Thanks for your comment, Meg! I’m so sorry to hear about your 3 weekends getting ruined. 🙁 I completely agree with you, but it seems that Spirit is really doubling down on these ultra-price sensitive consumers, and Spirit is assuming that their target consumers would rather be late (even a day late) versus pay high prices for flights.
Believe it or not, there is evidence that Spirit is actually generating demand and increasing the number of fliers on certain routes. The data says that Spirit grows base traffic by 37% when adding a route (Check out the chart on the middle on this post: http://seekingalpha.com/article/3701366-spirit-airlines-is-poised-to-be-the-next-ryanair). So the Spirit management is seeing this data as support for the business model of ultra-low fares, even at the price of service.
Thanks for the comment, Kim!
In response to your question, the fact that Spirit’s all-in fares are 40% less than competitors reflects not only the operating model cost efficiency, but also the customers’ choices of not purchasing add-ins. A large portion of the 40% customer savings comes from the customer choosing not to pay for add-ons: not bring a carry-on, not to order a drink on the flight, not to reserve a seat, etc.. So I wouldn’t say that Spirit can compete head-to-head on price in a meaningful way without unbundling, but when they “unbundle” the fare, they allows customers pay significantly less if they so desire.
But your point is well taken that customers typically don’t like this since these elements of service used to be “free” (Spirit would say they were included in the higher base fares). To combat the consumer sentiment, Spirit has named 2015 “The Year of the Consumer” and are running massive campaigns to explain the “bare fare” in an effort to manage customer expectations.
Thanks for reading!
Interesting read! As a fellow Floridian, I share your passion for Publix. I think of Publix as a relatively small regional grocer, so I was surprised to see that Publix is employing 180,000 people and leading competitors on profit margin. It’s clear that Publix’s focus on its employees drives high levels of customer service. Even though quality isn’t their first priority, they seem to be doing well in that area, too: the Publix private label brand has quite a good reputation and it seems anecdotally that Publix has a higher quality perception compared to Albertsons or Walmart. I would be curious to know more about their supply chain side of the operating model, and if this quality aspect of their mission is reflected in the sourcing strategy.
Thanks for this great analysis of Valeant! The business model you described actually reminded me of The Medicine’s Company’s model (from our marketing case), which purchases the rights to drugs that other companies have abandoned and brings them to market. Interesting how The Medicine’s Company has such a good reputation, and Valeant has such a bad one! I think the basis of Valeant’s business model does actually create value in that they provide resources (financial, regulatory guidance, marketing, etc.) to the small firms that they acquire to help bring the drugs to market. In my opinion, raising prices isn’t such a terrible thing, as Valeant still has to make a return so they can reinvest in acquiring other companies and continue bringing life-saving drugs to market. The question is how much should they raise the prices, and where’s the line between making a fair return and price gouging the patients. Professor Dolan needs to be brought in!
Thanks for the great post! I had lunch at Sweetgreens for the first time on Friday and I was surprised to see a line of customers out the door at 2pm in the afternoon. Definitely seems like a popular spot. As a customer, I was impressed by the seasonal menu and the fact they had a blackboard with the names of the farms where they source meat and some of the veggies. I’m curious if the sources of ingredients are different between Sweetgreen locations currently (like D.C versus Boston). How do you think they will be able to scale the local ingredients/seasonal menu aspect of the operating model? Most fast-causal chains rely on consistency between locations, so Sweetgreens may have a challenge expanding with a model that encourages differences between stores.