Classic_Airline_Marketing_Solution

• Analyze the current situation at Classic Airlines. • Consider the internal and external pressures contributing to Classic’s current crisis, the objectives and obstacles of the marketing department, and the marketing resources available to resolve this crisis. • Choose a problem solving method to solve Classic Airline’s marketing problem. You must identify and define the problem, and apply a robust problem-solving process. Involved in this problem solving process should be the development of SMART (specific, measureable, attainable, realistic and timely) goals for solving the problem and the benchmarking of potential marketing solutions utilized by other companies facing a similar situation. • Create a list of at least two potential marketing recommendations for Classic Airlines and provide justification for each marketing solution • Write a 2,150- to 3,500-word paper. • Format your paper according to APA standards. “The message from the moon … is that no problem need be considered insolvable” (Norman Cousins). This paper will examine the nine-step problem solving process through an analysis of Classic Airlines. The nine steps begin with step 1. Describe the situation which involves identifying the key concepts, issues and opportunities, stakeholder perspective and ethical dilemmas. Step2 Frame the right problem requires that the right problem be broadly stated so many possibilities can be examined. Describe the end state goals is step 3. In this step Classic Airline will know it has become what it wants to become. Step 4 identify the alternatives and benchmarking validation allow classic airline the opportunity to look at other companies and develop techniques that will help it overcome weaknesses and implement best practices for those areas. Step 5 evaluate the alternatives lets classic examine and judge carefully between two or more possibilities. Once these choices have been made, step 6 identify and assess risks allows classic airlines to look at potential risks and negative consequences so the solution can be eliminated if necessary and mitigation can take place. Step 7 make the decision allows for risks to be identified and explored. The decision that is made is the best based on facts. Step 8 develop and implement the solution, defines the work that is to be done and how it will be done. Step 9 evaluate the results, tells what is the expected outcome how is the outcome measured and is the in alignment with Classic’s end state goals. This nine-step concept of problem based learning is then summed up in conclusion. Step 1 The Situation: Classic Airline is the world’s fifth largest airline serving 240 cities worldwide. Although the airline is profitable its stock prices have decreased by 10% in the past year and employee morale is low due to increased scrutiny on the airline industry from all sectors of the economy. Over the past two years Classic’s reward members have decreased their number of flights which has created concerns to the viability of the company. In addition to low employee morale and decreasing customers, Classic is also facing a restrictive 9-11 cost structure due overly optimistic expansion. Classic’s Board of Directors has recently mandated a 15% across the board cost reduction over the next 18 months. Adding to the complication is that Classic is the only commercial airline that does not have an alliance agreement with another airline. Within the constraints of the mandate, Classic also needs to improve its frequent flier program with methods that will demonstrate a measurable return on any investment while still meeting the cost reduction goal. Through the use of environmental scanning Classic be able to more accurately predict change in the market and consumer trends which will better enable it to change its marketing plan. Step 2 Frame the Right Problems: focusing on the current situation Classic Airline is confronted with many problems that demand attention and a few if not solved could lead the airline to bankruptcy. Customer loyalty is low with a decrease in the number of frequent flyer; employee morale is low as a result of decreased shareholder price. Financial problems demand that operating cost be cut by 15% and improve customer service and focus on improved marketing either through an alliance with another commercial airline or bring improvements within the CRM, and help provide a holistic approach to the concept of marketing throughout the organization. Classic needs to cut costs without discounting airfare and also raise the shareholder price. Step 3 End State Goals: the end state goals are cut costs by 15% across the whole company. Recommend improved marketing techniques and is accomplished through funds collected from commissions or the money saved from the fuel hedging program. Lure back frequent fliers and raise Classic reward membership to 733,000 by the end of 2005. If this occurs the share price will raise that will also bring back consumer confidence and employee morale. Classic Airline will regain its previous share price by $36 and rise above the competition without discounting airfare. The customer loyalty program shoes that in quarter Q3 of 2003, the Classic Reward program had 865,000 members and from it 48,000 were new members that were flying 2,992,800 flights. Discounting airfare cannot be an option because of the price cut war between airlines that pushed average worldwide flights down