Internal and External Pressures: Classic Airlines - Case Study Example

Week Three Individual Paper: ic Airlines Connie Johnson May 16, of Phoenix ic Airlines is a company in the airline industrywith over 25 years of experience. The firm has an operation that includes 2300 daily flights across 240 cities. The firm has a global workforce of 30,000 employees. Due to the size of the company it is imperative for this firm to invest its marketing dollars well. The airline industry is an oligopoly. Oligopolies are characterized by having a limited numbers of participants in a market structure that has a medium level of price elasticity. Since there are few competitors companies tend to react to changes in prices of other airlines. The airline industry has been in a cost savings mode for several years. Since 2002 the number of people working in the airline industry has been reduced by over 150,000 workers (Plunkett Research, 2011). The revenues generated by the industry in the United States are significant. According to the USTA the airline industry in the United States generated $704.4 billion (Plunkett Research, 2011). It would be in the best interest of Classic Airlines to increase its market share in the lucrative US travel marketplace. In the past Classic Airlines made the mistake of pursuing an aggressive price discount strategy. The results of the lowering the price strategic approach were not favorable. Drastic price reductions in an oligopoly place the entire industry at risk of a price war. In a price war all the participants lose due to the fact that the profit of the entire industry goes down. Internal and External Pressures Classic Airlines is currently facing a lot of pressures from different stakeholder groups. The company has stayed profitable, but its margins are extremely thin. Last year the company generated $10 million in revenues which seems like a nice figure, but considering the firm generated $8.7 billion in sales its net margin was very low. The net margin of the company was 0.11%. The industry standard net margin in the airline industry is 2% (Dun & Bradstreet, 2011). The shareholders of the company are putting pressure on the management staff to improve the results of the corporation. Due to the weak financial performance of the company the price of the common stock of Classic Airlines has been going down. One of the objectives of any public corporation is to maximize shareholder’s wealth. The company also faces pressures from its customer base. The customers are not very happy with the company. A metric that illustrates the current situation the company is facing is the fact that the firm’s customer loyalty program has lost 20% participation during the last year and the frequency of purchases of the customer has also gone down by over 20%. One of the primary reasons the company’s financial performance has been weak is due to the fact that the company has lost a lot of returning customers. The customer retention rate of a company is a very important marketing metric. The company lacks the service elements, operations procedures, and marketing programs to satisfy the customer’s needs. In the business world the customer is the most important stakeholder group because companies depend on the customers for its revenues. A third stakeholder group that is facing pressures due to the current situation at Classic Airlines is the employees of the company. The firm is currently having major employee morale problems as morale is as low as it has ever been. When employees have low morale they lose their motivation and as a consequence their performance and efficiency suffers. It is important for the managers of companies facing morale problems to demonstrate strong leadership. The low morale of the employees is negatively impacting the customer service function of the enterprise. One of the critical positions in regards to customer service is the flight attendants. Their job is to make the customer feel comfortable during the entire flight. Objectives and Obstacles of Marketing Department The objective of the marketing department of Classic Airlines is to serve the customer needs and to optimize the revenues and profitability of the company. The net margin of the company is 1.9% below the industry average. The marketing department faces other obstacles. The department is currently facing a lot of internal pressures, but there is a lack of cooperation within the company. The attitude of the executive staff towards the importance of marketing is a major concern. The CEO of the company categorizes marketing as a soft discipline. Some of the other executives also have a bad perception about the importance of marketing. They believe that money spend on marketing is a waste of resources. The company faces symptoms associated with resistance to change. Resistance to change causes problems in organizations because when there is resistance to change corporations do not apply creativity or innovation. The executives of the company are stuck thinking about old ideas. One of the executives believed that the only solution for the firm is to reinvest in the fuel hedging program. Fuel hedging can bring some savings, but it does not compare to the potential benefits that marketing can bring to a company. One of the biggest benefits of a properly implemented marketing campaign is that it increases the revenues of a company. The chief executive officer of the company does not believe much in marketing. This person believes that operations and processes are the lifeline of a company. Kevin Boyle, chief marketing officer, received a call from a colleague offering the opportunity for Classic Airlines to join another firm in the airline industry to form a marketing alliance. The obstacle that Kevin faces is that the CEO is completely against alliances. In the 25 year history of the company there has never been a marketing alliance at Classic Airlines. The CEO thinks that the firm is better off doing things themselves. In the competitive airline industry where margins are very thin joining forces with the competition is a very smart move, but according to the CEO the company is better off flying solo. Kevin and the marketing department face the obstacle of limited financial resources. The company has an initiative in place that stipulates that all departments are going to receive a 15% reduction in their budget. Based on the fact that the company needs to improve its sales, customer retention, customer service, and profitability the firm should reconsider cutting the marketing budget. The problems the company faces can only be solved by applying a sound marketing strategy. The company needs to reconnect with its customers. An additional obstacle the company faces is the poor utilization of the CRM system. The company is using the CRM system to minimize its contact with the customers instead of using the system to improve the customer