Southwest Airlines And Their World Economy
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Southwest Airlines
Introduction
Technology, globalization, and market deregulation are the most influential forces reshaping the world economy.
Specifically, digitalization, connectivity, customization, customerization, and industry convergence are the drivers of this
new economy. The Internet or “information highway” is able to dispatch bits of information at incredible speeds from one
location to another. New technology has led thousands of new entrepreneurs to launch “dot-com” companies with the
hopes of striking gold. The first movers in e-commerce experiencing unmeasurable success and recognition such as AOL,
Amazon, Yahoo, ebay, Etrade, and others put enormous pressure on the already established brick and mortar companies
that had thrived. Music and bookstores, travel agents, and car dealers all fear for the future as the e-commerce boom
continues to grow.
As the shift from the old economy to the new economy continues, a new set of beliefs and practices is emerging. It is clear
that more focus is going to the customer’s needs and desires. In the past it was evident that the financial score card was a
benchmark for evaluation, but with the new economy, it is the marketing scorecard to be more focused upon. As a
marketing venture to gain more exposure in the industry or industries of choice and to provide a customer oriented interface
moves forward, more and more companies have chosen to indulge in e-commerce as a platform to conduct business.
E-commerce describes the use of electronic means to conduct a company’s business. In addition to providing company
information, history, policies, products, and job opportunities, the company offers to transact or facilitate the selling of
products and services online. “E-commerce takes place over four major Internet domains: B2C (business to consumer),
B2B (business to business), C2C (consumer to consumer), and C2B (consumer to business).”
Business to consumer is perhaps the most recognized form of e-commerce to the average consumer. Matching the site
to the customer’s needs is the key ingredient for this type of marketing and business mix. Business to business
commerce is changing the relationship between suppliers and customers in monumental ways as it actually surpasses B2C
commerce by 10 to 15 times. Invoices that used to cost upwards of $100 will now cost companies $20. An important
buying influence has emerged with the practice of consumer-to-consumer business. With the availability of chat service
such as AOL instant messenger, consumers are able to easily trade and share their product reviews and preferences. It is
giving word of mouth advertising a whole new description…”word of web”.
In a 1998 article written by Patricia Seybold about success in e-commerce, she sites the critical success factors of over 40
e-commerce companies:
1. Targeting the right customer
2. Owning their total experience
3. Streamlining practices that affect the customer
4. Provide a 360 view of the customer relationship
5. Let the customers help themselves
6. Help customers do their jobs
7. Deliver personalized service
8. Foster community
In short, e-commerce offers companies a way to initiate new business, reach new and expanded markets, relate to the
customer on a personal level through customization, and gain a new and valuable tool for customer retention and customer
relationship management.
E-Commerce Risk and Reward
Rewards
Both B2B and B2C businesses are reaping the benefits of E-Commerce as it saturates the market with the capability to
reach a wide demographic at the click of a button. Its attractiveness grows as the Internet boom continues and the
consumer tendency to e-business augments. One of the main attractions is the fact that within a very short period, a
company can be positioned globally, without even having to leave their home country. The opportunities of this seem
endless as more and more small businesses are jumping on the e-commerce bandwagon. No longer must a company set
up operations in other parts of the world to go “global.” Capital expenditures once affiliated with globalization are abated
with the use of e-commerce as a medium for reaching a global market for businesses great and small. Changing the
scope of business, e-commerce has transformed the global market, which is no longer just for the largest companies of the
world. To a certain extent, with the available resources, everyday people who own small businesses can now do business
around the world.
An e-commerce business has an open door to customers 24 hours a day, 7 days a week, catering to the customer at his
own convenience. The customer can shop from the comfort of his home and have merchandise delivered to his doorstep in
a matter of days. With most traditional brick-and-mortar businesses, the customer is constrained by operating hours.
Conducting e-business allows for a more flexible customer to business interaction benefiting both the customer and the
business, at the fraction of the cost associated with keeping a traditional store. Many brick and mortar establishments are
expanding their existing business with the use of e-commerce giving them avenues to reach a wider customer base while
still keeping their traditions alive.
E-commerce allows a company to interact directly with its customers, and allows the customer direct access to the
company. This allows companies to closely follow customer’s needs, wants, and concerns by hosting technology that
allows them to monitor customer behavior and trends. When a company uses this information correctly, customer service
increases dramatically as does customer loyalty. This strategy, only available through the practice of e-commerce, allows
the company to target its merchandise to the most appropriate customer segments as well as individual customers. Finally,
by selling directly to the customer, a company can reduce the need for retailers and distributors.
