Classic Airlines is going through a period that will shape the future of the company. The competitive landscape is evolving and operations and marketing have not kept pace meeting the needs of their target market. As a result some of their key stakeholders and loyal customers have been attracted to the services of competing airlines. This has had significant implications on the bottom line as the organization has been impacted by poor sales and decreased revenues. Additionally, the company has simultaneously had to deal with negative publicity, declining stock prices, as well as increasing prices for fuel which has affected the entire industry.
Classic Airline's executive management team has mandated that a fifteen percent cost reduction is vital to stabilize the position of the company and should be executed within the next eighteen months. To examine the current position of the company a nine step decision making tool was applied to circumstances and it was Airlines that Classic must make two primary restructuring efforts. First, the company must redesign the frequent flyer program to improve customer satisfaction. Additionally, the company should create a strategic partnership with Skyway Airlines or a similar organization to collaborate, share costs, and leverage any potential synergies that might be available through such a partnership.
Description of the Situation
The first step in the analysis is to create an accurate description of the situation in order to be able to correctly identifying the central problems that need to be focused on. Classic Airlines has built its enterprise up to be the fifth largest airline in the world. The airline can boast a fleet of close to four hundred jets flying to over two hundred major cities and operating well over two thousand flights daily. The employee base of Classic Airlines consists of over thirty thousand employees and the organization generates close to nine billion dollars in revenues. However, despite the precious success that the company can claim it is currently facing new challenges that are related to declining share prices, increased fuel expenses, and diminished customer loyalty.
Rewards programs have achieved a popular following in the industry. Although Classic Airlines offers a rewards program to its frequent fliers however this program is problematic in relation to the competition. The program is a complete mess in its current state and is responsible for a vast amount of customer dissatisfaction. Despite efforts to integrate a customer relationship management (CRM) software suite to manage the program, the system does not collaborate between web and telephone data entries and these results in a duplication of records which has led to inaccurate customer accounts. Fixing the frequent flyer program is one of the most pressing issues that marketing must address.
Identifying the Correct Problem
The company faces many issues simultaneously. One of the largest impediments is the frequent flyer program. This program is not only deficient compared to the competitions programs, but it is also ineffectively managed. Classic Airlines holds ten sets for their frequent fliers to reserve per domestic flight and some international flights do not offer any seating at all. There are also scheduling restrictions which include blackouts during heavy traffic periods such as holidays. Companion tickets, as a rewards option, can only be redeemed once in every two-year period and the company even requires points be used for options such as pre-boarding. These issues in the frequent flyer program are part of the reason why the company is no longer competitive.
The mismanagement of the program has also produced substantial negative press and dissatisfied customers. This has in turn led the company's employees to have low morale. Employees are not given authority to address many of the customers' issues and have to deal with persistent negative feedback from the company's customers. Therefore not only are the customers frustrated but the employees become frustrated as well. The system that they are using is not functioning properly and the employees are not given the tools necessary to take care of the customers.
The CRM system has created as many problems as it was meant to address in regards to maintaining customer service. Much of the system's functionality isn't being used and the system needs to be expanded. The system does not currently exchange data from customers who call in and those who use the web services. This makes it impossible for customer service representatives' access accurate records. Unfortunately the company has not taken advantage of any cost savings opportunities that could allow them to share costs with a strategic partner.
Furthermore, the company's executive management and the marketing department are not working together effectively. As opposed to supporting the marketing team with what they need to add value to the brand and differentiate its services, the executive management team has focused more on reducing flight costs to consumers to generate sales. Yet this strategy has led to a price war between Classic Airlines and its competitors. This has made the competitive environment extremely cut-throat; especially because of rising fuel costs.
Describe End State Goals
The case provides examples of the specific types of customer dissatisfaction that are evident from the feedback generated from customer interviews. Much of the dissatisfaction was targeted directly at the customer rewards program. A significant majority of the customers who participate in the program would not recommend it to a friend (sixty eight percent). Over half of the customers interviewed were also dissatisfied with the options for redemption that were available to them while another fifty one percent were dissatisfied with the service upgrades that they received. The improvements that need to be made in regards to customer service should be based upon the issues voiced in the interviews.
Customers are not the only source of discontent in the case. Employee exit interviews indicate a high level of frustration regarding their ability handle customer complaints. Many employees do not have the authority to handle complaints. Even though the employees responded that most were satisfied with their salaries, there was still a high turnover rate. Many employees accepted an offer from the competitor despite the fact that the offer included a comparable compensation package. Employees who have left the company have resulted in higher recruitment and training costs which also have negative financial effects on the company. The discontent that is present among the customers and the employees is directly related and the company must address both issues together to develop a solution to the present situation.
There are many different alternatives available to Classic Airlines. However, much of the debate centers on what role marketing should play in the organization. For example, if the low cost leader strategy to retain customers then the company should focus on lowing costs beyond all other considerations. However, if the company wishes to create value through customer service and marketing then it should act to differentiate its services. The company could use its marketing department and revised rewards benefits to drive more sales revenue then this has a different set of solutions that should be implemented. Therefore the central question involves where the company wishes to position itself in the marketplace.
If the company wants to focus on the low cost leader approach to continue driving revenues then there are a number of examples that are available. Southwest Airlines, one of the most admired companies according to many rating systems, had to deal with many of its own problems relating to its rewards program. After September 11th, 2001 the company decided to alter the rewards problems because fo the new security requirements. After making changes to the system, many of the loyal customers were confused and irritated in the changes (Richardson, 2011). Before this change, some referred to Southwest model as "radically egalitarian" because it valued each flight as equal and after eight flights a frequent flyer would earn one free flight (Richardson, 2011). Southwest's customers valued the simplicity of the program and did not accept the changes well.
Southwest also has many other unique approaches to keep costs down such as only using the Boing 737. Using a fleet of identical planes adds a level of simplicity to operations because all of its parts and maintenance procedures are the same across the entire fleet of planes (Stevenson, 2012). Southwest also prides itself on providing a "dedication to the highest quality of Customer Service delivered with a sense of warmth, friendliness, individual pride, and Company Spirit" (Southwest, 2012). It empowers its employees to make decisions on the spot so that they can maintain a high level of customer service. If Classic Airlines wishes to become the low cost leader it can use the Southwest model for inspiration.
Identify and Assess Risk
There are many risks involved with trying to be the low cost leader. There are other low cost leaders who have already perfected the model, such as Southwest. Given the circumstances, it would be hard for Classic Airlines to compete on this level. Furthermore, it is not the ideal time for such…