Marketing

Problem Solution: Classic Airlines Classic Airlines, the world’s fifth largest airline, has been in business for 25 years and employs over 32,000 people. Classic Airlines has a fleet of 375 jets, serving 240 cities and operating over 2,300 flights per day (University of Phoenix, 2002). A decline in sales, market share, profitability and membership in the rewards program has resulted in the airline facing a restrictive climate in the industry based on airline consolidation and extreme competition. Based upon the declining metrics and the latest customer loyalty report, Chief Executive Officer Amanda Miller has tasked members of the leadership team with making sweeping improvements to the frequent flier program. By using methods that will promote a measurable return on any investment while still meeting the cost reduction goal and without discounting fares, reaching the end-state vision is within reach. In addition, the Board of Directors recently mandated a 15% across-the-board cost reduction over the next 18 months. Classic Airlines desires to boost consumer and employee confidence by keeping costs down while increasing customer and employee satisfaction in the company. To accomplish this, Classic Airlines will need to analyze customer feedback to understand long-term forecasting and marketing objectives. The objective The objective of this paper is to present Classic Airlines’ issues and opportunities, stakeholder perspectives, ethical dilemmas, definition of the problem, the end-state vision and propose the optimal solution. Describe the Situation Issue and Opportunity Identification Classic Airlines has several diverse factors influencing their marketing activities which are largely uncontrolled. The company is faced with rising fuel and labor costs. These large increases have forced cost-cutting through high passenger load ratios and better efficiency, however, these costs remain an obstacle to high profitability. The airline industry is still recovering from the effects of 9/11 after over-expansion following the downturn. Consumers have also shown less willingness to travel on lower discretionary income in light of recent fuel prices. Each company in the industry is facing similar issues, yet competition has increased. Classic Airlines must identify where to cut costs yet continue to provide a positive return on investment for shareholders. Classic Airlines is facing declining consumer confidence in the airlines with a 19% decrease in rewards members and of those members there has been a 21% decrease in activity. Some members of the executive team appear to be more concerned with financial numbers rather than improving customer service. Classic Airlines needs to maximize customer needs and increase brand loyalty to regain customer and investor confidence. Marketing has become increasingly important because it puts the customer first to achieve the company’s goals; Classic Airlines’ marketing needs to know as much as they can about current and potential customers. Classic already collects data on key customer comments which should continuously used to leverage marketing efforts. Classic Airlines has a solid base to start from to rebuild customer relations. The customer should be at the core of the business to help determine consumer requirements. The company already possesses an advanced Customer Relationship Management (CRM) system and they have the opportunity to restructure a more integrated and valuable system using the existing tool to its full advantage. The company could integrate the system across the phone and web portals so they could extract more information from their customers to help improve the customer experience. “CRM systems are tailored mainly for interactive marketing rather than large-scale batch operations, and to work well as outbound channels they need real-time methods to - as the saying goes - reach out and touch someone: e-mail and telemarketing” (Fowler, 2003,¶ 6). Classic Airlines could do a better job at performing customer segmentation analysis to position the product for more than just leisure and business travelers. Classic Airlines needs to focus on head-to-head positioning by competing directly with the other major airlines. Classic Airlines should also seek to differentiate through service and quality (Kerin, Hartley, Berkowitz, & Rudelius, 2006). Classic Airlines must understand why each consumer books and why they are traveling. Classic Airlines has already identified that the segmentation strategy is outdated and does not match what customer values. The CRM system could help to create and automate personalized marketing to communicate with customers and increase loyalty. The software needs to build profiles on its customers to help serve each individual customer. This, in turn, will increase web site visits and ticket sales. Classic Airlines’ loyalty rewards program needs to be revamped and once the program is restructured, it needs to be properly marketed to the target customers. The company was over-concerned with prices and not as concerned with the loyalty program so it has not grown with the customers and the company. The loyalty program should be fully integrated with the CRM system to produce best results. Customer feedback has already indicated that most business passengers do not put price at the top of their list when choosing an airline. These travelers desire specific benefits and services. Classic Airlines has the opportunity of building a new alliance with Skyway Airlines which many stakeholders would see as a strength-builder in the eyes of the industry. The alliance would afford the customer added value by offering a more extensive set of rewards. Weber (2005) states a number of benefits to airline alliance partners, obviously from the airlines’ perspective, “increased revenue and passenger numbers, greater reach, access to slots/gates