Marketing Solution for Classic Airlines - Essay Example

? ic Airline Case Analysis of Introduction This report is a critical analysis of the marketing department of Classic Airlines. The report will critique the main marketing problems and issues with the airline through the Root Cause Analysis model. From there, the model will be used to define a solution and this will be applied to the situation at hand. For the purpose of this discussion, the marketing unit will involve the way of identifying and meeting human needs (Kotler & Keller, 2006). The strategies used and approaches employed will be evaluated. As per the case study, the firm is losing its profitability and faring really poorly against its competitors. Customer retention rate is poor and the service is very inadequate. Root Cause Analysis Model The Root Cause Analysis (RCA) model is used in internal audits and other problem detection fields. It is “a research-based approach to identify the bottom-line reason of a problem with root cause representing the problem” (Mainardi, 2011: p180). It involves a structured investigation into a given problem to ascertain the true and real cause of a given problem (Anderson et al, 2009). This is done to ensure the continuous improvement in the quality and systems of a given organization. Root Cause Analysis is a practical transition from the apparent cause analysis to the examination and critique of the root cause of a given problem. This involves the identification of the actual causes in order to find the intermediate causes and from there, detect the root causes (Lorenzo and Hanson, 2008). Issues in Classic Airline's Marketing Unit From the case study, some apparent causes and issues are identifiable in Classic Airline's marketing unit. In order to identify it and critique it better, it will be worthwhile to identify the apparent issues, the intermediate issues in order to identify the root cause. A. Apparent Issues Profitability Classic Airline's profits over the past year has fallen at a fast and sudden pace. This shows that there is a major issue somewhere in the company. The company's profit margin was just 0.11% as opposed to the average industrial margin of 5.1%. This indicates that the company is not doing so well in the industry. Competitive Position The airline industry in the United States and beyond has come under immense restructuring. The deregulation of the markets and the integration of small carriers and other overseas investors has led to price wars and other competitive restructuring. Classic Airline's extremely low margins give a strong indication that the airline is really losing out in the competition presented by the other airline companies in the industry. Market Share Issues The failure to compete on the markets have led to a sharp fall in the market share that Classic Airline controls. There customer retention of the company has been weakened by the competition posed by other companies. This is because their current reward program has lost as much as 19% of its members, which has culminated in the reducing the flights of the company by as much as 21%. B. Intermediate Issues Areas of Interest: Marketing Alliances & Restructuring of Marketing It has become almost apparent that the firm needs to restructure its marketing units, the marketing structures and the marketing alliance programs. This is meant to correct the wrongs in the company and also retain some degree of stability. This has created two issues which also needs to be examined and resolved from the root-cause approach. Cost Structure Issues The quick and aggressive growth of the firm has been identified as a major cause of issues with the company. The reduction of the cost budget by a whopping 21.5% and the reduction of budgets in other departments is one of the apparent issues. It will therefore be worthwhile to identify the impact of this reduction and the best way of soothing its effects and correcting its issues. This include amongst other things, infighting amongst the executive managers, and the reduction in important units like: 1. Service units, 2. Operation procedures 3. Marketing programs. 4. Poor CRM and its underutilization. Application of RCA to the Problems The critical review of the root cause analysis culminated in the following fishbone diagram which sums up the marketing and corporate issues. Diagram 1 shows the marketing problems at the top of the fishbone whilst the strategic and corporate issues that contributed to the marketing problems are shown at the bottom of the fishbone. Diagram 1: Fishbone Diagram of the Classic Airline RCA The diagram above sets the pace for the discussion of the problems that have contributed to the issues at hand. This will be critiqued from an evaluation of different matters that contributed to the issues at hand Central Issue The main problem that has created the entire issue include the limited resources and the poor performance of the marketing department in the 2003/2004 period of Classic Airlines. These challenges stem from the fact that the company cut down spendings drastically. These issues led to a pattern of losses in the off-peak periods. This is evident in the fact that profits in these two years under review are were not evenly distributed. The company made losses in January through to April. However, in the summer months of May, June and July, the company made profits. This was followed by months of losses and then a short period of profits in November and December where traveling increased. This shows that their travelers are seasonal and the targeting of business travelers is not really yielding results. This is because leisure travelers often want to use an airline in the high peak period. And the distribution of business travelers in off-peak periods brings in highly limited profits. This leads to low levels of profitability on the annual basis for both years. Also, investor confidence is falling. Stock value fell from almost $37 in June 2003 to $33 in December 2003. It began to rise in June after the good performance in November/December, however, it continued to fall from January when profitability fell. The profits begun to rise again in summer 2004 when profits increased. This shows a pattern which indicates that the company's programs in off-peak periods are not working adequately. The following matters can be seen as the root causes. Reduction in Marketing Budget The systematic reduction in the marketing budget meant that some activities in the marketing department had to be cut. This was done consecutively and the percentage increased over a series of months. Due to this, it was natural that some activities that the marketing unit carried out in the previous period had to be foregone. This showed itself significantly in the reduction in the customer loyalty membership issues. Customer Loyalty Dissatisfaction The reduction in the marketing budget showed that