Marketing Recomendations

This is the final paper my team wrote for my MBA 570 Course. The authors are Frances Mills, Ed Ralston, Barbara Carpenter, and Richard Shives. It was writtne for the University of Phoenix.

“Marketing is an organizational function and a set of processes for creating, communicating, and delivering value to customers and for managing customer relationships in ways that benefit the organization and its stakeholders” (Kerin, 2005). Marketing is a fundamental key to any businesses success and involves determining the needs, wants and desires of consumers and satisfying them to the best ability. The context of the paper will examine the case study of Classic Airlines and provide an in-depth situation analysis starting with a brief background of the scenario, identify the issues and opportunities, explore stakeholder perspectives and ethical dilemmas. Continuing through the problem definition guidelines, a problem statement will be developed and end state goals will be identified which will provide the foundation for proposed solutions and analysis of the solutions. A risk assessment and mitigation will help to identify the optimal solution, which will lead to the development of an implementation plan and finalize with a gap analysis.

The terrorist attacks that rocked the United States on September 11, 2001 and others which have occurred around the world have heightened international awareness to the dangers of terrorist activity and had serious repercussions on the economy and business (Johnston, 2005). Sharply rising and declining stock prices, uncertainty about flying, and increased prices have left investors skeptical of the viability of investing and concerned about higher risks due to an uncertain future. Despite this, the airline industry has been fighting back and many companies are undergoing dramatic changes to find their competitive advantage as competition on a global scale within the industry is increasing with each passing year. As the economy picks up and technology continues to be a prominent driver of business, the consumer base is becoming more demanding for full circle travel providers.

Classic Airlines, the world’s fifth largest airline, has been in business for 25 years and employs over 32,000 people. Currently Classic Airlines has a fleet of 375 jets, serving 240 cities and operating over 2,300 flights per day (Anonymous, 2007a). Declining sales, market share, profitability and membership in their rewards program has Classic Airlines facing an industry of consolidation and extreme competitiveness. According to their financials for the past year, Classic Airlines would have been losing money if it were not for the $15 billion aid package passed by Congress for the airline industry (Kaye, 2002), which is resulting in a $22 million Income Tax Provision credit for the company. Based upon this and the latest Customer Loyalty Report, Chief Executive Officer, Amanda Miller, has tasked members of the leadership team with improving their frequent flier program with methods that will demonstrate a measurable return on any investment while still meeting the cost reduction goal and without discounting fares. In addition, the Board of Directors recently mandated a 15% across-the-board cost reduction over the next 18 months (Anonymous, 2007a).

There are a number of issues Classic Airlines needs to address and the primary issues the senior leadership team needs to address in turning the Classic Rewards program around are: declining Classic Rewards membership as a result of low customer satisfaction, inefficient use of the Customer Relationship Management system and not having an alliance agreement in place. Classic Airlines has faced a number of challenges between the terrorist attacks, rising fuel prices and higher labor costs to increased security measures and declining membership in the Classic Rewards program. They have tried discounting fares in order to remain competitive and recruit new customers, but these attempts have been to no avail. In addition there has been a severe decline in customer satisfaction as evidenced by Kevin Boyle’s conversation with existing customers and the recently released Customer Loyalty report. Customers are unhappy with a number of items including the service they receive when calling the help desk and the rewards they receive as part of the Classic Rewards program.

The second issue is inefficient use of the CRM system. Classic Airlines’ CRM tool is one of the most powerful in the industry but has been ineffectively implemented. Classic Airlines has failed to totally integrate the CRM tool thereby compromising the level of customer service representative are able to provide to customers. In addition, the data being collected by the system is not a true representation of their customer base. Classic Airlines needs to update their segmentation strategy in order to realign with customers.

The third issue impacting Classic Airlines ability to meet customer need is the fact Classic Airlines is the only airline without an alliance agreement. The lack of an alliance agreement is limiting the flight options available to customers and thereby restricts their ability to earn and redeem reward miles. This also has the indirect effect of creating more work for customers when shopping for flights; in so far as, the customer has to visit multiple website and conduct multiple searches to obtain flight information versus having a single point of access.

Despite the issues Classic Airlines faces, there are a number of opportunities to focus on in resurrecting their rewards program. The first opportunity is to redefine their segmentation strategy by leveraging and fully integrating the existing CRM tool. By fully integrating the CRM tool across phone and web portals, Classic Airlines will be able to obtain more accurate data about their customers. In addition this information will enable the customer service representatives to provide better service to customers regardless of the media used to make reservations.

This data will help Classic Airlines better identify with the customer’s perspective creates another opportunity, which is to redefine the reward program parameters to better meet, the need of customers.

