Customer Value
Customer value is the key to success in today’s business world (Duchessi, 2002).
Should this value not be created, diminishing customer loyalty, reducing market shares, disappearing profits and utter confusion would be the result. Quality services at fair prices, give the impression of value. The customer’s needs and expectations are to be focused upon. Personnel, information and quality systems must rise to the occasion to deliver customer value. Like any business the Customer value Pyramid is the best approach to the customer. The top would occupy the goals and strategies, the bottom will have the business, personnel, information and quality systems (Duchessi, 2002). This pyramid would help the business to future competitive forces and challenges.
Customers are demanding the “latest and greatest’ in technology (Kohler, 2006, p.44).
Manufacturers are innovating very fast to meet consumer demands. Products are becoming so sophisticated that one can no more just take any. One has to look carefully and read all the advertisements. Companies that practice a high level of customer value take into consideration eight factors: “innovation, financial soundness, employee talent, use of corporate assets, long-term investment value, social responsibility, quality of management, and quality of products and services” (Johnson and Weinstein, 2004, p. 3). There was an Internet explosion in the 1990s for many companies which adopted new entrepreneurial ventures and techniques which built their capital into the billions, this success being attributed to their objective of raising customer value. Total quality management became an integral part of business (p. 4). Enhanced customer value has become the main theme in business. Not embracing this theme has resulted in the large number of companies reaching unprecedented bankruptcy proceedings.
Mere satisfaction on a one-time basis hardly works anymore. Continuous creations of exciting experiences that over-rule their experiences and delight the customers are necessary. Outstanding value can turn customers into life-time friends. In the marketing strategies value creating organizations have focused on the service factor. The new breed of customers is smarter and more demanding. Customer value-based decision- making and customer retention plans are being implemented by different companies (Johnson and Weinstein, 2004, p. 8.). Procter and Gamble concentrated on marketing strategies rather than real sales by tailoring product and prices to suit co-marketing promotional plans. South West Airlines has an interesting culture which had jolly quiz programmes which keep the passengers in high spirits and win them small prizes (p.18). Older businesses in villages especially promote sharing of problems and speaking on a first name basis. The shopkeeper used to be really concerned with his customers. This attitude is what customer value means. What came naturally to older businessmen has to be cultivated according to strategies in the modern times with specific motivation. The marketing concept is now customer satisfaction at a profit. (p. 19).
Quality services must be available for “creating and retaining” loyal customers. These activities should be of high priority as the returns are high. An increase of 5 % customer retention can produce a profit of between 25 and 50%. A 2% increase is considered equivalent to a 10% reduction in overhead costs where profits are concerned (Duchessi, 2002). The American Customer Satisfaction Index (ACSI) was brought into force in 1994. It shows that the relationship between delighted customers and above average stock returns is a direct one. A customer who believes to have obtained a good deal and is treated well becomes a satisfied customer and will remain loyal. These customers frequently come back for more, be it services, support or products. Having a dedicated base of such loyal customers helps to deter companies from indulging in commoditization and price wars (Duchessi, 2002). The spending pattern of these customers shows increase and acceleration of the spending resulting in the company going in for high revenues and profit streams. Additional services and improved equipment help the customers save money and become more inclined to remain faithful. Wisdom has indicated that acquiring a new customer is five times more costly than retaining one already there. This difference is due to the “advertising, promotion, multiple sales calls and channel development” to trigger an initial trial purchase. If this customer is lost to competition, it is very costly to replace him. Most companies do not ever think of this possibility (Duchessi, 2002). It was found that 96% of customers who are unsatisfied simply go to another company to make their purchases or avail of services. 91 % never come back. However they do not stop doing business or avail of services. They feel it easier to go to a competitor. Moreover they share their disappointment with other people. For every fifty people who listen to negative advertising, one would be lost. This is why it is said that business lost because of a dissatisfied customer produces a great loss (Duchessi, 2002).
Online purchases suffer from the same kind of problems. Many people do not complete their online purchases due to poor customer value, 67% according to one study (Duchessi, 2002).
Adequate product specifications and reliability are two major requirements for good customer service online. Online services should include the greeting of new arrivals, provision of service choices for personal service, staff accessibility for discussion of problems and contact measures for further information. E-Commerce companies lose 60% of their customers every 6 weeks.
Many customers have little loyalty to website businesses. To establish loyalty, quality services must be added. Customers are bound to appreciate responsiveness, communication and reliability. Sadly, websites have a tendency not to respond to e-mails or provide adequate information (Duchessi, 2002). Poor customer service is a correctable situation.
Delivering customer value
To be successful, companies need to adopt a fully integrative approach. What should be thrown out are the myopic concepts, strategies and approaches. Assuming goals and strategies, according close attention to customer’s needs, chalking out a unique proposition for value consisting of product , service or prize benefits and paying attention to the essential resources like people, processes and information are some of the methods by which an approach may be designed (Duchessi, 2002). A mission statement must be made. A set of business goals should be in place. Measurable business function objectives must be planned. Strategies at different organizational levels must be implemented. Customer value must be a core concern of any business.
