«A Case Study on Classic Airlines: Practical Marketing Solutions Milaly Tokhi, San Jose State University Abstract In today’s competitive arena, ...»
Journal of Business Studies Quarterly
ISSN 2152- 1034
2009, Vol. 1, No. 1, pp. 16-25
A Case Study on Classic Airlines: Practical Marketing
Milaly Tokhi, San Jose State University
In today’s competitive arena, organizations must use all possible means to maximize
growth and profitability by focusing on strategic marketing. Classic Airlines has an
opportunity to alter the landscape of the airlines industry. In order to succeed, Classic
Airlines must be able to correctly forecast market potential and future demand, by establishing long-term marketing objectives.
Key words: Marketing, business, organizations, cross-functional teams, environmental scanning.
Classic Airlines Classic Airlines is facing an organizational issue. External and internal marketing programs have not been able to satisfy the needs and wants of the stakeholders. Target customers are looking at the services offered by other airlines to satisfy their wants and needs. This has resulted in poor sales and reduced profits for the company. The marketing plan of a firm “helps the firm connect with its customers” (Kerin et al., 2006). Therefore, Classic Airlines wants to develop an effective plan of action that will not only help attract and retain customers, but also boost sales and profits.
The Situation Issue and Opportunity Identification Classic Airlines is a 25 year old company that commands a fleet of more than 375 jets that serve 240 cities with more than 2300 daily flights. The company is facing numerous challenges because of rising costs and lack of innovation. Customers are not satisfied with the service they are receiving and management cannot agree on how to correct the issues. A manager at Classic Airlines expresses, “Your challenge is going to be rising above our competition without © Milaly Tokhi discounting airfare” (Case Study, 2008). The company will have to figure out strategies to overcome the challenges.
Challenges Identification Classic Airlines must address the challenges the company is facing. The company is experiencing a decrease in stock prices. Employee morale is low because of finger pointing and lack of unity. The case study states that “loyal customers were jumping ship and the ones still aboard seemed to be flying less frequently” (Case Study, 2008). The senior vice president of customer service explains that “customers have no voice” which is a major challenge for the company. Classic Airlines and many of its rivals expanded too quickly (Case Study, 2008). The case study mentions that the CEO and CFO focus on numbers and less on marketing.
Membership in classic rewards is down nearly 20% and the average number of flights per member is down more than 20%. The company recently mandated a 15% across the board cost reduction over the next 18 months which is also a major challenge for all departments. “Changes in the marketing environment are a source of opportunities and threats to be managed. The process of continually acquiring information on events occurring outside the organization to identify and interpret potential trends is called environmental scanning” (Kerin et al., 2006).
Environmental scanning will help the company progress.
Stakeholder Perspectives/Ethical Dilemmas
Classic Airlines is skating on thin ice because customers are unhappy, employees are not unified, and competition is on the rise (Case Study, 2008). Strategic decisions must be made to help the organization get back on track. Special attention must be given to innovation, efficacy, customer service, and efficiency. The company is expecting to enhance the quality of the services they provide without discounting airfare, which means that marketing will play a big role in their success.
Framing the “Right” Problem
Classic Airlines must use all possible means to maximize growth and profitability.
Dlabay and Scott (2001) observe, “Competition tends to keep prices lower” (p. 465). The company must be able to forecast market potential and future demand, by establishing long-term marketing objectives that effectively address the challenges.
The case study explains that employee morale is low due to finger pointing and lack of unity. Classic Airlines must implement internal marketing strategies to assist their employees.
Internal marketing is based on the notion that a service organization must focus on its employees, or internal market, before successful programs can be directed at customers. Services need to ensure that employees have the attitude, skills, and commitment needed to meet customer expectations and sustain customer loyalty. This idea suggests that employee development through recruitment, training, communication, coaching, management, and leadership are critical to the success of service organizations. (Kerin et al., 2006) Journal of Business Studies Quarterly 2009, Vol. 1, No. 1, pp. 16-25 The company must understand the four unique elements to services: intangibility, inconsistency, inseparability, and inventory. These four elements are referred to as the four I's of services.
Services are intangible; that is, they cannot be held, touched, or seen before the purchase decision. To help consumers assess and compare services, marketers try to make them tangible or show the benefits of using the service (Kerin et al., 2006). Inconsistency can refer to developing, pricing, promoting, and delivering services, because the quality of a service is often unpredictable. Inseparability refers to when the consumer cannot separate the deliverer of the service from the service itself (Kerin et al., 2006). Inventory is important because many items are perishable and inventory handling costs money (Kerin et al., 2006). By understanding the four I’s framework, the company can rise to the top.
The four P’s framework is important when discussing the marketing mix for services.
Marketing mix, which comprises of product, pricing, place, and promotional strategies, is used by a company to pursue marketing objectives in the target market. Each of the variables in the marketing mix can be adjusted over time to help a company achieve their organizational goals (Kerin et al., 2006). Classic Airlines should offer competitive prices, improve the quality of their products, invest more on promoting their products, enhance their CRM system, and implement innovative marketing strategies. The aforementioned strategies would help Classic Airlines develop a marketing mix to support customer relationship initiatives.
The “End-State” Vision
The ideal end-state vision for the company is to become the leading airlines provider.