Customization is key. With customization, companies can allow the customer to essentially design their own goods,
enabling them to be “prosumers” or self-producing consumers. Companies such as A Diamond Is Forever (.com) uses this
very technique. Going to the site’s homepage one can select to design a piece of jewelry of his/her choosing. The site’s
most prominent feature is its directedness toward men considering a marriage proposal as the site also contains a
complete list of tips and secrets for that special event. Personalizing messages and services is one benefit that e-
commerce affords the company who is now able to interact with the each consumer personally, namely the customization of
products, services, prices, and the relationship. The combination of operational customization and marketing
customization is known as customerization, allowing the company to dialogue with the customer on a personalized one-to-
one basis. This practice of direct marketing saves the company money, a benefit that they can then pass on to the
consumer in the form of lower prices.
Risks
While the benefits are clear, it is important to also address the risks of e-commerce. From an interface standpoint, a poorly
designed e-business site can actually do significant to the company. Clearly, when the site of a company conducting e-
business is visited, a professional looking and perfectly functional website is expected; one that is easy to navigate and
makes consumers feel at ease with their purchase decisions. At the very least, a company with a poorly designed site will
not attract new customers, and far worse could see retention problems. Before a company enters the e-realm, they must
make some crucial decisions as to the design and functionality of their sites. Poor planning or poor execution can have
devastating consequences for the business.
Customization, although mainly a benefit to an e-commerce business, can also cause problems. Difficulties with
implementation are often costly and time consuming. Companies such as automobile manufacturers find that their complex
product line often does not lend itself to customization options for the customer. It can actually raise the cost of the goods
much higher than the customer is willing to pay. Some customers do not know exactly what they want until they see it and
then sometimes it is too late to refund the custom item that now has little sales value and may be very difficult to repair. In
spite of this, customization has worked well for some products namely laptop computers, clothing, skin care products, and
vitamins.
Availability and access to the proper distribution channels poses another difficulty to e-commerce businesses competing in
today’s market. Small to medium size companies might find it difficult to fill the customer orders from far away states,
countries, or continents. Without the ability to distribute the product or service, the e-business would surely not survive as
the customer is expecting the highest level of service given the direct B2C link through the World Wide Web. Businesses
normally limit their reach to those locations that allow steadfast distribution and shipping of goods. The most e-commerce
savvy companies are those with distribution channels already located around the world such as IKEA Global “Affordable
Solutions for Better Living” . IKEA sells and markets their products through the IKEA bi-annual catalog and on the Internet.
Their website provides an international portal catering to its browsers worldwide as well as warehouse space in all of its
servicing areas. It is essential for companies to be aware of their capabilities in this respect and to have strong ties to
distributors in all feasible areas to ensure that customer satisfaction will not be compromised with untimely and/or
expensive shipping techniques.
The ease with which a company or individual can begin to conduct e-business is truly amazing. This, in terms of an existing
business, opens up a new avenue for existing as well as new competitors to explore and potentially exploit. Companies
must now deal with competitors both large and small from around the globe. This increased competition can be detrimental
to a company’s sales, margins, and profits.
Perhaps the biggest impact e-commerce has had on the relationship between businesses and consumers is that the
consumer’s bargaining power has increased dramatically. The ease with which business can develop a web presence has
led to a large number of firms competing for the same market. As the number of competitors increases, the bargaining
power of buyers increases. Consumers no longer have to accept the prices or conditions of one company. They can shop
around, jumping from site to site with little effort until they find what they consider to be the best deal. This is further
compounded by the fact that consumes now have a extensive knowledge base in the Internet in which to search for
information on prices, costs, quality issues, etc. The bargaining power of buyers is moderate. Obviously, most travelers
have several options when selecting how they are to reach their destination. If consumers are not happy with what one
airline is offering, they can choose from the other airlines, or from other modes of transportation, such as trains or buses.
With the use of Internet searches, customers can quickly, easily, and cheaply compare the offerings of many, if not all, the
airlines putting the power in the hands of the consumer.
