Clasic_Airline

Running head: PROBLEM SOLUTION: CLASSIC AIRLINES Classic Airlines Problem Solution Paper University of Phoenix July 24, 2008 MBA 570 Sustainable Customer Relationships Instructor: Dr. Ruediger Mueller, CTP Classic Airlines Problem Solution Paper Executive Summary Classic Airlines (“Classic”) is an organization with 32,000 employees, recorded $10 million in profits on $8.7 billion in sales last year. While the airline is profitable, it experienced a decline in its stock prices by 10 percent. Moreover, the employees’ morale and loyalty declined due to increase scrutiny from the media on the airline industry from all sectors of the economy; which is reflected by the 19 percent decrease in the number of Classic rewards members and a 21 percent decrease in flights per other remaining members. Consequently, Classic is faced with a restrictive cost restructure due to poor forecasting and implementation of expansion plans based on anticipated repercussions of the effects of consumer travels post September 11, 2001 (Scenario Two, 2005). The Board of Directors mandated a 15 percent cost reduction across-the-board for the next 18 months. Within the constraints of the mandate, Classic will have to improve its frequent flier program with methods that are measurable and demonstrates a return on any investment (ROI) while meeting the cost reduction goals. Classic is the only carrier which does not have a partnership with any outside entities, under the assumption that no one else can understand or meet the needs of its customers better than Classic. Furthermore, Classic use of its customer relationship management (CRM) system focuses primarily on the company’s cost reduction strategies, not the needs of the customers. Currently, one of Classic’s main problems of its CRM system is the inability to network its internal configuration (i.e. phone channels) with web channels. In addition, the segmentation methods currently used by Classic are outdated (UOP Simulation). The issue for Classic is how to predict accurately changing market and consumer trends that will enable them to develop marketing campaign strategies, segment its market, adjust budgets and redistribute resources to take advantage of prevailing market trends during on and off peak seasons. The more data Classic collects on its existing customers, the more accurately it can forecast and meet changing needs of its customers. Therefore, the methodology used and the operational philosophy of Classic, needs to be aligned with such a strategy. These issues have created opportunities for Classic to address the causation of the problem, identify the situation, outline its stakeholder perspectives, and redefine the company’s end-state vision. Issue and Opportunity Identification There are several critical issues that Classic has encountered. Among those are: operations, collection and utilization of customer data, customer stability (which recent measures revealed a decline of 19% in its number of Classic Rewards members and 21% in flights per the remaining members), and its poor usage of its CRM system. Its present CRM system is in dire need of enhancements that would connect and improve the company’s way of collecting new data, analyzing the data, forecasting and developing programs. In light of this situation, Classic will have to consider investing in the necessary upgrades to its present CRM system, which should include integration of phone and web portals, conduct customer data analysis, customer surveys to identify its customers and consumers’ needs and concerns that are less obvious than price. Therefore, by fully integrating the CRM tool across phone and web channels, Classic will be able to obtain more accurate and measurable data about their customers, expand its segmentation strategies, and identify methodologies like environmental scanning to meet the needs of its customers and consumers (Kerin 2006). Classic should develop a strategic plan that targets its frequent flyers business customers. Moreover, Classic has to identify and adhere to the level of services and expectations in which the customers are demanding (these, of course, are being offered by the competition). Therefore, by Classic’s adherence to the needs of its customers, its probability of positive influxes in customer loyalty and company profits could easily and quickly increase. This could be done throughout the organizations terminals and hubs, while staying within the mandated cost reduction plan. Furthermore, Classic’s Rewards Program plan could be restructured to include partnerships with other airlines to improve its customers’ flight experience and to expand its market share. This would increase the sales of its frequent flyer program by the expansion of the scope of the program with greater reward offers to the customer. Although Classic Airlines cannot keep the cost of fuel from increasing, its hedging efforts have been successful. It must develop an approach to become more fuel efficient. One significant way that Classic could succeed at this is to install winglets on its carriers, which are wing tip extensions that reduces lift induced drag and provide some extra lift. It reduces cruise thrust and cruise fuel flow up to 6 percent, giving a savings in fuel costs and increasing its range. The winglet is accredited to Dr Louis Gratzer, formerly Chief of Aerodynamics at Boeing and now with Aviation Partners Boeing (APB) (Chris Bradley 1999). Stakeholder Perspectives/Ethical Dilemmas Classic’s stakeholders are its stockholders, employees, the union, and customers; each having a vested interest in the company’s success or failure. The leadership of Classic must look at the conflicting