Describing the Situation
An examination of the case study shows that Classic airlines has experienced a considerable decline since January 2005 wherein it has experienced a decrease in not only the amount of passengers that have subscribed to its “Classics Rewards Program” but also in the number of repeat passengers that are already part of its loyalty program (University of Phoenix, 2011).
Such a decline is indicative of competitive pressures squeezing its current consumer base to the point that many are choosing to fly with the company’s competitors. A loyalty program can be described as a structured marketing effort meant to encourage loyal buying behavior towards a particular service or product.
It is utilized as a means of increasing sales by ensuring that a client/customer will continue to come back to that particular company in order to patronize what they are selling.
For the airline industry, loyalty programs come in the form of frequent flyer miles wherein a certain number of miles per year (i.e. 25,000, 50,000, 100,000 etc.) that are accumulated with a carrier become redeemable as either a free trip, a hotel stay, or can be exchanged for various goods or services (University of Phoenix, 2011).
One common theme seen through the loyalty programs of airline carriers is that the benefits accrued through such programs increase based on the amount of miles flown with that airline. Since there are a certain amount of miles that need to be flown to be eligible for certain benefits, this encourages customers to stick to a particular airline over a prolonged period of time in order to avail of them.
The problem with Classic’s current loyalty program is that it simply is not effective enough in ensuring sufficient consumer patronage. While the company is profitable, it is literally bleeding customers and losing stock value. As such, a solution must be developed to create a stopgap measure to keep its current customer base and increase it in the near future.
Defining the Problem
Within Classic Airlines, there is apparently a chasm of interest between the different “camps” among its key players which has bogged down the ability of the company to focus on a specific solution that would resolve the its current problems.
Amanda Miller, the Chief Executive Officer (CEO) of the company and Catherine Simpson, the Chief Financial Officer (CFO) are numbers oriented and perceive that a “numbers oriented solution” (i.e. cost cutting) would enable the company to become more profitable (University of Phoenix, 2011).
On the other end of the spectrum is Kevin Boyle, Chief Marketing Officer (CMO) who views better marketing initiatives and marketing alliances as the best way of resolving the company’s problems.
Other opposing viewpoints come from Renee Epson, Senior Vice President of Customer Service who views improving the customer service system of Classic as a way of improving the ability of the company to better connect to its customers which John Hartman, Senior Vice President, Human Resources agrees with (University of Phoenix, 2011).
These contending solutions and viewpoints have backlogged the ability of the company to actually formulate a sufficient plan to resolve its current solution. What is needed in this case is the development of a plan that can satisfy the multiple viewpoints that have been raised while at the same time enabling the creation of a solution that can actually work.
Defining End State Goals
The end state goal of this paper is to create an effective solution that resolves the problems of the company while at the same time addresses the various concerns of the stakeholders that are involved.
Developing Alternative Solutions
Alliances between Carriers
One possible solution the current problem of the company is in the development of alliances between it and a top Latin-American carrier. Alliances within the U.S. airline industry are fueled not only by financial troubles faced by several of the major airlines but also their desire to expand into international markets.
In fact, as the case implies, numerous other airlines have developed marketing alliances from which they have greatly benefited. What must be understood is that increasing gas prices, coupled with intense rivalry and the fact that consumers do not see a difference between one airline or another results in passengers effectively being split up between airlines resulting in fewer passengers per flight and greater operational costs.
The only way this could be resolved is for several airlines to create alliances so as to create a single point of entry for travelers thus alleviating the cost related taking off with only half a passenger manifest.
Implementing a Low Cost, No Frills Service
The current problem with the airline passenger market within the U.S economy is the fact that consumer spending is at an all time low due to the present day economic downturn.
Unfortunately, the inherent problem with the current situation is that it creates a vicious cycle wherein low consumer spending results in companies reducing various aspects of their operational capacity (i.e. manufacturing of products, low level employees etc.) in order to remain in business which results in even lower consumer spending since people do not have jobs to support themselves anymore.
Based on the case data, it can be seen that there are distinctly two types of carriers within the aviation market today: legacy carriers and low cost carriers. Legacy carriers are composed of some of the oldest airlines within the industry today or are a result of subsequent mergers and acquisitions over the past 2 decades (ex: United Airlines, U.S. Airways etc.).
