Southwest Airlines, a small intrastate carrier, has just completed its first year of operations in June 1972 and management is debating what advertising and promotional strategy to adopt for the future. Southwest has successfully broken into a market dominated by two larger airlines and gained a significant market share through improved quality service, lower prices and other innovations, supported by heavy advertising and other promotions. However, it is still not making money. Illustrates development and introduction of a new consumer service and advertising and promotional strategy. Exhibits emphasize advertising copy, including a centerfold. Another version of this case, Southwest Airlines (A), takes the action up through February 1973, includes more details on pricing, and is designed for teaching marketing programs.
Swot Analysis of "Southwest Airlines (C)" written by Christopher H. Lovelock includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Southwest Airlines facing as an external strategic factors. Some of the topics covered in Southwest Airlines (C) case study are - Strategic Management Strategies, Pricing, Public relations and Sales & Marketing.
Some of the macro environment factors that can be used to understand the Southwest Airlines (C) casestudy better are - – customer relationship management is fast transforming because of increasing concerns over data privacy, digital marketing is dominated by two big players Facebook and Google, central banks are concerned over increasing inflation, cloud computing is disrupting traditional business models, competitive advantages are harder to sustain because of technology dispersion, increasing transportation and logistics costs, increasing energy prices,
talent flight as more people leaving formal jobs, technology disruption, etc
Introduction to SWOT Analysis of Southwest Airlines (C)
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in Southwest Airlines (C) case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Southwest Airlines, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Southwest Airlines operates in.
According to Harvard Business Review, 75% of the managers use SWOT analysis for various purposes such as – evaluating current scenario, strategic planning, new venture feasibility, personal growth goals, new market entry, Go To market strategies, portfolio management and strategic trade-off assessment, organizational restructuring, etc.
SWOT Objectives / Importance of SWOT Analysis and SWOT Matrix
SWOT analysis of Southwest Airlines (C) can be done for the following purposes –
1. Strategic planning using facts provided in Southwest Airlines (C) case study
2. Improving business portfolio management of Southwest Airlines
3. Assessing feasibility of the new initiative in Sales & Marketing field.
4. Making a Sales & Marketing topic specific business decision
5. Set goals for the organization
6. Organizational restructuring of Southwest Airlines
Strengths Southwest Airlines (C) | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Southwest Airlines in Southwest Airlines (C) Harvard Business Review case study are -
Low bargaining power of suppliers
– Suppliers of Southwest Airlines in the sector have low bargaining power. Southwest Airlines (C) has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Southwest Airlines to manage not only supply disruptions but also source products at highly competitive prices.
Ability to recruit top talent
– Southwest Airlines is one of the leading recruiters in the industry. Managers in the Southwest Airlines (C) are in a position to attract the best talent available. The firm has a robust talent identification program that helps in identifying the brightest.
Cross disciplinary teams
– Horizontal connected teams at the Southwest Airlines are driving operational speed, building greater agility, and keeping the organization nimble to compete with new competitors. It helps are organization to ideate new ideas, and execute them swiftly in the marketplace.
Operational resilience
– The operational resilience strategy in the Southwest Airlines (C) Harvard Business Review case study comprises – understanding the underlying the factors in the industry, building diversified operations across different geographies so that disruption in one part of the world doesn’t impact the overall performance of the firm, and integrating the various business operations and processes through its digital transformation drive.
Superior customer experience
– The customer experience strategy of Southwest Airlines in the segment is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.
Highly skilled collaborators
– Southwest Airlines has highly efficient outsourcing and offshoring strategy. It has resulted in greater operational flexibility and bringing down the costs in highly price sensitive segment. Secondly the value chain collaborators of the firm in Southwest Airlines (C) HBR case study have helped the firm to develop new products and bring them quickly to the marketplace.
High brand equity
– Southwest Airlines has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Southwest Airlines to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
High switching costs
– The high switching costs that Southwest Airlines has built up over years in its products and services combo offer has resulted in high retention of customers, lower marketing costs, and greater ability of the firm to focus on its customers.
