Classic Airlines Marketing - Essay Example

?RUNNING HEADER: ic Airlines ic Airlines BY YOU YOUR SCHOOL INFO HERE HERE ic Airlines The Problem In order to fully justify any changes to the current business model or to its branding strategies, it is necessary to utilize a nine-step problem solving model to improve Classic Airline’s competitive position. The first step is to identify the problem. In this case, there are two distinct problems. The airline is facing diminished customer positive sentiment about the brand, which is reflected in sales revenues and losses of brand loyalty in its rewards program. Those who maintain the rewards program are largely dissatisfied with the program concept and redemption opportunities (68 percent of those surveyed), which contributes to diminishing brand loyalty and word-of-mouth advertising potential. Further, the operating expenses associated with carrying out the services are very high compared to revenues. The highest is fuel, unfortunately the management team has already developed a hedging program and these cannot be reduced. Operations-based expenditures for Classic Airlines require reduction which may mean streamlining operations to adopt either a lean philosophy or change methodology of key operational characteristics at the firm. Based on the knowledge that the CEO does not appreciate or value strategic alliances and thus the marketing division will get no support with this option as a means of improving resources, the business must work with its fundamental strengths to improve operational systems for cost reduction. Having identified the problems, they must be framed effectively. The brand operates in an oligopoly where there are few competitors who dominate the market due to the high costs of entry into the market by competitors. In this market, competitive branding and promotion are some of the most fundamental methods to achieve competitive edge. However, in the conversations between management players, there is a generic recognition that the business has been unable to come up with satisfactory competitive strategies that differentiate the business from other airlines. The business requires differentiation through promotion and also a redevelopment of the current positioning strategy. 2. Solutions In terms of operating costs, the business should look at other models of operations by successful domestic and international airline companies to determine how best to reduce costs in key operational areas. According to the income statement, aircraft rent and aircraft maintenance have some of the highest costs, other than fuel, that contribute to the lower profit margin. This must be adjusted, which involves less reliance on marketing and more on technical and systems-based expertise to develop a new operational system. According to Aruan (2005), making the strategic decision to utilize only one particular type of aircraft gives the airline competitive advantage. In the oligopoly, switching costs for the aircraft manufacturer are significantly low as the manufacturer is able to provide its expert and unique services as they operate in markets with much less competition. Therefore, there are not opportunities for Classic Airlines to negotiate or bargain in the supply chain since the manufacturer is in a dominant position. By changing the procurement model, Classic Airlines can gain much more opportunities to bargain pricing and also take away the supplier advantage by providing more effective training to maintenance crews. Air Asia, a low cost, no frills airline, adopted this same procurement strategy and experienced considerable cost savings and buying power in the supply chain. Rather than being forced to rely on manufacturer expertise in maintenance, Air Asia was able to train its own staff to perform these functions. Having framed the problem, it is now time to decide on strategic action and plan for ensuring this is successful. Further, as it relates to the diminishing brand loyalty, Classic Airlines needs to change its positioning on the competitive market from quality to one factor that is unique from competition that the business does well. It is clear, based on the communications between management, that the business has a well-focused and team-based organizational culture. Classic Airlines should create a new promotional campaign that describes this cultural unity as reposition the firm as one focused on service through teamwork, thus related to efficiency. According to Komninos (2002), it is very difficult for a business to recognize that its product has reached maturity and is slipping into decline until it is too late. It is only through revenue analysis that the business realizes it no longer has growth potential with its current service or product. What this business requires is realignment to innovation in service delivery by using culture as its selling point, to create an entirely new image of the firm as it relates to efficient service delivery through dedicated and loyal staff members. This business operates in a mature market and there are many other competitors with rewards programs, large fleet capacity, and many other factors that Classic Airlines is attempting to use as differentiation. Under the current service delivery program consisting of rewards, the service is moving quickly into decline in the service life cycle. The goals achieved through this effort would be significant reduction in training for maintenance staff and applying long-term bargaining power that reduces costs and improves efficiency in procurement in the supply chain. The repositioning strategy would give customers the view that Classic Airlines is evolutionary and can be depended upon for its well-trained and dedicated team of service professionals. Significant cost reduction in operations, along with less expenditure in advertising the rewards program, would contribute to higher net income by removing some operating expenses. After having evaluated all of the alternatives in the nine-step problem-solving model, there is little that Classic Airlines can do other than to radically alter its brand image in order to build higher revenues and brand loyalty over the long-term. These alternatives included redesigning the loyalty program, which already has high negative sentiment, thus the program as it is linked with the Classic Airlines brand name is already damaged. It is clear from the survey data that many dimensions of perceived service quality need to be changed or promoted in order to undo some of this brand image damage. Another alternative was to raise prices to offset the high costs of operations. However, customers are already price sensitive as was identified in the case study, and this would likely reduce total passenger revenues from customers who defect to lower-cost brands like Southwest Airlines. Price increases would not be justifiable when the brand is already in trouble in its most profitable markets. 