Classic’s lack of stakeholder alignment severely hinders any customer service or marketing from achieving success. As a result, customer loyalty will continue to decline and Classic will no longer be able to be competitive. Classic must address each stakeholder’s each stakeholder’s concern and come together as a team to develop one common strategy under which they can all operate.
Frame the “Right” Problem
Classic Airlines will become a leader in the airline industry and increase stock prices, gain a competitive advantage, and regain customer loyalty by implementing effective marketing strategies and restructuring its frequent flyer program to discover and satisfy customer needs and market trends.
Describe the “End-State” Vision
Classic Airlines' end-state vision is to become a leader in the airline industry with high levels of customer loyalty and retention, high levels of customer satisfaction, increased profitability, and an effective marketing program that understands customer value and uses it to create a competitive advantage. The company can achieve this goal by discovering and satisfying customer needs and by implementing marketing strategies and technology to support and develop solutions to these needs.
Identify the Alternatives and Benchmarking Validation
In today’s airline industry, Frequent Flyer Programs (FFPs) are no longer considered to be merely an extravagant luxury for major carriers (Bhagwanani, 2005). Since its introduction in the 1980s by American Airlines, it is estimated that sixty million Americans belong to a frequent flyer program (Barlow, 2000). However, with the airline industry facing harsh economic times, non-essential costs, such as those associated with FFGs, can be the ones targeted for reduction. “Customer loyalty is not an area where short-term cost savings should be the main focus, sending out the message to customers that we don't care about your long-term business since we are not sure whether we will still be in business by then anyway” (is loyalty a luxury?, 2008). Customer satisfaction and customer loyalty directly affect a company’s profits, and for an airline, this means that a FFP that achieves these objectives is a necessity. This focus has prompted Qantas Airlines to revamp its current FFP.
Qantas Airlines provides air transportation services both domestically and internationally and is the leading airline in Australia (Qantas Airlines SWOT Analysis, 2008). Although Qantas is currently a leader in airline industry and its FFP has approximately five million members, the rise of low cost competitors, such as Virgin Blue, has prompted Qantas to reevaluate its current customer loyalty scheme. Qantas Frequent Flyer chief executive, Simon Hickey, was appointed to the revamp of its current FFP. When Hickey began the project 12 months before, he noticed that $2 billion worth of unspent points existed (Easdown, 2008). In addition, Hickey notes that the “complaints about the difficulty in getting the flight you desire have been many over the years” (Craigie, 2008, ¶ 4). To address these concerns, Hickey redrafted its current FFP and released a two-tier loyalty programs with three options for cashing in acquired points: Any Seat awards, Classic awards, and Points-Plus Pay (Easdown, 2008).
Any Seat awards allow members to use more points to purchase any seat on any of Qantas’ or Jetstar flight including taxes and charges. Hickey states that Any Seat awards "will generally cost more because they reflect the commercial fares available and include all taxes and charges - our research strongly indicates that many of our members want a guaranteed seat on the day they want to travel and are happy to pay more for this" (Craigie, 2008, ¶ 3).
For Qantas members who have more flexibility in their schedules, the original FFP, or Classic Rewards, remains unchanged. Classic Awards, offers a limited number of seats on Qantas, Jetstar and partner airlines at a fixed points rate according to mileage (Craigie, 2008).
The Points-Plus Pay option also gives members the opportunity to use a combination of points and credit card payments to book travel or to buy merchandise on Qantas online store (2008).
Hickey believes that "these changes will establish the program as a world leader among loyalty programs in terms of the value it offers members and the breadth of product choices" (Easdown, 2008, ¶ 14). Classic Airlines can benefit from such changes in its current FFP. By identifying the different wants of its different members and structuring its program to satisfy these wants, Classic can achieve high levels of satisfaction and profits.
The key component to successful target marketing is an effective segmentation strategy. Customer, or market, segmentation “involves aggregating prospective buyers into groups, or segments, that (1) have common needs and (2) will respond similarly to a marketing action” (Kerin et al., 2006, p. 44). Using data to properly segment customers can enable a company to identify its most profitable customers and to target marketing strategies more effectively. Successful market segmentation can be witnessed through the online fashion retailer As Seen On Screen.
As Seen On Screen (ASOS) online retailer that sells lower price versions of garments worn by celebrities, as well as its own brand of men and women's clothes (ASOS targets the individual, 2008). ASOS identified the need to provide the same customer satisfaction levels as a non virtual retailer but with its 2.6 million customers a month, they needed a better solution than phone representatives (ASOS targets the individual, 2008).
