Impact Pricing Blog

How Southwest Airlines “Tricks” You

Quick comment:  I wrote this post before the COVID-19 shutdowns.  One day we will return to a new normal.  Regardless, the lesson taught here is still valid.  Mark.

Does Southwest have the best prices?

You may think so, and here is why.

On a plane, as always, I was talking with the passenger sitting next to me. We were talking about our favorite airlines and I told him Southwest was my favorite airline that I don’t have status on. Flying on one of the major carriers without status is horrendous. Ugh.

He then said, “Most people think Southwest is less expensive, but it’s not.” He’s right.

For example, I just looked up the price of flights from San Jose to Las Vegas for 15 days from today. Southwest is $64 each way or $128 round trip. Delta has a roundtrip flight for only $112. If you randomly check flights, you will find that most of the time Southwest does not have the lowest price.

A Low Price Brand Doesn’t Always Have the Lowest Prices

Why do they have a low price brand?

First, Southwest used to have the lowest prices. They purchased fuel futures before the price of fuel went up. They had lower costs and took advantage of their situation by holding their prices lower. They became known as a lower-priced airline.

But now, Southwest’s cost advantage on fuel has eroded. Whether it’s because their overall costs aren’t lower than other airlines or because they just learned to price better, Southwest’s prices are not significantly lower than American or Delta or United. How do they still maintain that low price image which charging higher prices?

The answer is their distribution strategy.

When you go to Expedia or Travelocity or your favorite site, you won’t see Southwest flights there. The only way to find Southwest flights are on the Southwest web site. That feels like a disadvantage, but it’s not.

Positioning Your Distribution Channel Effectively

Finally, here’s the magic.

Southwest Airlines has a distribution channel where many people only make a ‘will I’ decision. Believing that Southwest has great prices, people go to the Southwest website, find a flight they want, and then decide to buy. They never compare prices versus the other airlines. Southwest doesn’t display them, and if the buyer believes Southwest has the lowest fares then why waste time searching other websites? And, as you regular readers know, people are less price-sensitive when making a ‘will I’ decision. This means Southwest doesn’t have to be less expensive.

Contrast that to all of the major airlines.  You go to a site like Expedia, search for flights and are easily presented with the prices from many different carriers.  There you are making a which one decision, and the price is one of the key drivers of your decision.

The lesson for you is this:  think hard about your distribution channel. Even if you sell a which one product, you may be able to distribute it in a ‘will I’ channel.  You may be able to get in a position where your buyers are only making the ‘will I’ decision.

To learn more about how to create powerful will I situations to increase margins, check out our Value Based Business Course in our Champions of Value online pricing University.  Impact Pricing currently features the industry’s highest quality pricing education for pricing professionals like you. 

Tags: pricing strategy

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