Low cost carriers on the other hand have actually come about rather recently and are defined by their no frills, low cost, and above all lean business models that emphasize savings for clients.
While LCs (Legacy carriers) continue to be the dominant form of travel, LCCs (low cost carriers) have been noted as continuing to eat away at their market share due to recent trends in consumer purchasing behavior wherein affordability has been at the forefront of their purchasing decisions given the nature of the current financial environment (which is still reeling from the 2008 financial crisis).
When taking into consideration the declining amount of repeat customers from Classic’s loyalty program, this is indicative of more consumers turning towards more affordable travel solutions as compared to Classic’s offerings given the current economic situation of the U.S.
Focusing on Improving Current Customer Service Processes within the Company
The last solution to this problem would come in the form of developing better customer services of the company by first enhancing its current automatic voice messaging system and increasing the number of trained representatives to help customers with their various problems.
Analysis of Alternative Solutions
When examining the various solutions that have been presented, the implementation of a low cost no frills service seemed to be the best most effective method of resolving the company’s current problem. The reasoning behind this is due to the level of uncertainty found in the other solutions.
For example, in the case of creating an alliance with a leading Latin America airline carrier, there is no clear evidence to support that such a move would be beneficial for Classic given the lack of data from the case that shows increased amounts of travel to that part of the world.
In the case of applying better customer service procedures, there is still a level of uncertainty as to whether or not it would be effective especially when taking into consideration that more customers are looking towards price rather than service. It is based on this that developing a no frills low cost airline program would be able to show a measurable method of determining the effectiveness of the program.
Risk Assessment and Mitigation
Through an examination of the various factors behind the proposed solution, the following risk factors have been identified:
- The possibility that customers will not know about Classic’s low cost, low frills program
- That business class customers will leave Classic since they prefer service over low prices
In order to mitigate these risks the following solutions have been developed:
- To prevent business class customers from leaving the airline, the low cost, low frills program will only be implemented on a select number of flights while other flights will continue offering the same price offerings and services.
- Extensive promotion campaigns will be implemented to ensure that current and future customers of the company will be aware of about Classic’s low cost, low frills program.
Selecting the Final Solution
Income should be a deciding factor when it comes to airline loyalty programs. Such a conclusion is in line with the theory of consumer behavior that shows that price and not necessarily amenities is a deciding factor when it came to influencing consume purchasing decisions.
The theory of consumer behavior also happens to state that as price no longer becomes an issue towards the fulfillment of the total equity in the consumption of a particular product or service, consumers turn towards quality and other additional benefits that they may derive from patronizing a particular product (Kotler & Keller, 2006).
This can be seen in the case of business passengers and their preference for amenities and service quality over price. However, based on the case data, when it comes to leisure travelers it can be stated that airline loyalty programs are an effective means of encouraging patronage only when cost does not factor in to the consumer decision matrix.
Once cost enters into the picture, it s far more likely that consumers would avail of no frills travel options. Through such factors, the necessity of adjusting selling and pricing strategies in order to better match the needs of consumers is shown.
In the case of Classic Airlines at the present, low levels of economic activity at the present has created a situation where a large percentage of consumers are oriented more towards price rather than amenities and, as a result, this necessitates the need for Classic airlines to focus on developing a marketing strategy that focuses on showcasing low cost solutions for air travel to appeal to its current consumer base.
Developing the Implementation Plan
The implementation plan that should be considered by Classic when approaching the development of a low cost low frills marketing program is to take into account business cycles and market slumps and adjust prices accordingly.
As explained by Professor Leonard Lodish of the Wharton school of Business “pricing is a critical element of successful marketing, in good times and in bad and many companies do not focus enough on getting their pricing right”.
It is based on this and the cyclical cycle of business that Classic should consider proper pricing strategies when selling particular hard to move products. As such, the low cost program of Classic should coincide with dates where the company has experienced historic slumps in the number of passengers in order to boost its sales during slow periods.
Reference List
Kotler, P. & Keller, K.L. (2006). Marketing Management (12th ed.). New York: Pearson Hall.
University of Phoenix (2011). Scenario: Classic Airlines. Retrieved from University of Phoenix.