Legal issues surrounding e-business are plentiful. Security in the Internet age is a concern of all e-businesses. There are
several risks involved in doing business over the Internet that involve consumer protection and concealment. The business
becomes responsible to ensure that its site and all of its financial transactions are secure. A site that lacks security opens
up both the business and consumer to a myriad of risks. More abstract legal issues include the transmission or use of
copy written material, defamation, and invasion of personal privacy such as identity fraud. The legal issues are further
compounded by the fact that a company conducting e-business can potentially be held responsible for international law,
multiple jurisdictions, and the legal systems of the various countries in which it does business (Bick, 2002).
Even with all these various risks, for many companies the rewards are too great to resist!
E-Commerce Technology
There are numerous technologies that have made e-commerce possible. Perhaps the most important technology is public
key infrastructure, or PKI. PKI has emerged as the de facto standard to integrate security for e-business. A PKI enables
users of a basically non-secure public network such as the Internet to securely and privately exchange data (Loshin, Murphy,
& Vacca, 2001, p. 96). Two protocols that rely on the use of PKI are the Secure Hypertext Transfer Protocol (S-HTTP) and
the Secure Socket Layers Protocol (SSL). Obviously these two protocols have different specifications and procedures, but
essentially both aim to keep information secure, private, and authentic. Without the use of security protocols, it is unlikely
that consumers or businesses would even consider sending private information over a non-secure network.
With all the transactions occurring on the web, it is essential to ensure that the consumer will pay for the product/service they
have ordered. There are many ways for an e-business to accept payment from consumers. Payment methods include the
everyday credit- or debit-card, to smart cards, to various other digital currencies (Loshin et al., 2001, 249). Each method
has its pros and cons, but a robust e-business must be able and willing to accept various payment methods to attract the
greatest number of customers. Also, companies should still allow customers to place orders via a telephone to
accommodate the resistant and untrusting demographic. While most e-consumers are not adverse to placing their order
via the Internet, there still exists a notable population who reserve the means to place their order over the phone.
The e-commerce industry utilizes select software components that attract the customer and provide a user-friendly interface
to keep the customer coming back. In particular “shopping carts.” These pieces of software allow the consumers to select
multiple items and make a single joint purchase at a later hour or day. These shopping carts might also allow for the
storage of addresses and credit card numbers, requiring the consumer to only enter this info for the first transaction (Ezor,
2002, p. 13). Various e-retailers such as Dell and Amazon.com use this type of convenience software. As seen here,
Amazon creates a personalized shopping cart complete with the various desired items and their corresponding prices and
other applicable data, as well as any and all personal information to be used in billing and shipping of the products.
Software that makes the consumer experience as enjoyable and as manageable as possible is essential for the growth of
e-business.
High quality and reliable connectivity is what brings e-commerce to life. As more efficient ways to access the Internet are
developed, the consumer propensity to shop via the e-commerce industry increases dramatically. It is the convenience that
the customer craves; high speed, efficient access makes this a reality. Consumers are no longer limited to using dial-up
connections. They now have the choice of dial-up, DSL, cable, wireless, and satellite as means to connect to the Internet.
This new Internet technology will only help to strengthen e-business; sites will be much more elaborate, much faster, and will
be able to sustain viewer interest.
E-Commerce: The Industry
We need at least 1 paragraph about the e-commerce industry before getting into the 5 forces.
1. Porter’s Five Forces Model and the E-Commerce Industry
E-Commerce and Southwest Airlines
As the airline industry continues to struggle, the possibility of some of the major carries disappearing becomes very real. If
and when this happens, we can expect competition within the industry to increase. With the ability to gain the market share
of those leaving the industry, clearly there will be increased rivalry between the remaining players. One of the biggest
players, perhaps even the most respected in today’s market, is Southwest Airlines. They continue to thrive in a struggling
industry. With the use of e-commerce, Southwest Airlines has flourished providing a direct channel to serve their customers
and promote their low price/superior customer service strategy.
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Southwest Airlines maintains a mission dedicated to the service of its valued customers. They are dedicated to the highest
quality of customer service delivered with a sense of warmth, friendliness, individual pride, and company spirit. According
to statistics accumulated and published by the U.S. Department of Transportation, Southwest has been the industry leader
with the best cumulative consumer satisfaction record. Fortune Magazine has recognized Southwest Airlines in its annual
survey of corporate reputations. This year, Fortune listed Southwest Airlines among America's Top Ten most admired
corporations. In 2002, as in 1996 through 2001, Southwest was named the most admired airline.
