How Herb Kelleher Used Bourbon to Entice Business Travelers

Herb Kelleher, the co-founder of Southwest Airlines, is celebrated for revolutionizing the airline industry with his innovative two-tiered pricing strategy. This groundbreaking approach was not just unconventional; it was astoundingly successful and reshaped the way airlines approached pricing. Kelleher’s understanding of the distinct needs of business and leisure travelers led to the creation of a pricing model that catered effectively to both groups. Business travelers were offered higher fares for the convenience and time sensitivity of their trips, while leisure travelers were given the benefit of lower fares during off-peak hours.

What set Kelleher's strategy apart in an industry accustomed to uniform pricing was its direct address to varying customer needs, positioning Southwest Airlines as a customer-focused innovator. The strategy involved premium pricing for business hours and weekdays, targeting business travelers, and offered discounted fares for off-peak times, which appealed to leisure travelers. This segmentation not only maximized revenue during high-demand periods but also improved aircraft utilization throughout the week.

Adding an extra layer to this strategy was the bourbon giveaway, a clever marketing ploy that Kelleher implemented. Recognizing that business travelers, who often used company expense accounts, were not particularly price-sensitive, Kelleher offered them an attractive alternative. Alongside the lower fare option, these travelers could opt for a regular-priced ticket that came with a complimentary bottle of bourbon. This marketing masterstroke incentivized business travelers to choose the higher fare, which they could expense, while significantly enhancing brand loyalty and customer satisfaction. This strategy, for a time, made Southwest Airlines the largest distributor of liquor in Texas, showcasing Kelleher's knack for creative and unconventional marketing.

The reasons behind the success of this strategy were multifaceted:

1. Expanded Market: The lower fares opened up air travel to a broader population, many of whom had never flown before.

2. Optimized Utilization: Consistent aircraft utilization throughout the week was achieved, leading to enhanced operational efficiency.

3. Brand Differentiation: This approach, especially the bourbon giveaway, distinguished Southwest as an innovative leader in customer service.

4. Building Customer Loyalty: Both business and leisure travelers greatly appreciated the tailored pricing and perks, fostering a strong sense of loyalty.

This two-tiered strategy, particularly the unique bourbon giveaway, prompted competitors to reconsider their pricing models, leading to a more dynamic, customer-centric industry. Herb Kelleher's approach to airline pricing, coupled with his creative marketing tactics, demonstrated his profound understanding of consumer behavior and market dynamics. This strategy not only propelled Southwest Airlines to unprecedented heights of success but also transformed the airline industry. Kelleher’s legacy is a powerful testament to the effectiveness of innovation and customer-centric thinking in shaping business strategies.