ASOS, like Classic Airlines, had a hefty customer database that tracked all information from payment methods and amounts to brand preferences. Using this database, ASOC was able to divide its customer base into eight segments using a basket analysis. "One of the most interesting things we found was that men tend to buy for their partners as well as themselves. We previously thought this might work the other way around." (ASOS targets the individual, 2008, p. 47). ASOC used this information to develop different email content targeted at each market. Emails were sent out bi-weekly and included personalized content such as recommendations from favorite brands and budget considerations. Emails also contained viral campaigns such as friend referrals. The result was a rise in profits of approximately 68% from the previous year (ASOS targets the individual, 2008).
Classic can benefit from using the information gained from its FFP and its other areas of data accumulation and use it to determine which customers are the ones who contribute most to profits and develop marketing strategies aimed at retaining these customers. The personalized approach used by ASOS can help Classic ensure customer satisfaction and loyalty.
The opportunity to form a marketing alliance with other international airlines could also provide Classic with the opportunity to expand into other international markets and provide members with more destination options. The benefit that alliances can provide can be witnessed by examining Star Alliance.
Star Alliance was launched in May of 1997 and has since grown to include 15 airlines and 894 destinations (Friends in high places, 2001). Benefits of this alliance include more convenient travelling through code sharing, increased destination possibilities, ability to access business lounges of partner airlines across the world, and combined frequent flyer programs. “Nearly two-thirds of corporate travelers are members of frequent-flyer programs and of those, 75 percent are allowed to use the points they earn on business trips for their own leisure travel” (Friends in high places, 2001, p. 67).
With the airline industry in its current economic state, these alliance can be considered more than just an added perk for frequent flyer members. “Airlines report that cost pressures, including the rising price of fuel, necessitate these deals. They also argue that the alliances give them valuable global reach and economies of scale” (Reamy, 2000, ¶ 3).
Classic can benefit from joining an alliance like Star Alliance. International partners can enable Classic to expand its services and destinations without having to invest much resources. In addition, an alliance will provide Classic members with more options for redeeming their miles which would increase customer satisfaction.
Evaluate the Alternative
The end-state goals are the means by which the end-state vision is realized. The end-state goals to be achieved by Classic are (a) high levels of customer loyalty, (b) high levels of customer satisfaction, and (c) restore and exceed previous share prices. All three goals are crucial to solving the problem statement so they all given the equal importance of a five.
All solutions were explored in the process of evaluating the alternatives. Analyzing the initial primary alternatives revealed that the best method for achieving all three end-state goals was to use a two-tiered solution that can allow more opportunities to be realized.
The first solution of restructuring Classic’s FFP to include different reward options for the different preferences among customer segments was combined with the third solution of entering into a global alliance. This combined solution addresses will allow Classic to expand services into additional international markets with little investment and will offer its frequent flyers more redemption offers and more convenient travel. This solution will provide both local and international options for frequent flyer redemption and options, which will enhance customer satisfaction and loyalty and ultimately increase share prices.
The other second-tier solution combines analyzing the acquired customer data to segment Classic’s customers into groups and to use tailored emails to appeal to each segment with entering into a global alliance. This solution would also enable Classic to expand its services internationally with little investment, increase options for frequent flyer redemptions, and provide travel that is more convenient. However, without changing its current FFP to address the different wants of the different customers, personalized emails will have little effect on customer retention and satisfaction.
Identify and Assess Risks
Risk is inevitable in business and should be anticipated to formulate effective mitigation techniques. The first remaining solution carries the risks of high costs associated with researching, developing, and advertising the new FFP and global alliance and the possibility that the customer wants are not properly identified. Both of these risks have a medium probability. The occurrence of such risks could have very severe negative effects on customer satisfaction and retention and overall business success. These risks can be minimized with a strict adherence to an accurate budget and having open channels of communication with customers and coworkers during the restructuring process.
The second remaining solution carries the risks that inaccurate assumptions are made based off the customer data and that certain customers that are not email friendly will be isolated from these marketing efforts. These risks carry a high probability and the consequences of are highly severe. To mitigate the risk Classic can have open communication channels to provide feedback during the development phases and they can have alternative marketing strategies to address the market that is not technologically friendly.
This analysis of possible risks and consequences makes the first alternative solution of restructuring Classic’s FFP to include different reward options for the different preferences among customer segments and entering into a global alliance the most desirable because of the probability of the risks is lower and the mitigation techniques more effective. While mitigation techniques for the other solution may help, the best they can do is minimally decrease the probability of risk.
Make the Decision
Classic can become a leader in the airline industry, increase stock prices, gain a competitive advantage, and regain customer loyalty by restructuring its FFP to include different reward options for the different preferences among customer segments and entering into a global alliance with international airline partners.