In terms of Porter’s strategies for dealing with the forces in the airline industry, Southwest is pursuing a differentiation and
low-cost strategy. Southwest provides low-cost transportation, and many would agree that this is Southwest’s claim to
fame. Others would argue that Southwest has built a reputation on providing superior customer service, and that this is the
major strategy. It is a combination of both.
Southwest Airlines appears to be one of the healthiest airline companies, if not the healthiest overall. Southwest has certain
financial ratios, which could be used as proof of its outstanding performance in this industry. Southwest’s accounts
receivable ratio was well ahead of the industry average at 53.36 compared to 11.3. This means that Southwest collected
its money almost five times quicker than their competitors. Ticketless reservation with immediate payment by the customer
and high use of online reservations were causes for these ratios and due to the increasing use of internet, in common
households, it is foreseeable that the percentage of e-tickets will increase even further over the next years.
We observed that Southwest outperformed the airline industry with respect to economic growth, prices, consumer
expectations. Technological advances have positively impacted Southwest’s financial performance, and globalization, has
indirectly affected the financial performance and corporate/functional strategies. Southwest Airlines has benefited
remarkably from technological advances that more readily allow consumers to shop around for the lowest price via the
Internet. In 2001 over 85% of the seats sold were ticketless, allowing Southwest to eliminate significant processing costs.
In addition, Southwest Airlines’ commitment to the web has led to over 45% of its revenue being generated through its
website, www.southwestairlines.com
Southwest Airlines is selling over a third of their tickets from their website! This airline is definently taking advantage of e-
commerce and doing it right. Airline travel continues to thrive through e-commerce as other dot-coms crash and burn. The
demand for travel agents is plummeting as the consumer realized he doesn’t need the added cost of the middleman.
Southwest’s website is clean, simple, and quick. You can purchase a ticket in about four minutes and rest assured that you
have acquired the best deal. The Southwest site clearly indicates the non-stop flights, the flights that stop without aircraft
changes, and those that require plane changes. They do this all in a single column in their display window.
The site displays all of the applicable fares for your chosen itinerary. The schedules and fares are linked with a single
button that does not require you to choose flights before seeing the price as the competitors’ sites. Delta and American
Airlines’ sites are much more difficult to navigate as it is a struggle to adjust flight dates and preferences.
The transactionary process is very clear throughout the site. It clearly explains as you move through the process of
purchasing your airfare. From plan trip to select flight, to price, to purchase and book your ticket, Southwest is right there
with directions and guides. They also provide a forum to store personal information such as mailing address and billing
information making purchasing much faster.
Simply stated, the Southwest site is quick simple and uncluttered. Their information is clear and available at a glance.
Southwest Airlines can truly be a model for up-and-coming e-commerce businesses.
Conclusion: Southwest…Where Are We Headed?
Globalization has had an indirect effect on Southwest’s financial performance. While Southwest is solely a domestic
airline, the drive towards globalization has allowed Southwest to further secure its position as the number one domestic
airline.
Keeping with its user-friendly and highly demanded web site for online purchases and reservations, Southwest should
consider rapidly diffusing self-service kiosks at all of the hubs that Southwest uses. Currently Southwest only has these
machines in a limited number of hubs. Clearly the convenience of these machines will certainly be appreciated and will
undoubtedly “add value” to the customer experience of Southwest patrons. With almost 50% of reservations made via the
Southwest website, it seems only natural to incorporate this technology to all of the Southwest hubs as rapidly as possible.
This will not only save the consumer time and effort, but will reduce the need for Southwest personnel in the airport, thus
lowering the costs to the airline. Keeping costs low is essential for Southwest’s strategy to be the low-cost leader.
Southwest has distanced itself from the pack with regard to online flight searchers such as Orbits.com. Southwest has
blocked the Airline Tariff Publishing Co. from picking up Southwest fares. Southwest claims that sites like Orbits distorts
their actual offerings and does not give a true picture if the convenience that they like to portray. It seems like they are
being the brave airline, willing to stand up to the big bad discount airfare sites, but is this a good idea? Is Southwest hurting
potential sales by staying away from these discount sites and selling its product on its own terms? The core competency of
sites like Travelocity and Expedia is to provide the customer with a venue to comparison shop. If Southwest claims to be
the low cost, high service leader, then why not go with the pack? Some travel agents are straying from recommending
Southwest flights only because there is extra legwork involved with getting the Southwest fare. Maybe this strategy can
work for Southwest as they are the up-and coming leader in the industry. It’s differentiation that Southwest is going for, and
its differentiation that will sustain them.
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