The third opportunity is to further explore an alliance with other carriers. Forces in the global marketplace increasingly require companies to collaborate with local and overseas partners for market efficiency and responsiveness (Ohmae, 1989). This trend is echoed in the development of alliance activities within the airline industry (Ohmae, 1989). “Alliances in the airline industry allow carriers to enter markets indirectly where cost and regulatory barriers would foreclose direct entry. They are a means to link multiple markets together, such as North America, Europe and Asia” (Ghobrial, 2007). By entering into an alliance with Skyway Airlines, Classic Airlines will further expand their ability to meet the needs of their customers and position themselves as an industry leader.

Situation:
Classic Air is the 5th largest airline in the United States; it operates 375 aircraft and serves 240 cities with 2300 daily flights. Classic Air employees 32,000 people across the board from baggage handlers to top management. The last year reported profit was $10 million on $8.7 billion sales. Classic Air is facing a reduction in customer confidence with a loss of customer rewards enrollment and a decrease in current use of customer rewards. This is somewhat due to a lack of confidence of the general public, but the main cause is a lack of specific customer confidence with Classic Air’s own customers. This loss of revenue has caused a 10% decrease in Classic Air’s share price. Classic Air is also facing rising fuel and labor costs and a 15% reduction in costs this year, mandated by management. Classic Air implemented the hardware and software of a Customer Management System, but has not implemented the complete strategy. The system is utilized poorly with only the call center using the system. Management is hesitant to approve a new marketing strategy due to previous perceived marketing failures. It is also reluctant to enter into any alliances stating that they believe no one else can provide the level of service that Classic Air can. The marketing team is aware of the problem facing them and determined to create a solution.

Strengths:
Classic Air is a large and profitable company and has resources that can be used to solve many of its problems. Classic Air employs intelligent people who have a passion for the airline industry and Classic Air in particular. Classic Air has a newly negotiated contract with its union workers, which will be in effect for the short term. Classic Air has the hardware and software pieces of a customer management system in place, which can improve the customer experience if used properly. The customer management system has store of good customer feedback data. Because of the initial CMS installation, Classic Air is in a good position for a marketing alliance with Skyway.

Weaknesses
The size of Classic Air is not only one of its strengths; it can also be a weakness. Important decisions cannot be made in a timely manner and conflicts between the departments can stifle good ideas before they can be implemented. Although Classic Air has implemented a customer management system, they have only implemented the hardware and software portions. Classic Air does not have an effective customer management strategy and, therefore, the customer management system is not utilized to its fullest potential. Classic Air resists alliances with other firms. They believe no one else can provide the style of service that they can. This may be true; however their lack of alliances has hindered their ability to provide service cost effectively. The customer management system has a wealth of customer feedback data, however, Classic Air has not used this data to improve its service, nor have they realized its potential.

Opportunities
Classic Air’s short-term opportunities include creating a marketing alliance with Skyway. This will provide a cost effective way to provide a customer rewards system. Currently Classic Air enjoys a large customer base, and has an even larger base of previous customers who would likely come back if the proper incentives were introduced. This creates an opportunity independent of aligning with Skyway. Classic Air has the initial stages of a customer management system in place and if utilized properly has the opportunity to increase customer satisfaction. Analysis of the customer feedback data store currently held in the customer management system Classic Air can better determine customer needs and make changes to address these needs.

Threats
One of the main threats to Classic Air is other airlines providing a better customer experience causing customers to use them instead of Classic Air. If Classic Air does not get involved in the newly forming marketing alliance it could be threatened by the companies that do. Because of the low morale within the company, Classic Air could start loosing its general employees. A bigger threat would be the loss of key employees due to the lack of teamwork Classic Air is experiencing. There is a threat of competitors utilizing their customer management system to better understand customer needs and to provide a better experience than Classic Air should Classic Air refuse to fully embrace their customer management system.
The key issue marketing must solve is; with declining consumer confidence and a mandatory cost reduction, we must market a new program, or an improved current program, to retain current customers and bring back previous customers.

The “End-State” Vision
The goals of the Classic Airlines stakeholders are:
1. Classic Airlines will be profitable.
2. The stakeholders will be united in their vision and their work toward the ultimate goal to be profitable.
3. The use of the CRM system will be expanded to take advantage of the information and services the system can provide to both management and customers.
4. Customers will feel valued by Classic Airlines.
5. Employees of Classic Airlines will feel valued by the customers and the company.

Some of these goals will be achieved as a result of others being achieved. If Marketing can formulate a plan and sell it to the officers and board of directors, they will need the support of those groups in order to put the plan in motion.

The base of any plan to increase profits is to make customers want to fly on Classic Airlines. In today’s economy, there is not much room for cutting prices. In order for Classic Airlines to increase business, they must find a way to make passengers want to fly Classic instead of other airlines. Research of other successful airlines indicates that one of the strengths they share is a successful loyalty program. However, the survey conducted recently by the Vice President of Customer Service shows that Classic’s customers are dissatisfied with their rewards program (Classic Airlines Scenario).

