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What Southwest Can Teach About Success - And Failure
By Doug Davidoff

If you need to book an airline ticket, what is the driving factor in your choice?   If you needed to rent an apartment for a year, what would the overwhelming driver be? The fact is that, in both cases, price drives the decision.  I understand that there are frequent flyer programs, schedules, location and amenities that are involved in making decisions, but the key to moving market share or changing customer decisions, over the mid-term and long-term, is finding the ability to offer a similar option for less money. Airlines and apartment buildings have little-to-no pricing power for one simple reason - they cannot create demand.  The reasons people need to fly or rent have absolutely nothing to do with what the providers of these services have to offer.  The demand is caused by other factors.  The job of airline and apartment marketing is to be there when the demand arises, and to constantly find ways to do more for less.

Last month on The Fast Growth Blog, I discussed the difference between what I call "catchers" and what I call "demand creators."  If you're not creating demand, you better be doing two things:

  • First, you better be out there to "catch" the demand as it happens.  That means lots of advertising, lots of outreach and lots of activity - no all of it profitable or effective.
  • Second, you must continually, manaically find ways to deliver better offerings and more value while lowering your costs and your prices.

The few companies that can do that can build lucrative businesses.  Those that can’t are destined to work harder and harder just to fall behind a little more.     

Look at the companies that have successfully won the airline and/or apartment game.  The first to come to mind for most people is Southwest.  What has enabled Southwest to succeed, while every other airline has lost money?  While I (and many others) find Southwest more fun than alternatives and I appreciate their schedules, the reason they have made money is that they, above and beyond any other airline, have controlled their costs.  They are maniacal on finding ways to improve their service, and even to find new things that customers will pay for (priority boarding as an example) that simultaneously reduce their costs.

Legacy carriers like United and American and upstarts like Jet Blue and AirTran have all had their moments, but because Southwest is better at constantly lowering their cost structure they win.

If building a business whose primary objective is decreasing its cost structure doesn't sound that fun to you, the only viable strategy is to create demand and become a Demand Creator.

Demand Creation requires that you position yourself to the results businesses and people desire.  It means that you have to get out of your business and into the business of your customers.  Focusing on what you do, even if you focus on the benefits of what you do, will put you in the realm of the catcher and all of the challenges that come with that.  

Your job is to understand your Best Few Customers™ so well that you know what is preventing them from achieving their critical results- better than they do.  With that knowledge in hand, your job is to provoke the awareness of their needs and help create awareness of symptoms and trace them to their causes. Creating demand requires you to raise your aim from the tactical issues surrounding implementation to the strategic issues that surround and impact business results.  It requires that you know what your customers need before they do.  Then your sales and marketing systems are responsible for enabling them to become aware.

Demand Creation requires your company, and the people (especially on the go-to-market side) with your company, to develop new skills, new attitudes and new approaches.

The rules of Demand Creation are actually quite simple, but the transformation from demand fulfillment can be quite hard, because of the new behaviors and thought processes that are necessary. 

The choice is yours:

  • The maniacal focus to eliminate costs faster and better than your competition, or
  • Transform your approach to create demand

If you want pricing power and the ability to grow margins – the choice is clear. If you'd like to know what's involved in becoming a Demand Creator and what the pit falls are, feel free to give us a call, we'd be happy to share.