"We don't charge fees for stuff that should be free" Southwest Airlines ~ Brand Mix

Tuesday, April 26, 2011

"We don't charge fees for stuff that should be free" Southwest Airlines

Southwest has tapped into consumer resentment over the fees that other airlines have started to charge for services that used to be free with a commitment not to charge for those same services (e.g. "Bags Fly Free," "No Change Fee") and promotion of that commitment with ads like the one above.

In financial services, the other sector that has developed a large appetite for fees, Ally Bank has adopted a similar approach, marketing itself as the anti-bank and promoting its "no fine print" policy and no ATM fees.

For both Southwest and Ally Bank, their competitors dependency on fees (which generate more than one quarter of income in the case of fee-innovator Spirit Airlines) has opened up a great branding opportunity--it's relevant, differentiating and competitors are unlikely/unable to respond.

Whether this positive branding position makes sense from a business perspective is a different and more difficult question to answer. Both companies are walking away from a lot of money. As this Knowledge@Wharton article points out, U.S. airlines collected $2.1 billion of fees in just one quarter in 2010 and Bank of America made 10% of its total income from "service charge" fees in 2009. Both Southwest and Ally have to hope that the goodwill generated by their no-fee commitment translates into a higher share of market and more overall revenues.

But getting the best of both worlds is Ryanair. This Irish carrier has managed to carve out a distinctive position at the low-cost end of the market. Its CEO, Michael O’Leary, is constantly pushing the boundaries in terms of costs that can be take out of the system and gets plenty of publicity for his more extreme ideas (e.g. Standing Room only). The airline is also notorious for its huge array of charges, so much so that there's a need for posts like: Top Ten Ryanair Charges and How to Avoid Them. So, whereas Southwest builds its brand by resisting the temptation to charge fees, Ryanair can build its brand by coming up with new fees and new customer inconveniences. Brilliant!


Denise L Yohn said...

i have a love-hate relationship with ryanair -- why? see: http://deniseleeyohn.com/bites/2010/09/10/ryanair-a-brand-i-love-to-hate/ -- denise lee yohn

Shao-En Chen said...

When I traveled America, i always choose Southwest airline as my best option. The most important thing make me deeply impressive that was free luggage shipment. It's the bold strategy to differentiate its brand from other competitors. Southwest might lose a great source of revenue from this charge, whereas it has built a considerate reputation. I thought it's a smart branding idea. Some people maybe only care about service rather then luggage charge, but I personally make a purchasing decision depending on what extra benefits Airline can offer.

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