Alternative Strategies
Classic Airlines used their interviews of 500 Gold and Platinum level Classic Rewards members to learn that Classic’s advertising is accurate and meaningful and the customer service they receive is satisfactory. But they are very dissatisfied with the miles they earn, the service upgrades they receive and the reward redemption options they receive, (Classic Airlines Scenario). The airline has to beef up the rewards and attract customers back to them while attracting new customers.

Classic already has a CRM system that they use mostly as a customer service tool for phone calls. This system can be used with the rewards program to give the customers quicker access to their own information and to book their own travel when possible. It can also be used to consolidate customer information in a more usable form to provide information helpful in tracking customer information for marketing. Customer surveys should always be available for customer feedback. This will provide great information for the management team to use to see what is working and what is not working. Better use of the system lays the groundwork for improved service, (Business Wire, 2006). Upgrading the system comes with a price tag but the infrastructure is already there.

Classic has determined that the Business Elite customers are the major source of their revenue. Therefore, the focus of rewards is on that segment. Some additions to the rewards system can be accomplished in-house by upgrading perks to the Business Elite customers such as pre-boarding and concierge service for their luggage. Some airlines such as Delta Air Lines have offered full-flat bed seats for these customers on some international flights, (M2 Presswire, 2008).

The customers want more air miles and more times to use them. Delta doubles or triples the miles earned for various categories of customers during specific periods, (M2 Presswire, 2008). Classic could use this offer for special promotions to bring on new rewards customers and to encourage existing rewards customers to travel on Classic during periods when air travel may be down or other companies are offering special rates. This could allow Classic to offset some losses by filling the planes while increasing the loyalty of their customers. Offering more air miles is not necessarily an expensive proposition. It brings customers back more often and the miles are not redeemed until later.

Delta also allowed all of its customers who were affected by winter weather in the Ohio Valley this year to change travel plans without penalties or fees, (M2 Presswire, 2008). This is a great service to customers for an inconvenience that was not in the control of either the air lines or the customers. It keeps customers coming back to a company that looks out for them.
In order to make its SkyMiles more valuable, Delta has marketing alliances with several partners that allow customers to earn and redeem SkyMiles even more easily. Delta’s award-winning program is a model in the industry.

Other airlines such as Air France and KLM have allied with Delta on transatlantic joint ventures, (Financial Times, 2008). Lufthansa plans a link with JetBlue in New York by linking booking systems and frequent-flyer programs, (Financial Times, 2008).

On the side of cost cutting, Classic will have a major problem with the unions if it tries to cut pay or benefits, (Classic Airlines Scenario). One way to approach a request by the unions for pay increases is to offer the employees a share of profits in exchange. Delta uses this plan of profit sharing to recognize employees for their roll in achieving financial and operational goals. The bonus is linked to profits, (M2 Presswire, 2008). This plan can be tied in with improved service. Each employee would have a stake in how the customers are treated. The savings in pay and benefits can be used to improve the CRM system and the payback would be rewards for all—employees and customers alike.

Decide the required upgrades to CRM and how much this will cost. The best plan for Classic that involves the least direct cost is a combination of these suggestions. Classic must decide which customer segments are the most important in terms of the greatest return to the company. The first is the Business Elite because they are the largest group of users. Service is #1. Train employees. Offer specific services as part of the rewards—faster check-in, early boarding, special baggage check.

Form more alliances with hotels, rental car companies and other travel related companies to improve the ways to redeem miles. Offer better earned miles on Classic flights. Hook up with Skyway or other airlines that can offer flights to compliment Classic’s schedules and destinations as well as miles redemption.

Marketing Recommendations
Classic must offer the flights to the destinations that are most popular with the customers and strive for the best on-time records. This is the service that customers want, especially the business travelers since they are the key segment that needs to be targeted. The price must be competitive, but it does not have to be the lowest price if the other parts of the equation are in order. They will want to offer promotions for double or triple mileage to kick off and advertise its new improved rewards program and use this as part of the price. They should do their best to make the customers comfortable in the airports and in the planes.

Training is part of the marketing plan. Classic must train their employees to understand that service is inseparable from the product and the best service is consistently good, (Kerin, Hartley, Berkowitz & Rudelius, 2006). One of the things that attracts customers to branded products is the expectation of service and quality that comes with that brand. Classic must make its mark on that service and come up with inventive ways to offer services that do not cost a lot of money as Delta did for a vast number of travelers that were inconvenienced by weather.

The alliance with Skyway will be investigated further to determine the benefits Classic can reap through the alliance. It will offer some additional flights and increase the hotels and other travel services for Classic’s Rewards.