to $475 from $571 and average domestic flights down to$238 from $298. It is expected to get the share price back to $36 and improve the Classic’s reward program membership up to 767,000 by Q4 of 2005 and it needs to be done with 15% reduction in the marketing budget as proposed by the board of directors. Step 4 Identify the alternatives and benchmarking: Cutting fuel prices could be and alternative to raising shareholder wealth and by locking in fuel prices from last year for this, fuel costs have reduced by 12%. In the past year Classic Airline has spend$1,176,000 on fuel that other in the market would have paid $1,335,000 for a savings of $158,000. With fuel prices anticipated to raise every dollar spent on the Classic reward program is a dollar not put in saving fuel costs. The fuel hedging program has the potential of saving Classic $335,000 in the 2005 fiscal year, if the gallon per flight ratio is use and the flight goal of 4,100,000 is met Q4 2005. Cutting labor costs is another alternative and Classic has one of the highest labor costs per seat per mile and knowing that customer are price sensitive to the service Classic is marketing, this could lead to jeopardizing Classic’s feature. Considering the benchmarking validation and looking at what other airlines are doing, classic would look into the thought to ground old airplanes that consume more fuel and need more service and maintenance to fly safely. Relocate old planes to a place with less storage costs. Improve the quality of service provided to customers on newer planes. The 9-11 incidence forced most of the airlines to cut the number of flights and routs per day to save on costs as way to control the financial position. Airlines would use bigger planes with more seats and less number of flihts than using smaller planes with less seats and more routes. This would help save fuel costs and control other costs related to service and maintenance. One other alternative would be for Classic to improve its marketing techniques . Classic is the only commercial airline that does not have a marketing alliance with other airlines. The CRM that can focus on improving customer relations and configure ways to improve frequent flier rewards program and provide a better service. Customers demand to be better served as a cost of price paid for travelling. Step 5 and 6; Evaluate the alternatives and Assess Risks: The fuel hedging alternative would raise shareholder wealth by lowering operating costs that can bring a larger profit margin. It will not make the company rise above the competition; instead it would help reduce expenditure. This also targets the goal of fuel rising at $.05 on average per quarter and does not make way to get more flights. Cutting fuel cost would also raise the stock prices by cutting down on operational costs but will also not add wealth into the corporation. It also rung the high risk of upsetting the union that Classic had worked hard to keep up with over the years. Classic has managed to steer clear of major obstacles in and increasingly volatile union climate. If revisions are made to the current union contracts then it would definitely lower already low employee morale. Employees at Classic Airline work for one of the three unions, Aircraft Mechanics Fraternal Association (AMFA), the Airline Pilots Association (APLA), or the Association of Professional Flight Attendants (APFA). Recently these unions awarded Classic trophy of the year. The APLA noted that Classic had withstood the challenges of a more competitive industry that is faced with high fuel costs. AMFA described Classics union management relationship as professional and mutually supportive. Classic Airline does not have the service elements, operational procedures or marketing programs in place to deliver what customers want. They need to reconnect with the business class travelers and let customers know that Classic understand their needs and what service element is more important to them. For this to occur, Classic need to reconfigure customer relationship management program (CRM), that the company had expensed on setting up the program over the years. The program is workable but does not integrate the phone and web channels to recognize the frequent customers. Getting the correct information from CRM will help Classic implement a strong loyalty program. Classic rewards will be able to get in tune with the wants and needs of its customers. The new CRM would be a top down philosophy that puts the customer first. This alternative would be to get the CRM to deliver metrics and reporting for the Classic Reward program. The analysis of customer service calls and key customer serve comments will picture a business and leisure traveler. The business traveler would want to reach destination without delays and consider his frequent flier points to be the airline investment in him and wants quality service and will pay a premium for it. By using this information Classic can segregate its customers listen to and change the way to interact with customers. This could be done by perceptual and experience mapping. Companies must first develop a clear picture what they want to the customers perception of an experience to be and them design a consistent set of performance and context clues to support that experience.” (Carbone and Haeckel) Parternership with marketing alliance would not be a good option, considering the current situation that demands budget