3. Identifying Risks Changing the procurement strategy to improve maintenance maintains little risks. These are highly specialized talents and aptitudes that give the business competitive advantage in human capital strength. If the business chooses to scan the external market to look at other strategies similar, Classic Airlines can witness Air France that managed 60 to 65 million Euros after consolidating maintenance and procurement (Mukim 2007). Though some of these synergies were due to a merger which improved capacity, it provided opportunities to alter the training and development of maintenance crews to improve their efficiency and improve maintenance schedules to provide more passenger seat availability with timely maintenance completion. The risks to repositioning is that the business will be essentially reinventing their brand and service concepts, which would in the short-term undo some of their strong brand presence in their operating markets. However, brand repositioning would apply an opportunity for the business to gain new market share and new customers who had once been dissatisfied with the brand or have little experience with the company. Southwest Airlines has found considerable customer interest and competitive advantage through human capital by focusing on culture and Classic Airlines could benefit this way also. The only potential risks to this strategy are a short-term cost increase in selling costs and more devoted time by human resources to create a new training program to ensure cultural development and better service delivery based on the new vision of the business. 4. Developing and Implementing the Changes As the next part of the problem-solving model, Classic Airlines must develop a plan of action and evaluate all steps throughout to ensure quality assurance. According to Kotler & Keller (2007), service is largely an intangible, meaning that it’s difficult to quantify to customers. Buyers are looking for signs as it relates to service quality and will therefore draw their own perceptions by looking at place, people, equipment, environment, symbols and communication mediums (Kotler & Keller). The goal of Classic Airlines is to make these intangible service aspects as they relate to team work and effective service provision to more tangible, easy-to-identify characteristics. The Airline should model their repositioning against companies like Exxon Mobil or Shell that regularly illustrate the capacity of their efficient cultures to show dedication and volunteerism through corporate social responsibility. The business should develop on-air and print advertisements that significantly describe the new service model using human capital as the focal point in order to gain more consumer interest. By using press releases as mediums for promotion, they can excite existing and new customers about a modernizing and evolutionary company that prides itself on service excellence. Nutt & Backoff (1997) offer that a business must first evaluate feasibility of a plan before launching changes to the current business or branding models. In this case, there are no capacity issues or changes required to the operational model, just a change in attitude and reiteration of new vision in order to inspire internal staff members through transformational leadership principles. In order to build a new brand image related to culture, all members o executive teams and junior management must be integral in using charisma, inspiration and role modeling to ensure all members are proud of the culture and willing to invest in better service delivery to save the company. It is a rather low cost methodology of ensuring a new image for the company amid a market that is highly differentiated and where it is difficult to find unique strategies to position the company effectively in the minds of target consumers. As part of the evaluation process, the final stage of the decision-making model, the business can launch incremental changes to service philosophy or structural concept. “Incrementalism is the antithesis of intrusive central planning, which can create rigid work systems unable to deal with the actual problems faced at the grassroots level” (Brews & Hunt, 2008, p.891). The plan for using human capital development does not require significant operational changes, thus there would be no rigidity. Instead, transformational leaders can continue to enforce the new vision of evolution and efficiency to gain follower interest in the new program. With significant investment from the executives and managers of Classic Airlines, they can build a new brand reputation and gain loyalty if they establish quality control evaluation systems to ensure proper staff activities and service delivery. Such evaluation instruments would include incentives surveys for added bonus points to the frequent flyer-holding markets (such as 100 bonus points with participation) to fuel more interest. Other evaluation tools could include the 360 degree feedback system where all members of the staff evaluate one another based on competency and other skills. This would improve the cultural communications to ensure that the new vision and branding strategy was successful by building cooperative environments and transparency in all levels of the business. An incremental switch from centralized authority to decentralized authority would bridge some cultural gaps and provide more motivation to meet new service guidelines by the staff members. In relation to the maintenance team, human resources and other technical staff should develop a post-training testing to ensure that all elements of training have been completed. There are some in society that believe that marketing is all about promotion, however it is about the tangible operational conditions that exist within a business that lead to either cost expenditures or cost savings. In this case, having a streamlined fleet will improve familiarity with fleet aircraft and thus improve service delivery through better scheduling and flight capacity. The repositioning and maintenance reduction plans are the most feasible to improve Classic Airlines’ tarnished brand reputation. By using human capital and by altering the supply chain constructs, it will be well on its way to making incremental and long-lasting changes to loyalty that will lead to better revenues and less criticism of the brand. References Aruan, S.H. (2005). “Might of Air Asia: Internal Analysis Perspective”, University of Melbourne. Retrieved August 17, 2012 from http://sandygarink.tripod.com/papers/AA_IA.pdf Brews, P.J. & Hunt, M. R. (2008). “Learning to Plan and Planning to Learn: Resolving the Planning School/Learning School Debate”, Strategic Management Journal, 20(1), pp.889-913. Komninos, I. (2002). “Product Life Cycle Management”, Urban and Regional Innovation Research Unit, p.8. Retrieved August 17, 2012 from http://www.urenio.org/tools/en/Product_Life_Cycle_Management.pdf Kotler, P. & Lane Keller, K. (2007). A Framework or Marketing Management. Pearson Prentice Hall. Mukim, S. (2007). “An analysis of stockholder returns and synergistic gains in Air France and KLM Royal Dutch Airlines Merger”, p.10. Retrieved August 16, 2012 from http://schwert.ssb.rochester.edu/f423/Paper_mukim0803.pdf Nutt, P.C., and Backoff, R.W. (1997). “A Strategic Management Process for Public and Third- Sector Organizations”, Journal of the American Planning Association, 53(1), pp.44–57. Read More