensitive. The consumer segment of business class professionals ranges from 24-60
years of age that live in Canada's metropolitan cities. These cities include: Quebec,
Montreal, and Toronto.
Frequency
Being that Southwest Canada represents a whole new market, heavy advertising must
start at the beginning of the year in order to achieve maximum exposure. A
Southwest representative will visit major businesses throughout the country to
promote Southwest Canada and to offer a rewards program in the form of a frequent
flyer card which will be handed out to business professionals. The intervals for
theses promotional efforts will take place starting in January then moving into
February, May, June, September, and October visiting alternating cities.
Message Theme
When a Southwest representative visits the Canadian businesses, they will be
personally selling the Southwest name. The goal is to get Canadian
businessmen/women aware of the airline that has just entered the market. In hand,
each representative will offer the business associates a frequent flyer mile card. The
card will track each passenger's trip. The fifth time they have traveled with
Southwest, they will receive a free one way ticket to their destination of choice.
� Promotional Partnership Tour
Target Audience
Southwest should plan on partnering up with Contiki Tours. Those being sought for
these tours are 17-24 year olds who are looking to vacation for an inexpensive price
package. Contiki Tours mainly targets towards groups, but they also encourage
individuals who are interested in vacationing with others and do not want to spend a
lot of money. This promotional tour will visit college campuses across the United
States. These students will be seeking spring break packages as well as vacation
packages throughout the year.
Frequency
The promotional tour will begin in February and will end at the end of the school
season in the month of May. A Southwest Representative will travel along side of
representatives from Contiki Tours to the specified locations. A press release will be
sent out to the participating colleges which will be advertised on the campuses in
January, February, April, September and October. These months were selected to
compliment the vacationing seasons that take place throughout a college semester.
Message Theme
A press release will be sent to participating colleges across America. This will make
students aware of the promotional tour Southwest will make with Contiki Tours.
Tentatively, the tagline will be; "You know where you want to go. Now who will get
you there?" Southwest representatives will travel with the Contiki representatives
and help students book their spring break and other short vacations throughout the
semesters. This will give Southwest a massive amount of publicity especially since
college students have a low disposable income.
VIII. Implementation and Control
MEDIA PLAN
JAN FEB MAR APR MAY JUN
ADULTS 24-60
Network TV X X X
Network Cable X X X
Billboard X X X X X X
CONTINUED...
JUL AUG SEP OCT NOV DEC
ADULTS 24-60
Network TV X X X X
Network Cable X X X X
Billboard X X X X X X
TV Billboard
Reach
(1+ exposures)85% 65%
Effective Reach
(3+ exposures)13% 24%
Frequency 10 4
Weight
(GRPs) 850 260
(ERPs)130 96
PROMOTION PLAN
JAN FEB MAR APR MAY JUN
ADULTS 24-60
Reward Program X X X
CONTINUED...
JUL AUG SEP OCT NOV DEC
ADULTS 24-60
Reward Program X X
JAN FEB MAR APR MAY JUN
ADULTS 17-24
Tour X X X
CONTINUED...
JUL AUG SEP OCT NOV DEC
ADULTS 17-24
Tour X X
Reward Tour
Program
Reach
(1+ exposures)90% 85%
Effective Reach
(3+ exposures)60% 50%
Frequency 1 1
Weight
(GRPs) 90 85
(ERPs)60 50
Proforma P&L
Gross Sales: 2.42BB
Less Discounts and Allowances: ---------
Net Sales: 2.42BB
(Cost of Goods sold): 554MM_
Manufacturing Contribution to Profit: 1.866BB
(Distribution) -----------
(Sales Expense) 1.5BB
(Advertising and Promotion) _93.2MM_
Marketing Contribution to Profit: 274MM
IX. Evaluation Plan
Recommendation 1
The evaluation plan focuses on how the implementation of our recommended
strategies can be reviewed and whether or not the strategies could produce the desired
outcomes. The evaluation will also give information on whether or not the
investment of these strategies was worth it based on the changes in revenue.
The first of these strategies is to incorporate a strategy to expand the seating on
Southwest airplanes by creating business and family classes. By creating a business
class section of the plane, Southwest would gain the passengers who typically value a
higher level of comfort and amenities at relatively low prices. By creating a family
class section of the plane, Southwest will be able to expand its appeal to groups who
value the ability to sit together during the duration of flights. These �'families'' would
typically fly with competitors for the convenience of being able to reserve package
seats ahead of time. Therefore, this strategic plan would in turn expand revenues, as
room for seats which may typically go un-purchased if the flight does not fill up
would now be freed up to sit passengers paying more for the seat. It also helps to
expand sales into a relatively new market while maintaining the market which is
content with the value they are already receiving in coach for the low price they are
paying.
Southwest will evaluate the results of implementing such a strategy by analyzing
break even points. Southwest will set a quarterly profit objective on its business and
family classes of roughly $2 million, and then compare the overall quarterly profits
with those of past quarters when business and family sections were not offered. This
will clearly paint an accurate picture of whether or not these new strategies are
working, and to what degree.
Recommendation 2
Recognizing the potential opportunity cost of not diversifying their product and
services to foreign markets, Southwest has opted to implement an aggressive market
penetration strategy into the Canadian airline industry. The Canadian airline industry,
which offers little to no competition and few barriers to entry, is one which has
enormous potential.
Given the small city airports in Canada and the utter lack of competition, Southwest
can continue its low operating costs and the practice of transferring that low cost to
consumers, being the low-cost provider in two different countries. Currently, the
airline market in Canada is dominated by Air Canada, who enjoys a 70% market
share (1). The remaining market share is divided amongst much smaller non-
profitable airlines. Therefore, our goal is to penetrate the Canadian market by gaining
a 12% market share during the first year of operations. This would put Southwest in
the top three bracket in terms of airline market commanders.
The 12% market share objective for year one of operations would be the standard
with which we would measure the success of Southwest's Canada campaign.
Southwest makes $1.6 billion in revenues in the United States (2); Air Canada is
projected to make $253 million (1). This means in order to gain a 12% market share,
Southwest would only have to make 10% in Canada what they do in the U.S. Given
the favorable exchange rate and efficient operations Southwest has, this goal is highly
attainable.
At the end of the first fiscal year, results will be analyzed to determine exactly how
much market share Southwest was effective in seizing, and how to proceed with
future operations.
Recommendation 3
We will evaluate the effectiveness of our tour promotions in conjunction with Contiki
Tours by reviewing the total volume of tickets sold throughout the year through the
typical travel agencies Southwest deals with. We will then compare the percentage of
these revenues to the total revenue and compare to see exactly how profitable these
new operations are. Southwest will further set a profit objective of gaining 6% more
profit than in previous years of operations without the agency tour options.
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