and greater frequency of services, more comprehensive route networks, economies of scale in marketing, service costs, and the eradication of duplication of operational efforts” (p. 257). Classic Airlines would be able to market this new alliance to maintain and attract new customers over other airlines. Classic Airlines’ internal stakeholders, specifically its employees, are suffering low morale due to the public’s negative outlook, fear of job cuts and insecurities. The employees listed the following on the consulting survey: “They want to feel valued, have career opportunities and information available” (University of Phoenix, 2002). Motivated employees are the cornerstone to a successful company therefore Classic Airlines needs to treat their employees as internal customers, understand what the employees want, need and how the company can deliver to boost morale. Stakeholder Perspectives/Ethical Dilemmas In addition to examining the issues, the company must consider the the stakeholders and the associated ethical dilemmas. Classic Airlines has four main stakeholders in this scenario: the employees, company management, shareholders and the customers. The employees in this case have several interests that do not appear to be addressed by the company. The Vice President of Human Resources has worked to educate employees on their importance to the organization. The employees desire better compensation, job security, benefits, growth and advancement opportunities. At times, management’s interest in company productivity may interfere with the need to provide incentives and motivation for employees. If customer service employees are satisfied with their jobs, they will be able to tend effectively foster good consumer relationships which, in turn, will boost growth and shareholder value. Shareholders desire a return on their investment and to feel secure that the company is working in the shareholder’s best interest. The investors have chosen to invest in Classic Airlines and have a right to be informed when the company is experiencing difficult times and what any strategies or tactics will be employed to turn a profit. The stockholders want to know the trends and the sales forecasts; management needs to give them the most informed answers, even if those numbers are not what the shareholders want to hear. The Executive management and CEO, Amanda Miller, identified the necessity of positioning Classic Airlines for success by revamping the customer rewards program. Management realizes that the the airline must improve the relationships with customers and establish credibility with employees. Customers’ needs for better service may come in conflict with cost restructuring. The customers want better service, amenities, flexibility, maximum frequent flyer miles,and easy access to all the locations that they want to go, with the least amount of layovers. They want to do this safely, on-time and with no problems with luggage handling. Customer service can be a costly expenditure that management mistakenly sees as an easy target. Classic will need to tailor their services with what customers truly value at heart – a reality that management needs to face when considering how to restructure the rewards program. Frame the “Right” Problem After analyzing and understanding the issues, opportunities, and stakeholder perspectives, Classic Airlines must formulate a problem statement that will help the company make the best decision. The problem statement is - Classic Airlines will maintain its strategic position in the airline industry by creating customer confidence and loyalty, improving profitability and aligning with its stakeholders. This will enable Classic Airlines to become financially secure through growth opportunities, formation of strategic alliances, the revamping of its marketing strategy and exceeding customer expectations. Describe the End State Vision Classic Airlines will maintain its position of being the fifth largest airline in the industry. Classic Airlines will increase profitability and customer satisfaction, which will collaterally improve the airline’s market share. The one-year goals attached to increasing market share include a 15% increase in new customer base, a 20% increase in customer loyalty and a 30% increase in customer satisfaction, measured by surveys and feedback. Classic Airlines’ reward program will be revamped to reestablish customer loyalty through forming new alliances with other airlines. In addition, the airline will address the problem of rising fuel cost by incorporating a system that will save on fuel consumption and reduce costs without sacrificing quality service. The 18-month goal attached to reducing operating costs is a 15% decrease. Identify the alternatives and benchmarking validation After a thorough review of the problems, actions, and results for Classic Airlines and other companies, the analysis revealed three key concepts that each corporation either did well or failed to accomplish. These concepts involve integrating and enabling different channels with existing CRM, performing customer segmentation analysis, revamping the rewards program, expanding strategic partnerships and alliances and reducing costs. Hawaiian Airlines (HA) was successful in concentrating on enabling its current CRM methodologies by enabling the web channel. This effort resulted in HA’s price responsiveness to be more agile and responsive to market forces and competition. Aloha Airlines, unfortunately, wasn’t so adept at this process and ended up filing for bankruptcy after 60 years of doing business. Aloha Airlines, having not taken risk into consideration or doing a thorough scanning of the competitive landscape, failed in sustaining business and booking rates. Classic Airlines is losing their competitive edge in the airline industry and must focus on creating a quality product that will