Cost-Leadership Strategies Of Southwest Airlines: Cost Leadership Strategy

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COST LEADERSHIP STRATEGY
DEFINITION:
Cost-Leadership strategy is a strategy in which a firm in the market reduces its economic costs, lower than its competitors in the market, to gain competitive advantage over them. The strategy can only work if its different from the strategies that other competitors are using, and it should be as such that it affects them. If the strategy does not affect the competitors, it will be useless.
Cost-reduction strategies may include:
• Reducing the costs of RnD, sales, and services
• Investing in new and better technologies
• Establishing efficient-scale facilities
• Maintaining control over production and overhead expenses
SOURCES OF COST ADVANTAGE:
• Economies of scale:
One of the most important sources …show more content…

This concept was challenged by Southwest Airlines by marketing itself as a cost leader. Their entire growth curve in the industry has been attributed to its cost effective strategies which has made it more efficient and successful than traditional airlines.
It all started in 1971, when Rolling King and Herb Kelleher decided to challenge the existing rut of charging high prices for air travels. They considered the railways and roadways their competitors and decided to offer cheaper travel for smaller routes. The company was incorporated in 1967, apart from initial entry troubles, Southwest has been the only US airline to have earned profits since 1973. The eccentric company’s outlandish way of conducting themselves has been the sole reason for Southwest Airlines to succeed in a highly competitive and packed industry.
The company’s cost leadership strategy of keeping their fares low to ensure frequent and convenient travel along with its playful, fun poking advertising, exciting promotional ways, and various vibrant ways of operation enabled the company to expand exuded its effect on both customer and competitors, thus lowering the prices in the new market. This is the ‘Southwest

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