The Classic Rewards system must be improved to meet the needs of the travelers. Marketing will propose a plan that includes improved miles earnings and improved miles redemption options. Increased numbers of seats per flight will be available for redemptions and more flights will be included for customers with a high level of miles. In addition to plane tickets, the places, (Kerin, Hartley, Berkowitz & Rudelius, 2006), that miles can be redeemed will be improved with alliances with more hotels and car rental companies. The Marketing Group can be inventive with promotions for extra miles and other bonuses at times when travel would normally be slow or passenger loyalty is waning, (Kerin, Hartley, Berkowitz & Rudelius, 2006).

Make a plan to improve the use of the CRM system and present the cost as part of the package. The system must be more usable for customers and track the rewards program.

Strategic marketing has three key stages. These include planning, implementation and control. The control phase is the process that compares the results of the marketing plan with the goals that were established. Depending on the company these goals are varied. Established goals could be increasing profit, sales, market share, quality, customer satisfaction, employee welfare, or social responsibility. The goal may be any of these individually or a combination of one or more (Kerin, Hartley, Berkowitz, & Rudelius, ch 2, 2006). During the process of identifying goals, the company must determine how those results are going to be measured. Some sort of metric gathering tool should be used. If the goal is to increase customer satisfaction, the use of questionnaires or surveys could be used. If the goal is to increase profit, financial records and statements could be reviewed. Whatever method is used, the information must be clear and unbiased. It should not be subject to bias or subjectivity.

For Classic Airlines, the goals of the marketing division are clear. The marketing department has been given a goal of reducing their cost by 21.5% over the next six quarters. The expected results from the change in the Classic Rewards Program are a 15.1% increase in program membership and a 28.9% increase in total flights by classic rewards members. These increases are the percentage change expect over the totals from 2004 (MBA570Classic_Airlines_Datasheet(1), 2008). In addition to these mandated goals, a review of customer and employee satisfaction surveys shows that work to improve satisfaction levels with both of these groups should be done. Classic already has established metrics for the rewards programs, total flights taken by members and numbers of rewards members, simply tallying these results for the upcoming quarters will determine if the processes and marketing plan implemented are working. Classic should not wait until the end of the quarter to review these metrics. The company needs to monitor these metrics. Early review will be able to determine if the process is beginning to work. In the event that a trend is found that will not allow marketing to meet the goal, changes can be made early.

Classic already has an established survey program for exiting employees and customer calls are monitored and recorded. The employee surveys should be given to all employees, not just the ones that are leaving. By providing this survey, and addressing the concerns, employees may be retained at a greater number, and overall they will be happier. Changes need to be made. The questions need to be answered. Why indeed, if the company is concerned with customer satisfaction does it matter how long a phone call lasts? There may have to be a complete change in the corporate philosophy. Once the initial surveys are processed, and any changes identified have been made, after surveys can be done and reviewed in 3 and 6 months increments to determine if there has been an increase in employee satisfaction. These surveys are not quantitative so a number will have to be assigned to each response and a goal established. As an example, a question which asks employees, “Would you recommend Classic Airlines as an employer?” The goal for this could be an increase in yes answers by 25% (MBA570Classic_Airlines_Datasheet(1), 2008).

Classic Airlines is in a situation that requires changes in the philosophy of management, the way the company handles its CRM process, employees and its rewards program specifically. An excellent place to start this change is by reviewing comments of exiting employees. As one employee mentioned, “Either get rid of the supposed CRM system, or get it straightened out fast. We spent an unbelievable sum of money to implement one of the best platforms available, and we couldn't (or wouldn't) spend the extra little bit to fit the system around the needs of our customers. I was in the dark in the early stages of the implementation, and by the time my input could have changed the way things came out, the software was too far along to be changed. For starters, you've got to capture customer contact at all points of interaction with the company to provide the proverbial "360-degreee view of the customer". Until that is addressed, all you've really got is an expensive reservations system, and not even a good one at that.” (MBA570Classic_Airlines_Datasheet(1), 2008). This is a very telling comment, and one that directly addresses a wide ranging issue with Classic Airlines and their CRM program. Another area that the company can get insightful information is from the call monitoring transcripts. Some of the customer comments show a disparity between the rules of the frequent flyer program and what is being advertised. They also give some ideas for opportunities the company might consider. One customer mentioned that perhaps a rule could be changed since he flew twice a month on average (MBA570Classic_Airlines_Datasheet(1), 2008). This might be a way for the company to implement an additional reward that would make other frequent flyers move to this company. The bottom line is this is an opportunity for the company to increase their customer base. All it has to do is truly listen to the customer. The future of travel is bright. Airline travel is expected to increase dramatically, and double by 2017 (Future of Travel, Plunkett, 2007). Classic Airlines is still competitive. However, if the company does not start listening to the customer, if they do not in fact, implement and use the CRM process, it will not remain that way and could very well face eventual bankruptcy.

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