My friend Matt Carcieri is one of the key leaders at P&G charged with helping the company move to “Purpose-Based Branding.” If you haven’t read about this before, the central idea is that brands must turn their equities and marketing toward the pursuit of higher-level goals. In his book on the topic, It’s Not What You Sell, It’s What You Stand For, Roy Spence writes that brands must challenge themselves to wholeheartedly focus on this purpose for existence. At P&G, people such as Matt Carcieri and Jim Stengel helped Pampers, for example, shift toward a Purpose of improving babies’ development. Over the holidays, Matt shared a story of how Southwest Airlines—one of the central case studies in Spence’s book—is continuing to profit from its purpose.
In his book, Spence tells the story of how Southwest Airlines rose to leadership in the late 1970s and 1980s on the heels of the government’s deregulation of the airline industry. As the skies opened up to new competitors, Southwest took an underdog mentality up against the big, entrenched, oligopolistic players such as American, Pan Am, and TWA. The company’s entire employee base embraced the underdog label, and rallied around their Purpose: to democratize air travel. This mentality drove the company to embrace shorter, point-to-point flights, enabled it to expand without unionization, and even showed in the high-quality, high-fun flight attendants and pilots. Southwest was not just another airline; it was a company on a mission to make flying more affordable and accessible. Today, Southwest is just behind Delta in total market capitalization, and did it without major mergers or dips into bankruptcy. The company was profitable again in 2008, while Delta felt a 40% net loss.
Based on Southwest’s purpose, it is no surprise that the company decided not to go along with the rest of the industry crowd and add baggage fees to the price of a ticket. According to its CEO, Gary Kelly, Southwest was giving up $300 million in revenue by not simply joining its competitors in charging a fee that fliers hate, but can do little about. But the underdog, democratic blood still pumps through Southwest’s veins, and it bucked the trend and risked angering shareholders by just saying “no.”
What’s more, Southwest saw the opportunity to promote the hell out of its commitment to “Bags Fly Free.” Baggage fees can add up to $100 per flight per person, so Southwest’s television commercials and print ads tout their fundamental competitive difference. The ads feature smiling Southwest employees talking about how much they love bags—itself an example of a strong, purpose-driven culture.
The results? Well, Southwest claims that it has captured an additional 1% of the market because of its lack of baggage fees so far. That translates to $800 million to $900 million in additional revenue. Yep, as much as three times more revenue than baggage fees would generate. And please don’t forget how this meaningful marketing choice adds to the brand equity and loyalty of travelers. We all feel a great deal of anger for airlines that use their market power to gouge us on fare prices and continually pull back on service quality. But with Southwest, we have a hero in an otherwise villainous business. This very visible issue around baggage fees further cements the good and evil brands in the business, and translates into more sales for Southwest over time.
Thanks to its strong, guiding brand purpose, and its ability to make meaningful marketing decisions, Southwest continues to be the bright spot of success in an industry that continues to look at its customers as cattle. My only problem with Southwest is that it still hasn’t come to free Cincinnati from the oppressive shackles of Delta!
