When I consider what commoditization means to higher education, I immediately think of a case study I read years ago regarding commoditization in the airline industry. The case study delved into the success of Southwest Airlines and explained why they were able to be cheaper, faster and better than the competition.
What did Southwest do?
Basically, by creating a more efficient operations model, Southwest was able to simultaneously lower prices, improve service and substantially increase their market reach. Here is what they did to differentiate themselves:
- They flew into small airports so they could reduce taxi time to gate and airport fees
- They flew direct to eliminate the time and effort needed to coordinate connecting flights
- They did not assign seats or offer a first or business class in order to simplify ticketing and boarding
- They did not serve hot meals
- They only used one airplane model so crews could turn the plane around faster
The results?
- Planes are turned around three times faster than the industry average and spend almost 50 percent more time in flight than the industry average
- They are considered the 10th most admired company by Fortune Magazine and are consistently awarded for their service and efficiency
- They have been profitable every year since 1973 and are ranked first in market share in the majority of top-100 city pair routes
The real lesson for higher education comes in explaining why other airlines have been unable to replicate this success. United Airlines and Continental Airlines have each attempted to create a low-cost service to compete with Southwest.
Continental rolled out CALite, and was able to quickly grow the budget airline to account for 40 percent of their total business. Yet, because they did not create the same efficiencies as Southwest, CALite collapsed within two years and was touted by the New York Times to be a “$140 million mistake”.[1] United’s low-cost ‘airline within an airline,’ called Shuttle, provided advanced seat assignment and a first-class cabin, yet these additional perks were not able to surmount the efficiency provided by Southwest, and Shuttle folded in less than a decade.
What does this all mean for higher education?
The low-cost airline feud may have peaked in the early ’90s, but the lessons learned are highly applicable to higher education today. In the midst of an increasingly competitive and commoditized landscape, one provider was able to thrive by creating the internal efficiencies necessary to not only cut costs, but also improve experience.
Whether as a higher education provider you are looking to decrease costs, improve offerings or increase market share, one thing is certain: you cannot expect to garner a new result by continuing to do what you are doing.
In today’s higher education marketplace, each institution is looking for a way to stand out in order to attract new students. But I would suggest the best way to stand out is to look in. Look at how you are organizing your staff, how you are attracting students, how you are planning courses and how you are controlling your operations. Look for efficiency, visibility and coordination.
Southwest, Continental and United all offered a very similar product at a very similar price point, yet only Southwest was able to succeed with this model. The key difference is Southwest had the back-end efficiency in place that allowed them to succeed. Many institutions are looking to compete with the plethora of free and low-cost education options that have recently sprung up by offering their own equally inexpensive courses. However, it is important to remember that success in these avenues is the direct result of a streamlined back-end, complete with automation, visibility and control. So, rather than looking for the next game-changing innovation, look in and identify efficiencies.
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References
[1] Adam Bryant, “COMPANY REPORTS; Continental Is Dropping ‘Lite’ Service,” New York Times, April 14, 1995. Accessed at http://www.nytimes.com/1995/04/14/business/company-reports-continental-is-dropping-lite-service.html
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