cuts. The best way would be to improve on CRM that the company had already implemented. The idea could be considered later in the feature once the company has regained its financial position and frequent fliers. Step 7 and 8; Make the decision and implement the solution: Focusing on marketing and reconnecting with frequent flier customer and managing the perceived nature of its service Classic can get its share price back to $36. Previously Classic allocated $359 million of its net income to marketing. If the budget is squeezed by 15% that means marketing will cost $53,895,000 less. This could be realized by cutting travel agent sales commission by quarter $ 197 million in 2004 eliminate it altogether. Travel agents market to the vacationer. By channeling this money to segregate the system used by the CRM would let Classic realize the full potential of the CRM. By assessing this data the CRM will produce an ideal customer profile and what they are looking for and it will be done at less costs than before data is relevant. Marketers must find ways to give tangibility to the intangibles to increase the productivity of service provided, to standardize the quality or service provided and to match the supply of service during peak and non-peak seasons with market demands. Re-calibrating the CRM and using the data that it produces will enable Classic’s marketing department to realize the goals of 733,000 to current members that will be flying 4,100,000 flights Q4 2005. If these goals are realized then share prices will reach $36 and can rise even higher. Another marketing solution that fall in the customer first alternative is to internally train the customer service agents to recognize and react to certain service issues in a proactive and unified way. The CRM data will supply these certain service issues through training the customer service representative to recognize customer needs and provide the best solution. The management should realize the importance of CRM and execute right methods to handle calls that will raise employee morale. This will also result in more flights and lure back classic reward customer. The first step is implementing a customer first marketing alternative is to allocate the funds needed to recalibrate the CRM. Option will be proposed to get the funds from fuel hedging, travel agent communication or a mixture of both. CEO Amanda Miller will be making the decision by the end of the first month. Once the funds are allocated recalibration of CRM will begin. This will be headed by Renee Epson and will be finished by the end of the second month in the first quarter. Once the system is established the information from the last years Classic Rewards customers will be filtered through it. Kevin Boyle chief marketing officer will be responsible for analyzing the data and producing ideal classic reward client. The data will then be given over to John Hartman, senior vice president of Human Resources to help his staff train and implement the recommendation to the customer service representative by the end of the first quarter in 2005. Step 9 Evaluate the Results: The expected outcome is that operating costs will be reduced through managing the number of flights routes and grounding old planes and reducing fuel costs. The outcome falls in alignment with classics end state goals that is to cut cost by 15% across the whole company. Improve marketing through alternatives that were recommended, improve CRM and increase Classic reward membership to 733,000 by the end of 2005 and bring back the share price to desired $36 or above. To measure if the implemented decision is successful classic should compare the results with the quarterly goals for 2005 that the CEO Amanda Miller challenged the marketing department with. Conclusion Classic Airline is the world’s fifth largest airline and the 9-11 incidences has had a disastrous affect on most of the airlines and classic is one of them. Passengers have lost trust and confidence in safe travelling and this has resulted in fewer travelers. Classic Airline is also suffering the affect, stock prices have decreased by 10%, and employee morale is low because of increased scrutiny on the airline industry. The Classic reward members have decreased their number of flights and besides the members classic is also experiencing decreasing number of passengers travelling on board. This has created concern to the viability of the company. Classic is earning less revenue as compared to costs. The CEO has recommended 15% cut across the company and also bring back frequent flyers and increase the number of passengers. The management has proposed a number of solutions to handle the current situation and one is to cut operating costs, save on fuel costs. Implement and improve the current CRM and bring awareness of holistic marketing attitude throughout the organization. Improve and provide the best customer service. Classic’s decisions should not upset the employee unions since the company has worked hard to keep up the good relationship. Classic might have to look carefully into the number of flights in the air per day and the condition of planes that will further help in cutting operating costs. The company’s goal is to raise share prices by $36 and bring back the frequent flyers. References Philip Kotler, Kevin Lane Keller (2006), Marketing Management, Chapter 2, Developing marketing strategies and plans Prentice Hall, Inc: Pearson Education.