Diverse revenue streams
– Southwest Airlines is present in almost all the verticals within the industry. This has provided firm in Southwest Airlines (C) case study a diverse revenue stream that has helped it to survive disruptions such as global pandemic in Covid-19, financial disruption of 2008, and supply chain disruption of 2021.
Learning organization
- Southwest Airlines is a learning organization. It has inculcated three key characters of learning organization in its processes and operations – exploration, creativity, and expansiveness. The work place at Southwest Airlines is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders in Southwest Airlines (C) Harvard Business Review case study emphasize – knowledge, initiative, and innovation.
Successful track record of launching new products
– Southwest Airlines has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. Southwest Airlines has effective processes in place that helps in exploring new product needs, doing quick pilot testing, and then launching the products quickly using its extensive distribution network.
Organizational Resilience of Southwest Airlines
– The covid-19 pandemic has put organizational resilience at the centre of everthing that Southwest Airlines does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
Weaknesses Southwest Airlines (C) | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Southwest Airlines (C) are -
Ability to respond to the competition
– As the decision making is very deliberative, highlighted in the case study Southwest Airlines (C), in the dynamic environment Southwest Airlines has struggled to respond to the nimble upstart competition. Southwest Airlines has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
Lack of clear differentiation of Southwest Airlines products
– To increase the profitability and margins on the products, Southwest Airlines needs to provide more differentiated products than what it is currently offering in the marketplace.
Slow to harness new channels of communication
– Even though competitors are using new communication channels such as Instagram, Tiktok, and Snap, Southwest Airlines is slow explore the new channels of communication. These new channels of communication mentioned in marketing section of case study Southwest Airlines (C) can help to provide better information regarding products and services. It can also build an online community to further reach out to potential customers.
Skills based hiring
– The stress on hiring functional specialists at Southwest Airlines has created an environment where the organization is dominated by functional specialists rather than management generalist. This has resulted into product oriented approach rather than marketing oriented approach or consumers oriented approach.
Compensation and incentives
– The revenue per employee as mentioned in the HBR case study Southwest Airlines (C), is just above the industry average. Southwest Airlines needs to redesign the compensation structure and incentives to increase the revenue per employees. Some of the steps that it can take are – hiring more specialists on project basis, etc.
Need for greater diversity
– Southwest Airlines has taken concrete steps on diversity, equity, and inclusion. But the efforts so far has resulted in limited success. It needs to expand the recruitment and selection process to hire more people from the minorities and underprivileged background.
Products dominated business model
– Even though Southwest Airlines has some of the most successful products in the industry, this business model has made each new product launch extremely critical for continuous financial growth of the organization. firm in the HBR case study - Southwest Airlines (C) should strive to include more intangible value offerings along with its core products and services.
High cash cycle compare to competitors
Southwest Airlines has a high cash cycle compare to other players in the industry. It needs to shorten the cash cycle by 12% to be more competitive in the marketplace, reduce inventory costs, and be more profitable.
Increasing silos among functional specialists
– The organizational structure of Southwest Airlines is dominated by functional specialists. It is not different from other players in the Sales & Marketing segment. Southwest Airlines needs to de-silo the office environment to harness the true potential of its workforce. Secondly the de-silo will also help Southwest Airlines to focus more on services rather than just following the product oriented approach.
Capital Spending Reduction
– Even during the low interest decade, Southwest Airlines has not been able to do capital spending to the tune of the competition. This has resulted into fewer innovations and company facing stiff competition from both existing competitors and new entrants who are disrupting the industry using digital technology.
Workers concerns about automation
– As automation is fast increasing in the segment, Southwest Airlines needs to come up with a strategy to reduce the workers concern regarding automation. Without a clear strategy, it could lead to disruption and uncertainty within the organization.
