Southwest Airlines and their world economy.

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.

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.

---