Why has Southwest's pricing strategy been successful the the last three decades?
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Basically, Southwest Airlines' pricing strategy has been to offer the lowest possible fares. This has succeeded because so many airline passengers have been looking for low fares rather than for the perks that were once offered by many airlines instead of low fares.
Southwest's basic plan was to offer low fares for no-frills flights. Southwest did not offer much in the way of meals. It did not offer lounges for business passengers in airport terminals. It did not offer assigned seating and so passengers could not pick their seats. This worked because many passengers did not really care about these things and were not willing to pay higher fares to get them.
I do not have more detailed information on the prices of the Southwest versus their cost, and the growth in their market share. In absence of these figures it is not possible to gauge the success of the Southwest's policy. However I would like to point out that this strategy should not be considered just a pricing strategy. It is a complete product strategy. Southwest has not reduced price for the same product. It has changed the basic characteristic of the bundle of services it offers. It has changed the product from a bundle of basic transportation combined with many other facilities, convenience and choices, to just the basic transportation. This has enabled them to reduce their costs and pass on this benefit to the customer in form of reduced fares.
Thus the main reason for success of the Southwest's strategy has been the choice given to customer to buy and pay for only the basic transportation services. This is in contrast to the strategy adopted by the full service airlines that do not give the customers the choice of opting for only the basic transportation without the additional frills. It is important to note that there are many passengers who want all the luxuries that airlines have to offer, and are happy to pay for it. This is why we still have first class passengers flying on full service airlines, paying fares that are several times the fares of no-frills airlines.
Thus, success of Southwest should be attributed to its ability to meet economically a large potential demand for basic air transportation service without frills. meet this demand
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