strengthen the bond between the company and its customers, resulting in a long-term customer loyalty. The key objective for Classic Airlines is to determine what their customers need in order to increase sales and booking rates without regard to channel. This can be exemplified by JetBlue’s success in market research of customer’s desires. The research revealed that customers want low fares, exceptional loyalty program benefits, more comfortable seats, more on-board entertainment options and world-class customer service. JetBlue leveraged an effective CRM system to improve its service offerings and become a carrier of choice in a competitive landscape. Classic Airlines should follow JetBlue’s discovery and enable its CRM to take advantage of customer needs and implement them. Classic Airlines does not have an effective CRM and does not focus on customer relationships (University of Phoenix, 2002). Classic Airlines could build a new alliance with Skyway Airlines which would help Classic become the industry leader in this arena. Classic Airlines should look at other rewards programs and understand that many successful programs use alliances to create synergy and create growth through offering additional travel destinations. Ohmae (1989) raises the importance of growth and reduction of fixed costs by forming partnerships, “To compete in the global arena, you have to incur – and defray – immense fixed costs. You need partners” (p. 144). Classic Airlines could rely purely on cost-cutting in order to turn the company’s profit- margins problem around while waiting for the market to improve. Aloha Airlines, as previously mentioned, attempted this strategy and was unsuccessful. The competitive landscape, at the time, did not afford Aloha’s return to higher rates – without making other cuts in service routes or flight frequency, Aloha Airlines could not return to a competitive state. Evaluate the Alternatives Classic Airlines will need to create value and establish new systems and procedures to optimize productivity. With the help of other successful companies that are in line with their own goals, Classic Airlines can begin to establish diversification in the airlines forum and show stakeholders the benefits of a new venture. To be an industry leader, Classic Airlines will need to embrace innovation facilitated by close interaction with consumers and other vital stakeholders. The first goal, increase revenue, will be directly affected by having a sound CRM. A properly managed CRM will guarantee future obligations are met, which in turn will increase revenues and cash flow. Increasing profitability can be achieved by streamlining operations across the organization. By analyzing the problems Classic Airlines can identify issues should revenue or booking rates decrease. Increasing customer loyalty participants and expansion of the customer base, the second and third goals, can be achieved by revamped marketing techniques. A restructured rewards system with the new alliance will help in meeting this goal. Although the process of expansion increases capital expenditures in the near term, long-term effects of this program eventually help the growth of the organization. By having an unyielding marketing management system the cash conversion cycle will be drastically reduced. The fourth goal, improving customer and employee satisfaction, is achieved by implementing a solid CRM and instituting a viable restructuring plan. The restructuring plan needs to be presented to the board of directors, management and employees. Classic Airlines should also share the plan with its contractors, vendors and third-parties to glean professional feedback. Classic Airlines should replace weak members of top executives and the board of directors. Then reduce management layers because often unprofitable companies are bloated with middle managers. Above all, communication of all changes to the main stakeholders identified is essential and will boost morale and reduce uncertainty. Identify and Assess Risks Classic Airlines needs to choose the most viable solutions and perform further evaluation of risks and benefits. Based on an analysis of alternative solutions and how these solutions meet goals established by stakeholders’ needs, the secondary alternative was a clear winner. However, Classic leaders have to bear in mind the risks and benefits associated with each available alternative and the leaders must consider all these before choosing and implementing a specific solution. The major risks involved with seeking out and entering into alliances and partnerships with other carriers include loss of customer base due to discontent with partner, alliance members not adhering to agreements and lack of leadership buy-in. These are all low-probability risks, however the consequences can be devastating to Classic Airlines’ profitability including decreased revenue and customer inconvenience. Mitigation strategies for these risks include clear communication to customer base before negotiating an alliance, foster strong relationships with alliance members and draft a clear project plan for leadership buy-in. With expanding the CRM component, there are risks of high-cost overruns, loss of control with project scope, misalignment of goals, lack of change management and analysis does not bring useful information. Budget-related risks are medium to high probability, however they can be mitigation through the rough consequences by creating a high-performance team to oversee the project and all aspects, conduct thorough research of contractors and vendors and ensure that proper market segments are identified. The consequences of the risks include CRM system would fail before implementation, heavy and unplanned financial outlays and resistance to change on the part of stakeholders. An overhaul of the current rewards program does not carry heavy risks, however, the