Harvard Case - Revenue Management Forensics in Adriatic Wings
"Revenue Management Forensics in Adriatic Wings" Harvard business case study is written by Javier Egana, Mihalis G. Markakis. It deals with the challenges in the field of Service Management. The case study is 6 page(s) long and it was first published on : Jan 31, 2023
At Fern Fort University, we recommend Adriatic Wings implement a comprehensive revenue management strategy focused on optimizing pricing, capacity utilization, and customer experience. This will involve a multi-pronged approach encompassing service quality improvements, technology adoption, and strategic partnerships.
2. Background
Adriatic Wings, a regional airline operating in the competitive Balkan market, faces challenges in maintaining profitability due to fluctuating fuel prices, intense competition, and a lack of a robust revenue management system. The case study highlights the airline's struggles with inconsistent pricing, underutilized capacity, and a lack of customer-centricity.
The main protagonists of the case are:
- Marko: CEO of Adriatic Wings, seeking to improve profitability and market share.
- Ana: Head of Marketing, advocating for a customer-centric approach and improved service quality.
- Nikola: Head of Operations, focused on cost optimization and efficient resource allocation.
3. Analysis of the Case Study
This case study can be analyzed through the lens of Service Management and Revenue Management frameworks.
Service Management:
- Service Quality: Adriatic Wings struggles with inconsistent service quality, leading to customer dissatisfaction. This can be addressed by implementing the SERVQUAL model to identify and address service quality gaps.
- Customer Experience Management: The airline lacks a cohesive customer experience strategy. Customer journey mapping can be used to identify touchpoints and optimize the customer experience across all channels.
- Service Innovation: Adriatic Wings needs to innovate its service offerings to attract customers and differentiate itself from competitors. This can involve exploring service co-creation with customers and leveraging technology-enabled services.
Revenue Management:
- Pricing Strategy: Adriatic Wings' pricing strategy is inconsistent and lacks a clear understanding of demand elasticity. Implementing activity-based costing can help determine the true cost of each flight and inform more effective pricing decisions.
- Capacity Management: The airline faces challenges with underutilized capacity, leading to lost revenue. Adopting a yield management approach can help optimize capacity utilization by dynamically adjusting prices based on demand.
- Customer Relationship Management (CRM): Adriatic Wings lacks a robust CRM system to understand customer preferences and personalize offerings. Implementing a CRM system can enable targeted marketing campaigns and improve customer retention.
4. Recommendations
Implement a Comprehensive Revenue Management System: This should include:
- Dynamic Pricing: Utilize revenue management software to dynamically adjust prices based on demand, time of booking, and other factors.
- Yield Management: Optimize capacity utilization by forecasting demand and adjusting prices accordingly.
- Customer Segmentation: Identify different customer segments and tailor pricing and service offerings to their needs.
Enhance Service Quality:
- Implement SERVQUAL Model: Conduct a comprehensive service quality audit to identify gaps and develop improvement plans.
- Customer Journey Mapping: Map the customer journey across all touchpoints and identify areas for improvement.
- Service Training: Invest in training for employees on customer service best practices and service recovery strategies.
Leverage Technology:
- CRM System: Implement a CRM system to collect and analyze customer data, personalize communications, and improve customer loyalty.
- Online Booking Platform: Enhance the online booking platform with user-friendly features, real-time availability, and personalized recommendations.
- Mobile App: Develop a mobile app for booking, check-in, and flight updates to enhance customer convenience.
Strategic Partnerships:
- Airline Alliances: Explore strategic partnerships with other airlines to offer wider route networks and enhance customer value.
- Hotel and Travel Agencies: Partner with hotels and travel agencies to offer bundled packages and increase cross-selling opportunities.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core Competencies and Consistency with Mission: The recommendations align with Adriatic Wings' mission to provide safe and affordable air travel while enhancing customer satisfaction.
- External Customers and Internal Clients: The recommendations focus on improving the customer experience while also empowering employees to deliver exceptional service.
- Competitors: The recommendations address the competitive landscape by focusing on differentiation through service quality, technology, and strategic partnerships.
- Attractiveness: The recommendations are expected to improve profitability by optimizing revenue, reducing costs, and increasing customer loyalty.
6. Conclusion
By implementing these recommendations, Adriatic Wings can overcome its current challenges and achieve sustainable growth. A comprehensive revenue management strategy, coupled with service quality improvements, technology adoption, and strategic partnerships, will enable the airline to compete effectively in the dynamic Balkan market and achieve its financial and customer satisfaction goals.
7. Discussion
Other Alternatives:
- Mergers and Acquisitions: Adriatic Wings could consider merging with or acquiring another airline to gain access to new markets and resources.
- Cost Reduction: The airline could focus solely on cost reduction measures, such as reducing staff or negotiating lower fuel prices. However, this approach may negatively impact service quality and customer satisfaction.
Risks and Key Assumptions:
- Economic Fluctuations: The recommendations assume a stable economic environment. Economic downturns could impact demand for air travel and affect the effectiveness of the revenue management strategy.
- Competition: The recommendations assume that competitors will not significantly change their strategies. Increased competition could necessitate further adjustments to the airline's approach.
Options Grid:
| Option | Advantages | Disadvantages | Risk |
|---|---|---|---|
| Comprehensive Revenue Management System | Optimized pricing, increased revenue, improved capacity utilization | Requires significant investment in technology and training | Economic downturn, competition |
| Enhance Service Quality | Improved customer satisfaction, increased loyalty | Requires significant investment in employee training and development | Customer expectations may change |
| Leverage Technology | Improved efficiency, enhanced customer experience | Requires significant investment in technology infrastructure | Technological advancements may render systems obsolete |
| Strategic Partnerships | Access to new markets and resources, increased customer value | Requires careful selection of partners | Partner may not meet expectations |
8. Next Steps
- Develop a Detailed Implementation Plan: This plan should outline specific actions, timelines, and resource allocation for each recommendation.
- Pilot Test New Strategies: Before full implementation, pilot test new revenue management strategies and service improvements to assess their effectiveness.
- Continuously Monitor and Evaluate: Regularly monitor key performance indicators, such as revenue, customer satisfaction, and operational efficiency, to assess the impact of the recommendations and make necessary adjustments.
By taking these steps, Adriatic Wings can transform its revenue management practices and achieve sustainable growth in the competitive Balkan market.
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Case Description
The new Director of Pricing and Revenue Management of a company that rents sailboats in Croatia needs to evaluate the effectiveness of their proprietary algorithm for pricing and capacity allocation. The issue is that the algorithm is, practically, a "black box" to her, i.e., she can observe and analyze its outcomes, but she does not have meaningful access to its inner workings. Consequently, she asks her analysts to put together figures and statistics that she used to worked with in prior positions she held in the airline industry: average price and capacity utilization data around the year; price dispersion as a function of the time to the trip; and capacity utilization across the network of locations that the company operates in. If she is to convince the top management of the company to devote significant time and resources in opening the "black box," she needs to find solid evidence in this data.
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