Opportunities Southwest Airlines (C) | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities highlighted in the Harvard Business Review case study Southwest Airlines (C) are -
Use of Bitcoin and other crypto currencies for transactions
– The popularity of Bitcoin and other crypto currencies as asset class and medium of transaction has opened new opportunities for Southwest Airlines in the consumer business. Now Southwest Airlines can target international markets with far fewer capital restrictions requirements than the existing system.
Finding new ways to collaborate
– Covid-19 has not only transformed business models of companies in Sales & Marketing industry, but it has also influenced the consumer preferences. Southwest Airlines can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.
Reconfiguring business model
– The expansion of digital payment system, the bringing down of international transactions costs using Bitcoin and other blockchain based currencies, etc can help Southwest Airlines to reconfigure its entire business model. For example it can used blockchain based technologies to reduce piracy of its products in the big markets such as China. Secondly it can use the popularity of e-commerce in various developing markets to build a Direct to Customer business model rather than the current Channel Heavy distribution network.
Redefining models of collaboration and team work
– As explained in the weaknesses section, Southwest Airlines is facing challenges because of the dominance of functional experts in the organization. Southwest Airlines (C) case study suggests that firm can utilize new technology to build more coordinated teams and streamline operations and communications using tools such as CAD, Zoom, etc.
Developing new processes and practices
– Southwest Airlines can develop new processes and procedures in Sales & Marketing industry using technology such as automation using artificial intelligence, real time transportation and products tracking, 3D modeling for concept development and new products pilot testing etc.
Using analytics as competitive advantage
– Southwest Airlines has spent a significant amount of money and effort to integrate analytics and machine learning into its operations in the sector. This continuous investment in analytics has enabled, as illustrated in the Harvard case study Southwest Airlines (C) - to build a competitive advantage using analytics. The analytics driven competitive advantage can help Southwest Airlines to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for Southwest Airlines to expand its talent hiring zone. According to McKinsey Global Institute, 20% of the high end workforce in fields such as finance, information technology, can continously work from remote local post Covid-19. This presents a really great opportunity for Southwest Airlines to hire the very best people irrespective of their geographical location.
Manufacturing automation
– Southwest Airlines can use the latest technology developments to improve its manufacturing and designing process in Sales & Marketing segment. It can use CAD and 3D printing to build a quick prototype and pilot testing products. It can leverage automation using machine learning and artificial intelligence to do faster production at lowers costs, and it can leverage the growth in satellite and tracking technologies to improve inventory management, transportation, and shipping.
Loyalty marketing
– Southwest Airlines has focused on building a highly responsive customer relationship management platform. This platform is built on in-house data and driven by analytics and artificial intelligence. The customer analytics can help the organization to fine tune its loyalty marketing efforts, increase the wallet share of the organization, reduce wastage on mainstream advertising spending, build better pricing strategies using personalization, etc.
Building a culture of innovation
– managers at Southwest Airlines can make experimentation a productive activity and build a culture of innovation using approaches such as – mining transaction data, A/B testing of websites and selling platforms, engaging potential customers over various needs, and building on small ideas in the Sales & Marketing segment.
Better consumer reach
– The expansion of the 5G network will help Southwest Airlines to increase its market reach. Southwest Airlines will be able to reach out to new customers. Secondly 5G will also provide technology framework to build new tools and products that can help more immersive consumer experience and faster consumer journey.
Learning at scale
– Online learning technologies has now opened space for Southwest Airlines to conduct training and development for its employees across the world. This will result in not only reducing the cost of training but also help employees in different part of the world to integrate with the headquarter work culture, ethos, and standards.
Lowering marketing communication costs
– 5G expansion will open new opportunities for Southwest Airlines in the field of marketing communication. It will bring down the cost of doing business, provide technology platform to build new products in the Sales & Marketing segment, and it will provide faster access to the consumers.
Threats Southwest Airlines (C) External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study Southwest Airlines (C) are -
Consumer confidence and its impact on Southwest Airlines demand
– There is a high probability of declining consumer confidence, given – high inflammation rate, rise of gig economy, lower job stability, increasing cost of living, higher interest rates, and aging demography. All the factors contribute to people saving higher rate of their income, resulting in lower consumer demand in the industry and other sectors.