Forming this alliance and having a more tailored FFP will allow Classic to achieve and maintain its end-state goals. This solution allows Classic to satisfy customer needs and increase customer satisfaction, which will keep them competitive and increase share prices. The alliance will allow Classic to gain a competitive advantage and to increase customer options with very little cost. Classic also has the opportunity to expand into other markets and industries and achieve higher levels of growth. This solution would satisfy all end-state goals and allow Classic to achieve its desired end-state.
Benchmarking companies like Quantas Airlines, ASOS, and Star Alliance will provide a blueprint for successful processes involved in alliances and segmentation.
Develop and Implement the Solution
The success in the execution of the proposed solution will require input and compliance from all departments of Classic. The time that will be required to implement this solution is three months for research and development another three months for advertising and marketing.
The first step in the implementation plan is to research other FFPs to identify options for the restructure. The timeline for this step is one month and it is the responsibility of the project team, which includes Kevin, Renee, and John.
The next step in the implementation plan is to use the research to develop a new tiered FFP. The completion of this step should only require two weeks and it is the responsibility of the project team.
The following step will be to gather feedback from customers and other Classic employees about the new FFP. This will be the responsibility of the project team and the customer service representatives and they will have two months to complete this. They will also have an additional week to make any necessary changes.
To be completed concurrently with the steps above is the development of cost estimates involved in forming the alliance. This steps will be given the timeline of two weeks to complete and it is the responsibility of the project team and the international partners.
The next step to be completed concurrently is the integration of airline policies, restrictions, and FFPs of the partnership airlines to ensure seamless travelling. This is the responsibility of the project team and the international partners and they will have one month to complete this.
The development of the marketing and advertising plan is the next step of the implementation process. This will be the responsibility of project team as well as the advertising and marketing departments and they will have one week to complete this.
The final step in implementation will be the heavy advertising and marketing of these new initiatives. This will be the responsibility of the project team and the advertising and marketing departments and they will have between one to three months.
Evaluate the Results
The success of the solution proposed will be measured through qualitative and quantitative measures. The first end-state goal of increasing customer retention will be evaluated using customer retention figures. The target is a 95% customer retention rate.
The next end-state goal of maintaining high levels of customer satisfaction will be evaluated using customer feedback surveys. The target is a 25% increase in overall customer satisfaction.
The last end-state goal of restoring and exceeding share prices will be evaluated by monitoring changes in share prices. The target will be a 5% increase from Classic’s previously held share price.
Evaluating the success of achieving the end-state goals provides Classic with the opportunity to make necessary alterations to its current plan. Continuous evaluation is the only way to ensure success.
Conclusion
Classic has the opportunity to increase share prices, customer satisfaction levels, and customer retention and remain an industry leader by developing a global alliance with international airlines and restructuring its current FFP to address the different wants of its different customer segments. This will allow them to fulfill customer needs and provide them with many options for redemption.
References
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Barlow, R. G. (2000). Frequency marketing – What’s next? Direct Marketing, 62, 2-4. Retrieved February 6, 2009, from Business Source Complete database.
Bhagwanani, R. (2005, March). Profits and loss. Airline Business, 21(3), 62-64. Retrieved February 6, 2009, from Business Source Complete database.
Craigie, J. (2008, August). Flying higher. Money (14446219), Retrieved February 6, 2009, from Business Source Complete database.
Easdown, G. (2008, July 2). Seats on demand for new Qantas frequent flyer scheme. Herald Sun. Retrieved February 6, 2009, from
Friends in high places. (2001, August). Director (00123242), Retrieved February 16, 2009, from MasterFILE Premier database.
is loyalty a luxury?. (2008, October). Airline Business. Retrieved February 6, 2009, from Business Source Complete database.
Kerin, R. A., Hartley, S. W., Berkowitz, E. N., & Rudelius, W. (2006). Marketing (8th ed.). New York: The McGraw-Hill Companies.
Qantas Airways SWOT Analysis (2008, June). Qantas Airways SWOT Analysis, Retrieved January 16, 2008, from Business Source Complete database.
Reamy, L. (2000, June). Hands across the water. Institutional Investor, 34(6), 187. Retrieved
February 16, 2009, from Business Source Complete database.
University of Phoenix (2009). Scenario: Classic Airlines. Retrieved February 1, 2009, from
University of Phoenix, Week Four rEsource. MBA570-Sustainable Customer Relationships.
Week 6 Individual Paper - Scenario Two Problem Solution Paper (15 points possible)
©2003 University of Phoenix Online. All rights reserved.
Table 1
Issues and Opportunities Identification
Table 2
Stakeholder Perspectives and Ethical Dilemmas
Table 3
Analysis of Alternative Solutions
Table 4
Risk Assessment and Mitigation
Table 6
Optimal Solution Implementation Plan
Table 7
Evaluation of Results