This can happen if the information produced by the CRM system is used to make positive changes to the company. A possible end-state goal for Classic Airlines is forming a marketing alliance with Skyway and a top Latin American airline which can help with the marketing aspect of the business (Case Study, 2008). The company is dealing with numerous competitors, low employee morale, decline in sales, and customer dissatisfaction. “The process of continually acquiring information on events occurring outside the organization to identify and interpret potential trends is called environmental scanning” (Kerin et al., 2006). The company must have a large target market and should consider offering incentives for flying with their airlines. The idea of market attractiveness is “a large target market with high growth and real buyer need” (Kerin et al., 2006). Cross-functional teams can also be formed to help employees unite. Cross-functional teams are “a small number of people from different departments in an organization who are mutually accountable to a common set of performance goals” (Kerin et al., 2006). Classic Airlines must implement new strategies and goals for the company to be more efficient, effective, and profitable.
Identify the Alternatives and Benchmarking Validation
The primary purpose of any business, including Classic Airlines, is to meet the needs of the intended customer with the company’s product or service. Without a customer to sell to, the business would not exist. Classic Airlines recently experienced a decline in the number of customers. This has resulted in decreased revenue and company profit. A key factor to the success of the organization will be its ability to link its corporate goals with its customer initiatives. The company can gain a competitive advantage by linking each phase of its strategic marketing process with the goal of creating value and excellence for the customer.
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A company’s strategic marketing process is the approach used “whereby an organization allocates its marketing mix resources to reach its target markets” (Kerin et al., 2006). The result of the strategic marketing process is the development of the company’s overall marketing plan “which is the roadmap for the marketing activities of an organization for a specified future period of time” (Kerin et al., 2006). The marketing plan of a company serves to direct primary functions within an organization including supply chain management, demand forecasting, sales initiatives, and finance strategy as well as customer service programs. A primary challenge for Classic Airlines is the need to coordinate all programs, processes, and functions to meet the goal of making the customer the primary focus of all company efforts.
Classic Airlines needs to create a unified company-wide effort, to develop marketing programs that link customer relationship initiatives to its overall organizational goals. The beginning of this process will need to include the company-wide commitment to make the needs of the customer the number one priority. The company will then need to create business and marketing strategies that find The ideal balance between satisfying a customer’s individual wants and achieving organizational synergy, the increased customer value achieved through performing organizational functions more efficiently…so the ultimate criterion for an organization’s marketing success is that customers should be better off because of the increased synergies. (Kerin et al., 2006)
Evaluation of the Alternatives
In order for Classic Airlines to succeed, the company must invest significantly in marketing to be able to predict human behaviors. “Marketing is becoming more of a science every day as we find more accurate ways to predict human behavior and advances in technology allow us to gauge and evaluate results automatically and instantaneously” (Levinson et al., 2008, p.11). The company must consider the risks and challenges associated with the alternatives.
When seeking the optimal solution, management must consider the challenges that are hindering the company from becoming the leading airline provider. The company can join an alliance, upgrade their current CRM system, focus on their strategic marketing process, train managers to be more effective leaders who focus on internal marketing, and utilize guerilla marketing strategies.
Identifying and Assessing Risks
Classic Airlines must forecast market potential and future demand, analyze competitive landscape and customer purchase behaviors, and identify current and future customer needs. The company must be able to forecast the future demand by using marketing research as a medium for analysis.
Marketing research is the process of defining a marketing problem and opportunity, systematically collecting and analyzing information, and recommending actions. The broad goal of marketing research is to identify and define both marketing problems and opportunities and to generate and improve marketing actions. Although marketing research isn't perfect, it seeks to reduce
risk and uncertainty to improve decisions made by marketing managers. (Kerin et al., 2006) A technique for marketing research is to utilize the 5-step marketing research approach which
encompasses the following steps:
The final objective of the company is to become the largest airline provider. A SWOT analysis identified several opportunities. In order for Classic Airlines to rise above competition without discounting airfare, the company must focus on creativity and innovativeness. Guerilla marketing is a strategy that should be used by any company who is limited on resources. The company can use guerrilla marketing which is a “passionate belief that small businesspeople with limited resources can compete—and win—on a level playing field with other companies— regardless of their size or financial strength—as long as they are armed with the right weapons and knowledge” (Levinson et al., 2008, p. 6). Guerilla marketing encourages a firm to use limited resources wisely and efficiently. An example of guerilla marketing for Classic Airlines would be to implement a barter system for certain services. The company can also save significantly if they continue to hedge effectively by purchasing additional fuel at a reasonable price. A manager states, “By locking in our fuel prices for the next year, we’ve been able to reduce our fuel costs by 12 percent” (Case Study, 2008).
Classic Airlines must find ways to reconnect with their customers by offering incentives for flying with the company and more importantly, showing customers that they understand their needs and wants. “A need occurs when a person feels deprived of basic necessities such as food, clothing, and shelter. A want is a need that is shaped by a person's knowledge, culture, and personality” (Kerin et al., 2006). Satisfying needs and wants of customers is not an easy task.
Implementing marketing segmentation is also an opportunity. “Market segmentation involves aggregating prospective buyers into groups that (1) have common needs and (2) will respond similarly to a marketing action” (Kerin et al., 2006).
A different opportunity for the company is to update the current Customer Relationship Management (CRM) system, so that the information produced from it is used effectively.