not bring useful information. Budget-related risks are medium to high probability, however they can be mitigation through the rough consequences by creating a high-performance team to oversee the project and all aspects, conduct thorough research of contractors and vendors and ensure that proper market segments are identified. The consequences of the risks include CRM system would fail before implementation, heavy and unplanned financial outlays and resistance to change on the part of stakeholders. An overhaul of the current rewards program does not carry heavy risks, however, the risks still need to be considered. Risks may include no membership increase, high costs of analyzing and developing and lack of internal stakeholder buy-in. Budget considerations are high probability, however the other risks are medium to low. The consequences include resistance tochange, cost overruns and implementation failure, all carrying high severity. The mitigation techniques would again include clear communication, strong key-player emplacement for project management and clearly documented project scope with necessary change management controls in place. Make the Decision Any recommended solution should be made only after Classic Airlines has assessed and analyzed existing marketing strategies and identified the various opportunities available for improving marketing efficiency from benchmarked companies. Each recommended alternative solution had an optimal individual strength that best satisfied one of the end-state goals. The optimal solution for Classic Airlines will be a combination of the alternative solutions that provide for integrating CRM, restructuring the awards program, and joining the marketing alliance. The optimal solution will allow Classic Airlines to meet their end state goals. Using the above systems will allow them to build their brand image and profits, reduce operational costs, and meet all customer demands. Analyzing and responding to ethical issues will give them the ability to maintain a positive relationship with all vendors and stakeholders, while avoiding any conflicts of interest. Develop and Implement the Solution In proceeding with the secondary alternative and most optimal solution, overhaul rewards program and enter into additional alliances with other carriers, Classic Airlines first begin to improve on the customer’s satisfaction through CRM. After finding the correct company to sub-contract to and agreeing on price, the system will be upgraded. Along with the changes, a representative of the new CRM software will take several weeks to train key players in management. The next phase will be to build strategic business alliances with business to improve the rewards program. This will require several weeks of benchmarking and research to find the right company and products. The marketing department will then begin its campaign to introduce the first phase of the revamped rewards program. Evaluate the Results Classic Airlines has several options it can use to measure the results of the decisions it made regarding its customer relationship management. When evaluating results, importance must be taken to examine both quantitative and qualitative results. The first measurements will be quantitative, where as the success will come from improved revenue as will be evident on the monthly/quarterly financial reports and daily stock prices. A second measurement will be qualitative which will be derived from questioning the passengers and employees through surveys and the results provided by reports generated through the use of the CRM system. By developing strategic alliances with other companies, Classic Airlines will be able to provide its customers with destinations that are not presently available. Within the strategic alliances, Classic Airlines may be able to better use or even prevent having to lay up it resources aircraft during winter months. However, senior management and the workforce need to understand that the loyalty program is not just points and gifts, the program is a true reflection of Classic Airlines. Conclusion Classic Airlines is faced with the need to make a definite, strategic shift within its operating structure. The goal is to evaluate all options available with regards to the updating Classic Airlines’ rewards programs, value-added consumer packages and CRM solutions to optimize key elements of the company’s overall business plans. For Classic Airlines to reach its end-state, effective customer relationship management will be essential. This includes effective forward looking environmental scanning, improved forecasting, and organizing for current and future CRM initiatives. To manage its recovery and future growth, Classic Airlines must ensure it maintains adequate customer levels and have plans in place to handle fluctuations in buying patterns by its consumers. By fully marketing the benefits of expanding into new market areas through strategic alliances combined with better customer service, Classic Airlines will one again be a successful airline. References Fowler, J. (2003, October 1). CRM is a four-letter word. Direct, 15(13). Retrieved December 4, 2008 from General OneFile. Ohmae, K. (1989, March/April). The global logic of strategic alliances. Harvard Business Review, 67(2), 143-154. Retrieved December 5, 2008 from EBSCO host database. Kerin, R. A., Hartley, S. W., Berkowitz, E. N., & Rudelius, W. (2006). Marketing (8th ed.). New York: The McGraw-Hill Companies. University of Phoenix. (2002). Scenario Two: Classic Airlines. Retrieved November 19, 2008, University of Phoenix, Week Four, Resource. MBA 570 – Sustainable Customer Relationships Course Web site. Weber, K. (2005, February). Travelers’ perceptions of airline alliance benefits and performance. Journal of Travel Research, 43, 257-265. Retrieved November 22, 2008 from SAGE full- text collections.