High dependence on third party suppliers
– Southwest Airlines high dependence on third party suppliers can disrupt its processes and delivery mechanism. For example -the current troubles of car makers because of chip shortage is because the chip companies started producing chips for electronic companies rather than car manufacturers.
Instability in the European markets
– European Union markets are facing three big challenges post Covid – expanded balance sheets, Brexit related business disruption, and aggressive Russia looking to distract the existing security mechanism. Southwest Airlines will face different problems in different parts of Europe. For example it will face inflationary pressures in UK, France, and Germany, balance sheet expansion and demand challenges in Southern European countries, and geopolitical instability in the Eastern Europe.
Aging population
– As the populations of most advanced economies are aging, it will lead to high social security costs, higher savings among population, and lower demand for goods and services in the economy. The household savings in US, France, UK, Germany, and Japan are growing faster than predicted because of uncertainty caused by pandemic.
Backlash against dominant players
– US Congress and other legislative arms of the government are getting tough on big business especially technology companies. The digital arm of Southwest Airlines business can come under increasing regulations regarding data privacy, data security, etc.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, as highlighted in case study Southwest Airlines (C), Southwest Airlines may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Sales & Marketing .
Easy access to finance
– Easy access to finance in Sales & Marketing field will also reduce the barriers to entry in the industry, thus putting downward pressure on the prices because of increasing competition. Southwest Airlines can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for Southwest Airlines in the Sales & Marketing industry. The Sales & Marketing industry is already at various protected from local competition in China, with the rise of trade war the protection levels may go up. This presents a clear threat of current business model in Chinese market.
Shortening product life cycle
– it is one of the major threat that Southwest Airlines is facing in Sales & Marketing sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, Southwest Airlines can face downward pressure on margins from increasing competition from international players. The international players have stable revenue in their home market and can use those resources to penetrate prominent markets illustrated in HBR case study Southwest Airlines (C) .
Environmental challenges
– Southwest Airlines needs to have a robust strategy against the disruptions arising from climate change and energy requirements. EU has identified it as key priority area and spending 30% of its 880 billion Euros European post Covid-19 recovery funds on green technology. Southwest Airlines can take advantage of this fund but it will also bring new competitors in the Sales & Marketing industry.
Barriers of entry lowering
– As technology is more democratized, the barriers to entry in the industry are lowering. It can presents Southwest Airlines with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the sector.
Increasing wage structure of Southwest Airlines
– Post Covid-19 there is a sharp increase in the wages especially in the jobs that require interaction with people. The increasing wages can put downward pressure on the margins of Southwest Airlines.
Weighted SWOT Analysis of Southwest Airlines (C) Template, Example
Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers in the HBR case study Southwest Airlines (C) needs to zero down on the relative importance of each factor mentioned in the Strengths, Weakness, Opportunities, and Threats quadrants.
We can provide the relative importance to each factor by assigning relative weights. Weighted SWOT analysis process is a three stage process –
First stage for doing weighted SWOT analysis of the case study Southwest Airlines (C) is to rank the strengths and weaknesses of the organization. This will help you to assess the most important strengths and weaknesses of the firm and which one of the strengths and weaknesses mentioned in the initial lists are marginal and can be left out.
Second stage for conducting weighted SWOT analysis of the Harvard case study Southwest Airlines (C) is to give probabilities to the external strategic factors thus better understanding the opportunities and threats arising out of macro environment changes and developments.
Third stage of constructing weighted SWOT analysis of Southwest Airlines (C) is to provide strategic recommendations includes – joining likelihood of external strategic factors such as opportunities and threats to the internal strategic factors – strengths and weaknesses. You should start with external factors as they will provide the direction of the overall industry. Secondly by joining probabilities with internal strategic factors can help the company not only strategic fit but also the most probably strategic trade-off that Southwest Airlines needs to make to build a sustainable competitive advantage.