Classic_Airlines

Classic Airlines- Week 4 Paper Jonathan Doe MKT/571 Classic Airlines- Week 4 Paper Classic Airlines finds itself in a precarious situation. The airline has a history of success and profitability, but as the economy suffers and the competitive market changes, the airline leadership realizes that changes need to be made to decrease costs, increase passenger numbers, and ensure that Classic Airlines can remain competitive and profitable as it moves into an uncertain future. For Classic Airline to ensure they make intelligent moves forward, it is imperative that they fully understand the situation they face and all of the options available to them. Using a classic problem-solving model, the following information can be properly evaluated and analyzed by all those involved. Each of the following nine steps will help clarify and guide the decisions and course of action needed at Classic Airlines. Step 1: Describe the situation. Classic Airlines is the fifth largest airline in the world, employing 32,000 employees, operating 375 jets, and generating $8.7 billion in sales. They are not a small regional airline, they are a world leader. Nevertheless, they are not without their problems as an airline. Their stock value has decreased by 10%, and they have had a 19% decrease in the number of Classic Rewards members (University of Phoenix, 2011). Those numbers paint an uncertain future for Classic Airlines. The airline needs to increase its market share and retain the new customers it obtains. Step 2: Frame the problem. Classic Airlines need more passengers. Passengers are the main source of revenue for the airlines, and while other add-on fees can also generate revenue, in the absence of fliers the opportunity to collect the add-on fees simply does not exist. Classic Airlines needs to compete within the industry not only to gain new passengers, but also to find a way to keep them coming back in the future. The sagging frequent flier program is an indicator that fliers are not satisfied with the airline and are finding other options to use when traveling. Step 3: Describe and state the goals. The main goal of Classic Airlines should be to bolster is frequent flier program and build customer loyalty in an effort to gain and retain more fliers. Simply put, more passengers means more revenue, and enhancing this program can be done with very little cost to the company when compared to other cost-saving or revenue-generating ventures. Building the program will give the company a competitive tool that can be used to gain the new customers it needs and keep those customers loyal to Classic Airline. Step 4: Identify alternative. Other alternatives do exist when considering how to increase the number of passengers. In tough economic times, price is always a consideration. Classic Airlines has engaged previously in “price wars” with its competitors in an attempt to match or beat the price of competitors and win customers looking for the lowest fare. For many people facing tough economic times, the out-of-pocket costs are a big factor in the decisions made. Many passengers, especially those who do not fly frequently, can be swayed by the price of a ticket. These passengers, however, are not the principal target of Classic Airlines who would rather find and keep the frequent fliers. Step 5: Evaluate the alternatives. While the price wars may seem like an obvious way to gain customers, it has two big disadvantages. The first is that it cost the company money by decreasing the amount of revenue gained from passenger fares. Profit margins are already low, and there is little room to cut the fare and still make a profit. The second disadvantage is that it is a temporary situation. Price wars come and go and if the passengers are won over strictly by the cost of a ticket, when they can find a less expensive flight on a competitor’s airline there is no reason for them to choose Classic Airline again. Step 6: Identify and assess risks. As stated above, the risks of using strictly price to gain customers is that it is temporary and reduces the revenue generated by the airline. If the competing airlines can sustain lower prices for longer periods, this further strains the company as it struggles to compete in the price arena. These programs usually work only when used with internal expense-reduction plans that help offset the lower revenues. The risks associated with the frequent flier program, however, are much less. The program can be bolstered with little capital expenditure and cannot only gain the airline new customers, but also give those customers an incentive to remain loyal to Classic Airlines in the future. Repeat customers are much more valuable than customers temporarily won over by low prices that may not last. Because little money involved in the Classic Rewards program, the failure of the program would cost the company very little. Step 7: Make the decision. Executive leadership seems to be weighing several options at the moment in addition to those listed above. The chief financial officer is pushing for heavy involvement in a fuel-hedging program. The program has helped to reduce fuel cost by 12%, but it is also a program that can be greatly affected by fluctuations in fuel prices. Should fuel prices suddenly decrease, the savings recognized is not nearly as significant, and in an extreme case, the company could be locked into to paying more for fuel than the current market price if fuel prices drop drastically instead of continuing to rise. Similar to the case with the price wars, this program is not a long-term solution for bringing in loyal customers. Reducing the costs of the airline, while important, fails to recognize the need to put passengers into the empty seats. The chief financial officer has pushed this program extensively and has challenged other programs that may divert attention or funds away from fuel-hedging. While the push to make this decision seems to have demonstrable reductions to cost, it still fails to address the main issue facing the airline, a lack of customers. The marketing department, on the other hand, has a more appealing plan to offer. Bolstering the frequent flier program, Classic Rewards, not only gives the company something very powerful and appealing to market, it allows the company to keep its current customers once they have chosen Classic Airlines. Kotler and Keller have found that acquiring new customers can cost five times more than the cost of satisfying and retaining current customers (Kotler & Keller, 2006, p. 74). Classic Airlines could shift some of this cost of attracting new customers into bolstering and advertising Classic Rewards. By studying customer satisfaction, Classic Airlines can find those areas where it can improve customer service and enhance