there was a major constituents of the customers who were dissatisfied by the adverts and other promotions of the company. This is evidenced in the survey conducted on the market trends. Consequently, there was a sharp fall in customer loyalty membership from the fourth quarter of 2003. This continued throughout 2004 where customer loyalty fell gradually over the years. Although prices were reduced to meet the competition, customer still turned their backs on Classic Airlines. Poor Segmentation The customer segmentation is somewhat rigid. The assumptions that are made in placing customers into business travelers and leisure travelers are extremely stereotypical. It excludes important constituents like young and junior executives who are likely to rise to be loyal business travelers. They might not form part of the business traveler group now but they have a lot of potential. Leisure travelers have different tastes and preferences and they could be given more specialized promotions. Poor CRM and Customer Service Customer relations is a major aspect of the marketing department that has a serious problem which adds to the overall issue. First of all, the customer service unit works according to extremely rigid rules. Some of the customer care staff members act unprofessionally. Some are too quick to finish up with customers due to the rigid rules and acting as strong gatekeepers whilst others spend too much time. There is the need for restructuring. Corporate Cost Reductions & Refocusing on Operations There has been a systematic reduction in the costs of operations of the firm. This has led to major problems which include the excessive spending on the operations unit at the detriment of the marketing department. This has caused the company to shift to operations and satisfy the unionized operation workers to the detriment of the marketing unit which sells the service of Classic Airlines to members of the external environment to realize profits. Poor Linkage to Global Allies The company has not really had a strong linkage to a global alliance that helps it to attain some residual income and build a strong network. It is currently connected to just six hotels which members must patronize in order to attain points. This is very limited and there is potential for some global network and alliance that will expand the reach of the airline and enable consumer needs to be met in a more thorough manner. Recommendations In order to deal with the problems, the following pointers are recommended for the management of Classic Airlines to consider in order to rectify the issues at hand: 1. Increase sales in off-peak periods and strengthen volume of sales in high demand periods: From the analysis of profits and stock values, it is apparent that the company's sales go rocket-high in high peak periods like summer and the last two months of the year. At these times, the company must find ways of promoting their services to enhance sales and vary prices to keep customers interested in their services. In the off-peak periods (January to April and August to October), the company needs to find ways of attracting customers. This means that the resources for marketing must be invested wisely. There must be flight reductions and attractive offers that will entice members of the public to fly with Classic in off-peak periods. Also, events relating to business travelers should be guided closely and arrangements must be made to target these travelers in such times. This way, the company's limited resources for marketing will be invested more carefully. 2. Increase in Marketing Budget: It is clear and apparent that the reduction in the budget for marketing has had an adverse effect on the company's performance. This implies that the company will have to rescind its decision and spend more on marketing in a time where competition is so rife. Thus, it is recommended that Classic increases its budgetary allocation for the marketing department. In order to ensure the optimum use of resources, there must be a system where the company will have to increase its marketing in response to changes in demand and reformation of the loyalty program amongst other things. This will ensure the efficient use of working capital. 3. Realignment of Customer Loyalty Program: The customer loyalty program needs to be reviewed critically. It appears that that customers are not so happy about the kind of offers that are made. The survey conducted shows that the company has a limited appeal to customers and most customers fly Classic Airlines between once and 7 times a year. Hence, they are not likely to meet the high demands for loyalty rewards. It is important for the company to create a system that will reward people who fly as few as three or four times in a year. This will encourage many potential passengers to get interested in the company. 4. Improvement of Segmentation: There should be more classes of customers in the company. The two classes (Business and Leisure Travelers) should be further divided to reflect the different demands and requirements of consumers. Also, the new segmentation should reflect in changes in seasonal demands. 5. Re-engineering of the CRM and Customer Service Units: The company should improve its CRM system by changing the software and systems. Also, the customer service unit must be given some more autonomy to help customers to attain better results and also get training so that they improve their service to customers. 6. Global Alliance: The company must consider ways of linking the company to a stronger global alliance. This will help Classic Airlines to get access to a larger market base and enhance its exposure and earning capacity. Conclusion Classic Airline has major issues which can be traced to the discrimination cost reduction in the marketing unit, poor segmentation and poor operations of the customer loyalty programs and poor CRM and customer service. This has led to loss in customer interest and high levels of loss in off-peak periods. It is recommended that the company increases sales in off-peak periods by varying its offerings and also increase its marketing budget in response to changes in demand around the year. The customer loyalty program must be realigned and segmentation must be improved. Classic Airlines must improve its technology for CRM and improve the training of customer care staff and also join an appropriate global alliance. References Anderson, B., Fagerhand, T. and Beltz, M. (2009) Root Cause Analysis and Improvement in Healthcare Sector New York: ASQ Quality Press. Kotler, P., Keller, K. (2006). Marketing Management New Jersey: Prentice Hall. Lorenzo, D. K and Hanson, W. E. (2008) Root Cause Analysis Handbook: A Guide to Effective and Efficient Performance Brookfield, CT: Rothstein Associates Inc. Mainardi, R. L. (2011) Harnessing the Power of Continuous Auditing Hoboken, NJ: John Wiley and Sons Read More