interests of all parties and ensure that the company’s objectives are communicated to each stakeholder (within the scope of their position). Also the leadership must consider each individual interest during its strategic planning and implementation of the CRM enhancements. The first of stakeholders are the stockholders, whose main concerned is their return on investment (ROI) in the company; and the present situation of decrease in sales and the reduction in the Classic’s stock. The next tier is the employees of Classic. The employees have concerns about the financial stability of the company. Needless to say, the employees are the support system of the company and enables Classic to function as a leader in the airline industry and a producer of its products or services. The third group of stakeholders in Classic is the customer. The customers of Classic are being affected by its decision to enhance a CRM system and develop new tool initiatives that will increase Classic’s ability to analyze customer data and determine its customer needs. This decision would maximize the company’s value, improve customer relations, improve the marketing of the rewards program, and help control costs. Problem Statement Classic Airlines need to focus on improving its strategic approach to customer relations and start building opportunities geared toward producing programs that engages its customers, increase its customer’s loyalty, while maintaining the company’s objectives (segmentation, CRM tool development) and increasing its profits. End-State Vision Classic will maintain its position of being the fifth largest airline in the industry. Classic will increase profitability, customer satisfaction and develop partnerships that will improve Classic’s market share. Classic’s reward program will be reinvented to reestablish customer loyalty by partnering with another airline. Classic will tackle the problem of rising fuel cost by incorporating a system that will save on fuel consumption and reduce costs to a minimum. References Advanced Blended Winglets (1999). The 737 Technical Site, Advance Blended Winglets, Chris Brady, 1999. Retrieved July 22, 2008 from http://www.b737.org.uk/winglets.htm University of Phoenix (2005) Scenario Two: Classic Airlines. Phoenix: Arizona:  University of Phoenix Publishing Kerin, et al. (2006). Marketing (8th ed.). New York: McGraw-Hill. Retrieved July 23, 2008, from Chapters 1 and 9 - Kerin, et al (2006) Marketing Table 1 Issues and Opportunities Identification | | | | | |Concept |Application of Concept in Scenario or |Reference to Specific |Personal Experience at your | | |Simulation |Course Concept |Organization | | | |(Include citation) | | |Analyze Customer Needs, Behaviors|January 6, 2005 meeting regarding |Understanding the Consumer, |At Morehouse College, the General | |& Trends |luring back their frequent fliers; and |Kerin, et al. (2006). Marketing|Counsel’s office confirms the | | |the creation of measurable customer |(8th ed.) Chapter 1 |departments’ needs & clarifies the | | |trends. | |scope of work and deliverables of | | | | |contracts the College commits too. | |CRM System |January 9, 2005, 1st project team |Evolution of the Market |Work with departments and their | | |meeting, stating CRM is far more than a|Orientation, Kerin, et al. |vendors to ensure their | | |system; it’s a top-down philosophy that|(2006). Marketing (8th ed.) |communications are clear; and that | | |puts the customer at the center of our |Chapter 1 |all contracts commitments and, | | |business. The plan is to take it to a | |scope of work are understood and | | |code-sharing level, integrate all | |the deliverables are identified. | | |customer-facing elements and deliver a | | | | |seamless program | | | |Segmentation |January 23, 2005, office conversation |What Market Segmentation Means,|N/A | | |with Kevin Boyle and Renee Epson Renee:|Kerin, et al. (2006). Marketing| | | |“The problem is our segmentation |(8th ed.) Chapter 9 | | | |strategy. It’s outdated; customers | | | | |don’t think the way we think they do | | | | |anymore.” | | | |Environmental Factors |Social, economic, technological, |The Uncontrollable, |The College has various contracts | | |competitive, and regulatory forces. |Environmental Factors, Kerin, |involving landscaping, construction| | |Examples are what consumers themselves |et al. (2006). Marketing (8th |projects, maintenance services and | | |want and need, changing technology, the|ed.) Chapter 1 |promotional events, which are | | |state of the economy in terms of | |affected by uncontrollable | | |whether it is expanding or contracting,| |environmental factors. | | |actions that competitors take, and | | | | |government restrictions | | | Table 2 Stakeholder Perspectives and Ethical Dilemmas | | |Stakeholder Perspectives and Ethical Dilemmas | | | | | |Stakeholder Groups with Competing Values | | | | |The Interests, Rights, and |Course Concept | |List: Group X |Values of Each Group | | |versus Group Y | | | |Stockholders vs. Company Management |Shareholders want to see their stock options dollar |Compromise | | |value increase | | |Management vs. the Union |Management must balance the needs of the business |Customer relationship management effectiveness | | |with the commitment to its employees or the business| | | |will fail. | | |Union vs. Management |The union must work to determine the best solution |Customer retention initiatives | | |for Classic’s employees to prevent a volatile | | | |situation from taking place. The cities and towns | | | |where Classic has its hubs must continue to provide | | | |excellent service to Classic’s customers in order | | | |for their revenue to continue. | |