Matthew Ferrara, Philosopher

Are you Southwest Smart?

There’s no better competitive strategy than eliminating “industry practices” that annoy consumers. Of course, you’ll have to be brave: The biggest complainers will likely be your competitors.

This week Southwest Airlines slayed a sacred cow in the airline industry: They ended change fees.

Customers hate change fees; and Southwest is brilliant for taking on on this “industry practice” that has long overstayed its welcome (was it ever welcome?). The Middle Seat blog noted that “Southwest Airlines has found that attacking rival airlines for baggage fees is such good marketing that its next advertising campaign will go after ticket-change fees.” But Southwest isn’t really attacking rival airlines:

It’s attacking things that annoy customers in its industry. Big difference.

Of course, only Southwest can do it. They have long been industry “contrarians” – just like our philosophy – so you can imagine why we’re so excited! We’ve long encouraged our clients to do the opposite of competitors to find new opportunities. It’s so simple. Besides, copying your competitors is only a formula for sameness, not innovation.

Consider Southwest’s innovative approach: Very social media-like! Let the public express it’s outrage by voting it’s opinion about the fees. Even let them sue the industry, as in this ingenious video spoof of customers taking other airlines to the people’s court.

Which begs the question for us all: Why do we keep doing so many things that annoy, frustrate or simply confuse our customers? Especially modern consumers, who are smarter than ever when it comes to, well, just about everything. It’s strange how few companies come to understand what Southwest learned nearly twenty years ago.

Consider the financial losses – and customer trust deficit – that the music industry suffered when it resisted, refused and even sued its customers, rather than embrace a modern model. Not good. Such refusal to innovate the process, not just apply some “downloading” technology, opened the door for a major innovator – Apple- to waltz right in and please customers.

And capture huge revenues.

Recessions are fertile ground for such innovations. Simply focus on any“because we have always done it that way” process and figure out how to eliminate it. No rocket science required. Who will be the first real estate company to break the legacy rules and restraints – like quitting restrictive MLS systems, no longer charging sellers for the other side’s fees, or auctioning properties every four weeks, rather than list-and-wait for months. These are just a few of the simple game changers that would address confusion, costs and complaints of the industry’s customers. And there are so many legacy rules to break: The ideas are endless but simple. You can start by simply calling a few past clients and asking them what they wish hadn’t been part of the last time they bought or sold their home.

Then, plan a strategy to stop doing it – and differentiate yourselves from the competition.

It can be done. Southwest has proven it. Others, too. Customer will not only accept it:

They will fly to you!

  • Joe

    The challenge of doing things differently, “the opposite of our competitors,” is like the chicken or the egg. You can’t risk trying something not “tried and true” unless you’ve already built a financial basis from which to draw when seeking to go where no one else has been. Good business planning saves money to invest in exploring new worlds. Some of the large brokerages have been the leaders in striking out in the unknown with great rewards.

  • Joe:
    I hear you, but I’m not sure I agree. You don’t need a lot of money to take small but targeted risks, especially when there are often many obvious targets for innovation. Look at Southwest’s example: rather than try to create a whole new “image/mantra/jingo” in the minds of consumers, it merely found something that made them mad and targeted its policies and marketing to hone in on it.

    It can be done. Innovation isn’t a matter of money, in my opinion. It’s a matter of bravery. :>

    Thanks for your comment!

  • Kmbrewer2

    Ive been decrying all of this for years.This is a totally outdated business model which is neither agent or consumer friendly.I agree with you about the way change will come about.I used to think it would be a Microsoft/Apple change the world thing but probably not.Ive been screaming about our little MLS in Darien CT.Totally redundant and useless…$1000 yr! to me.But no one wants to say….hey I dont need this anymore. Great post.

  • Deborah

    This is so good….I hadn’t thought of the analogy with Real Estate…but having just had a surgery out of state and needing to change my ticket 3 times….I will say I LOVE Southwest….ended up by changing my ticket saving over $100……and free bags with no change fees! It was awesome!!!
    I can think of all sorts of things that Customers want….Flyers with Prices on them is a big one!!!

  • Anonymous

    I share much of your thinking here, Matt, but it’s naive to think individual agents can make business model changes as you suggest. Your analogy of Southwest to the Real Estate agent lacks enough similarity to make it valid. The real estate agent is more analagous to the pilot or flight attendant NOT the entire company ! And they just fly the planes and pass out the peanuts…. they DON’T make policy or marketing decisions.

    Customer WANT everything ….. as long as we’re providing them for FREE and on a contingent fee/commission basis ! But watch the customer revolt if they have to actually PAY MONEY for our services upfront or non-contingent !! How quickly did “fee for service” die out?? very fast. I don’t care what they WANT…. what are they willing to PAY FOR ??

  • Hi Joe:

    Thanks for your email. I agree that some agents can’t control their business models, but not all. Many agents today work under brokerage models that let them control their service offerings, prices, etc; look at the 100% models, or the work-from-home models that are growing fast; Brokers just provide the license and the agents are in large part in charge of their offerings.

    Similarly, my audience also includes managers, owners and leaders of large brokerage companies worldwide; and they CAN change their models. So the analogy definitely works.

    Finally, I don’t agree that consumers won’t pay for services up front – many companies and agents I know are doing this quite well. I also don’t agree that fee-for-service is dead (I personally would prefer to pay that way for my brokerage) again because there are companies doing it quite well. It’s not a matter of whether the ENTIRE industry does it, either. Just the ones that intend to last, or capture customers from competitors. We both know that many airlines STILL charge for checked bags, and still have customers, while Southwest does not (but has clearly captured some of their business; if it were not for regulatory and other cartel-like practices in the industry, they’d have even MORE market share)…

    So, I think the analogy works; the agents CAN make these changes; and brokers MOST CERTAINLY CAN. I also think what customers want IS what they are willing to pay for… It’s just a matter of finding a way to deliver it to them.

    Thanks for your comments and stopping by!

  • Matt, I have always felt that since agents operate as sole businesses under the umbrella of a broker, a good comparison would be to sports teams in a league. Take the NFL for example, each team(agent) is part of the league(company they represent), with a league commissioner(broker). The goal in any league is for the teams to compete against each other in direct competition on a year to year basis. This takes place while the commissioner oversees the league making sure rules are followed and standards are kept. Yes the agents or teams are in direct competition with each other, however, they must work cooperatively for the betterment of the league(company). This is more to your point that an individual agent can make a difference in business innovation, because we are unto ourselves a sole proprietorship of sorts. We just operate in a league of competition where the goal is to annually try and be the best at what we do. As agents we need to be receptive to new ways to innovate and reach our sphere of influence. As strategies and game plans evolve in sports, so to must an approach to an ever changing environment in which consumers discover and process information to make decisions on a daily basis. We need to not focus on what is working today, but what can work better tomorrow.