Classic Airlines Marketing Problems

"Every company knows that it costs far less to hold on to a customer than to acquire a new one" (Coyles and Gokey, 2002). As the commercial airline industry is changing at a rapid pace, Classic Airlines (Classic) is faced with the challenge of retaining customer loyalty. According to the Customer Loyalty report, membership in Classic's Rewards program is down 20% since this time last year (University of Phoenix. 2005). In an effort to turn Classic around, a strong program must be implemented to encourage and promote customer loyalty. Utilizing the Simplex Problem Solving Process, Classic can increase customer loyalty and lure back Classic Reward members to the airlines.

Problem Finding

The problems that Classic faces currently are lack of customer loyalty, a decrease in usage by members of the frequent flyers club, decreasing sales and reducing costs. Classic must increase brand loyalty and customer satisfaction, while decreasing expenditures. This is a tough goal to achieve, however some of this goes hand in hand. As customer loyalty and satisfaction increases sales will follow suit.

According to Kotler and Keller (2007), customers compare the perceived service to the expected service and if the perceived service falls below customer's expectation, customers will be disappointed. In other words, if the perceive service meets or exceeds the customer's expectation they will most likely be repeat customers.

Fact Finding

The Chief Marketing Officer, Kevin Boyle, is tasked with leading the Classic Rewards project team. Kevin compiled some recent customer comments to develop a synopsis of what the business and leisure travelers are looking for and shared this information with the group. Currently the membership in the Classic Rewards program is comprised of 80% business travelers and 20% leisure travelers. Research shows that the business traveler is looking for quick and efficient service with minimal connections and/or delays. Quality service is more important that cost to a certain degree. In addition, customers believe Classic should offer more frequent flights to a wider variety of destinations. The business traveler feels that frequent flier points show that the airline has invested in the customer (University of Phoenix. 2005).

The leisure traveler, on the other hand, is price driven. The means that trips and dates are arranged to fit into the less expensive fare options. In addition, the leisure traveler is more tolerant of connections, if the connections reduce the price of the fare. Flight frequency, destination options, and quality service are areas the leisure travel is willing to compromise on if the result will save money. Although the leisure traveler travels significantly less than the business traveler does, there are many, many more leisure travelers. Finally, the leisure traveler often makes flight decisions for multiple tickets as they often fly with a family or group of friends (University of Phoenix. 2005).

Renee Epson, Classic's' Senior Vice President of Customer Service for the past four years, has implemented a customer relationship management system (CRM) program. Renee also conducted interviews with approximately 500 Classic Rewards members, which enabled her to identify several areas in need of improvement. Members appear to be the most dissatisfied with mileage earning rate, upgrades offered and reward redemption options.

Problem Definition

Classic is having difficultly retaining customers, even those utilizing the Classic Rewards program (University of Phoenix. 2005). Of the 500 members interviewed, a significant number of them are utilizing other airlines more often than Classic. Classic must modify the Classic Rewards program to entice members to use Classic on a regular basis. Listening to the customers complaints and addressing them specifically would bring about successful results. If Classic does not make an effort to increase profits and avoid bankruptcy.

Idea Finding

The Classic Rewards project team met to brainstorm for ideas to solve the problems identified with the Classic Rewards program. Several options were discussed including the idea of forming an alliance with another airline, although Classic has been reluctant to consider this is the past, it should not be completely discounted. Some of the benefits of an alliance include shared marketing costs and an expanded frequent flier program. Another idea is to modify the current rewards program to offer better benefits, which will regain the customer trust and loyalty. Finally, utilizing the CRM system to its fullest potential.

Forming an alliance with Tri-Star would allow Classic to achieve their goals of increasing sales, offering a more comprehensive rewards program and reducing costs. The alliance offers a strong brand presence and the opportunity to share promotions, thus offering customers more options and possibly better rates. Another benefit of the alliance is an integrated frequent flier program that would allow customers multiple ways to earn miles and more options for rewards. The Tri-Star Alliance currently has agreements