relations. The marketing department also has limitation in regards to the pricing strategy the firm can implement. The company a few months ago lowered the prices of its airline tickets too much. Now the firm does not have any flexibility in terms of price because if the prices go down any further the inevitable consequence is that the company will suffer operating losses. Marketing Resources Available Classic Airlines has one of the best marketing minds in the airline industry in its chief marketing officer Kevin Boyle. Kevin has over 15 years specialized experience in the airlines industry. He has been with the company only six months and during that time he has been observing, listening, and speaking with Classic’s employees, customers and shareholders. He has spent enough time with the company to realize the steps that need to be taken to turn things around. Kevin needs the support of the rest of the managerial staff in order to be able to implement the changes that are needed for the company to recapture its lost customer base. Another resource of value that Classic Airlines has at its disposal is an excellent CRM system. Firms often use their CRM system to improve its relationships with the customer. Problem Statement Classic Airlines has been losing a lot of recurrent clients during the past year. The customer rewards program of the firm has become a disaster. Due to the lower revenues and the price war that the industry faces Classic Airlines profitability has gone down significantly. The corporate culture of the company does not value the importance of marketing. A problem statement that summarizes the situation is: Classic Airlines needs to find a way to reconnect with their customers in order to increase sales volumes and customer retention. Alternative solutions with justifications Classic Airlines faces serious customer relationship problems. The company needs to think outside the box in order to change the current path of the company. An alternative solution that can help bring back customers to Classic is to formulate a marketing alliance. The firm already has an offer in place from Skyway Airlines. Skyway has a wide variety of customer rewards in place which is a weakness Classic currently is facing. Marketing alliances can bring lots of benefits for participating companies. They are used in the business world in different industries. The fast food giant McDonalds has often teamed up with Disney to offer products related to current Disney films to people buying its food (Kotler, 2003). To implement this plan the first step is for Boyle to take a one on one talk with the CEO of the firm. In this meeting Boyle has to convince the CEO to change his stance in regards to alliances. Kevin has to emphasize the fact that this solution can be implemented with a minimal investment. Due to the fact that the company faces budgetary constraints such a solution would be ideal for the firm. The use of a marketing alliance can help the company improve its promotional efforts. Marketing alliances are considered a low risk proposition. The alliance should be set up in a manner that Classic Airlines retains flexibility in case the alliance does not work. The company must have an exit clause which would allow the firm to break the alliance. Two successful companies that in the 1990s formed a marketing alliance to improve the service they provide to their customers were IBM and Apple. The alliance was set up to serve the increasing customer need to create linkages across computer systems (Bucklin, 1993). A second alternative solution for Classic Airlines is to design a new marketing module to be added to the company CRM system. This solution can be implemented very easily since the firm already has a good CRM platform in place. The new module would be used by the marketing department to track the customer buying patterns, to improve communication with the customer in order to determine their specific needs, and to manage the customer rewards program. To implement this solution the company should hire an information system consulting firm. Kevin Boyle would work closely with the consultants in order to design the module in a manner that it provides the maximum utility for the company. The greatest benefit of this strategy is that it would enable the company to obtain the primary data it needs to determine the customers’ desires and needs. The firm should use the CRM marketing module to obtain as much feedback as possible from its customers. The company should implement a hosted CRM system. ARM Systems estimates that 40% of companies in the industry are using hosted CRM (Crm2day, 2011). A hosted CRM system differs from traditional CRM in that the applications are hosted over the web. This reduces costs and improves the accessibility and efficiency of the system. Conclusion Classic Airlines is the world’s 5th largest airline. The company has rich history of success since its inception 25 years ago. This firm just like many other companies in the marketplace lost touch with its clientele. The firm cannot afford to continue to disregard the desires of the customers. The firm lost a lot of returning clients which really hurt the profitability of the firm. The 80/20 rule states that 80% of your sales come from 20% of your customers. Base on this reality companies such as Classic Airlines must emphasize the importance of customer retention. The two solutions that were identified in this paper to solve the problems at Classic Airlines were to formulate a marketing alliance with Skyway Airlines or to develop a marketing module for the firm’s CRM systems. Both solutions are viable alternatives for the firm. For the proposed solutions to work effectively the CEO of the firm has to empower Kevin Boyle. The culture of the company has to change in regards to the firm’s attitude towards marketing. If the firm chooses the marketing alliance it would be a great achievement since the firm has never entered into a marketing alliance with a competitor. The CRM solution is also a great potential initiative for the firm due to the fact that the company would meet the objective of reconnecting with the customers through the use of the CRM system. References Bucklin, L. (1993). Organizing successful co-marketing alliances. Journal of Marketing 57(2), 32-46. Retrieved May 15, 2011 from http://groups.haas.berkeley.edu/marketing/PAPERS/PBUCKLIN/organ.txt Crm2day.com (2011). AMR Research Finds that 40% of Companies are Using Hosted CRM Applications. Retrieved May 16, 2011 from http://www.crm2day.com/content/t6_librarynews_1.php?news_id=114408 Dun & Bradstreet (2011). Key Business Ratios: Transportation by Air. Retrieved May 15, 2011 from Dun & Bradstreet database. Kotler, P. (2003). Marketing Management (11th ed.). New Jersey: Prentice Hall. Plunkett Research (2011). Airlines, Hotel, and Travel. Retrieved May 15, 2011 from Plunkett Research database. Read More