the “flying experience” of the customer. As stated by Kotler and Keller, “Clearly companies can take steps to retain customers who leave because of poor service” (Kotler & Keller, 2006, p. 76). The company, after fighting to gain new customers, needs to ensure that those customers remain loyal to Classic Airlines. When making this decision it is important to look at SMART (specific, measureable, attainable, realistic, and timely) goals. With regard to the Classic Rewards program, these goals would take on this format: * Specific: Reverse the current trend of a 19% decrease in the number of active Classic Rewards members and a 21% decrease in the flights per member. A strong frequent flier program will increase in membership, and while the current financial crisis may mean that those members may not dramatically increase the number of flights taken, a 21% decrease indicates that these members are most likely choosing another airline when they do need to fly. Strengthening Classic Rewards will ensure that members have reason to remain loyal to Classic Airlines when making travel arrangements. Classic Rewards should shoot for an increase of 15-20% in the number of active members each year, and with a strong program the number of flights per member should cease to decline and even increase when travel increases industry-wide. * Measurable: Tracking these goals should be very easy within the program. Customers are indentified with a unique membership number that will allow discreet tracking of member preferences and frequency of travel. Viewing the number of flights booked by members can show what percentage of flights is booked by members of the program. Month to month studying of these numbers should show an increase in the percentage of tickets being purchased by Classic Rewards members. It is also possible to track the number of repeat customers who are members, giving an indication of the success of the redesigned program. * Attainable: Classic Rewards is already established, it simply needs to be re-tooled to meet better the needs and wants of customers. The senior vice president of customer service has spent two years gathering information about what customers want, and she understands the need to “reconnect” with the customers (University of Phoenix, 2006). Putting those findings in play will enable to plan to meet customer needs and therefore bring about the increase in membership and the likelihood that members will consistently choose Classic Airlines when traveling. The suggestion was also made to integrate the Classic Rewards system with other systems in the organization, namely the reservations, so that when customers were making their reservations, those agents would have access to the member’s preferences and past flying history. Customers appreciate being recognized as loyal members. * Realistic: Many of the goals that organizations have are either too optimistic or too dependent on variables outside of their control (like fuel pricing in the fuel-hedging plan). Classic Rewards is an internal program that has very few outside variables. Training of Classic Airline staff to the importance of the program and its members is something easy to accomplish. * Timely: When competition is at is strongest it is often the little things that have the biggest effect. Kotler and Keller stated that “The smart competitor must design and deliver offerings for the well-defined target markets” (Kotler & Keller, 2006, p. 37). Those who are frequent fliers fall into that “well-defined target market” and are usually looking for things easy to deliever- friendly service, good value, and a positive traveling experience. Step 8: Develop and implement the solution. Two primary marketing recommendations can be made at this time. The first is internal and deals with the training of Classic Airlines staff with regard to program members. Classic Airlines should recognize fliers who are members of the program at each step of the travel process, from making the reservation, to checking in at the counter, to the welcome greeting done by flight attendants at the beginning of the flight. Membership in the program should have meaning to members. When it is discovered that fliers are not members of the program, the basic information should be given to the passenger in a way that presents the program as a valuable part of the Classic Airline experience. When nonmembers hear the recognition given to members it makes them want to examine the program closer. In addition to Classic Rewards training, overall training in increased customer service helps to deliver that positive traveling experience. With competition tight between airlines offering similar flights, the extra intangible items have increased value. More smiling from employees and a “what can I do for you'” attitude are appreciated by customers. Employees who appear indifferent to the customer add no value to the travel experience and can, in fact, take away from the experience. As mentioned previously, companies need to prevent the lose of customers from poor service. A second marketing recommendation is to provide travel perks to members of Classic Rewards. One sample perk would be to waive baggage fees for members of the Classic Rewards programs. Add-on fees such as charging passengers to check bags are discouraging to price-conscious customers. An increase in revenue from a passenger ticket is worth much more than the small add-on fee charged for checking a bag. Waiving this fee is simply a small cost of doing business and contributes to the retention of Classic Rewards members. Another perk that could be offered is priority boarding. Passengers who board the aircraft first have no problems finding room in the overhead storage for their carry-on bags, an often stressful part of flying. Removing that stress adds to the positive travel experience of the member. While waiving the baggage fee has a financial component, offering priority boarding has no cost association at all and demonstrates the airline’s commitment to it Classic Rewards members. Step 9: Evaluate results. This is the part that remains to be done. Classic Airlines has the opportunity to implement key changes leading to a larger market share as well as the retention of its current and future customers. The cost of implementing the changes is much less than other plans being entertained within the executive leadership team, yet the success of this plan will be the key to Classic Airlines continued growth and success for many years to come. Reference Kotler, P., & Keller, K. L. (2007). A framework for marketing management (3rd ed.). Saddle River, NJ: Prentice Hall. University of Phoenix. (2011 ). Classic Airlines [Computer Software]. Retrieved from University of Phoenix, Simulation, MKT571 - Marketing website.