Performance in an airline industry.
Non-financial performance measures like customer satisfaction and product quality are being used more in compensation contracts to reward and motivate managers. Airline firms use passenger load factor as one of their most reliable and relevant measure of success (Davila, 2004, p. 444). It is the number of passenger miles (total number of miles flown by all the passengers) divided by the total number of seat miles available (Francis et al, 2003). This figure provides an impression of the airline management in using installed capacity. Customer satisfaction is an indicator of firm performance while the passenger load factor provides information on the operational efficiency of the airline (Davila, 2004, p. 444). CEO performance cannot be gauged using the passenger load factor. The influence of the CEO on future performance (investment decisions), on negotiating the cost of inputs (fuel or salary costs) or the prices of outputs (ticket sales) can be addressed better by looking at customer satisfaction and employee satisfaction.
South West Airlines have made customer service a prominent part of their mission statement. The company’s goals and strategies also are based on customer value. Employees are never confused about their work. They excel in serving customers and being result-oriented (Duchessi, 2002). Airlines are therefore to be market-oriented and customer-driven. The direction and ability of businesses to delight their customers would result in a successful and enterprising business. JetBlue Airlines is an airline which has been accepted as providing the maximum satisfaction to their customers in the US.
The Jet Blue Airlines
The JetBlue is the 8th largest airlines in the US by revenue passenger miles (aggregate number of miles flown by total passengers). This airlines had its inaugural flight on February 11th 2000 between the New York John F.Kennedy Airport and Fort Lauderdale in Florida. This airlines has served more than 12 million passengers. With 53 aircraft and 164 flights per day to 20 destinations in 9 states and Puerto Rico, this organisation has amazing profitability and loyalty among its employees. Having started off with an initial capital of 130 million, it is the best funded startup airline (Johnson and Weinstein, 2004, p. 315). Airline travel has become more humane with them. Their efficiency has been maintained by having computers in all their offices. Service is their main forte. The founder and CEO believes that customers should have high quality airline service with affordable fares. Comfort, punctuality and courtesy were enhanced, doing away with meals to keep the costs low. Three golden rules were given priority. The customer was to be treated with courtesy at every point of contact. Matters were to be executed flawlessly or at least set right and employees were to be treated well (Johnson and Weinstein, 2004, p. 317).
Added strengths which make it different
Passenger dissatisfaction is usually due to delayed flights, cancellations, flight overbooking, complex fares and absent customer care. JetBlue provides a high quality flying service, focusing on safety, reliability, security, good customer service and reduced fares. The operating costs were the lowest in the US at $ 0.643 seat mile in the first quarter of 2003. In 2007, the Cost per Available seat mile (CASM) has come up to 8.38 cents but is still maintaining the lowest costs in the airline industry when the next higher CASM is that of the South West Airlines at 9.1 cents.
The JetBlue airlines has purchased a fleet of new aircraft in spite of keeping low fares. The fleet is described as one of the youngest fleets in the airline industry. The aircraft are an average of 3.1 years. JetBlue paid $ 2.09 per gallon of fuel in 2007 and spent 24% more on fuel that year. JetBlue only hedges 30% of its fuel and so it poses a risk to low operating costs while its nearest competitor hedges 70% (JetBlue Airways, Wikinvest). At year end, it had secured only 13% of its needs for 2008 through hedging agreements. Fuel costs are thereby expected to be increased by 22% per gallon in 2008. This would further mean that the CASM would increase by 10-12% in the year.
The image of a safe, low cost and reliable airline is further helping JetBlue emerge as a strong brand focusing on customer service and providing an enjoyable experience (Johnson and Weinstein, 2004, p. 317). A strong company culture has been built up. Employees are taken into confidence to maintain this culture safe of customer service and to be as productive but yet keep the costs down. Jet Blue’s primary operations are at JFK airport. The management team is a proven one. Advanced technology is used throughout the office. Laptops are used in the cockpit to calculate the weight and balance of the aircraft. Cabin security cameras have been set with a live feed to the cockpit crew. If on the ground, there will be a communication with the central operations center at JFK (Johnson and Weinstein, 2004, p. 319).
Focusing on customers
The revenue management systems are state-of-the-art providing a single class of service and fares which lie at below 65% of the fares of other airlines. A sophisticated quality style of value-added services has been making the travel as comfortable as is possible. Seats made of leather, plenty of legroom, free TV at every seat, yoga cards, assigned seats, ticketless travel, no discount seats and highly reliable loyal services are the attractive features. When a delay of more than 4 hours occurs, customers get a free flight voucher and when bags are misplaced, a $25 voucher is issued. The airlines company is a value-based one which follows the principle that if one needs to be extraordinary on the outside, one needs to be the same inside too (p.321). Employees are the very best people selected and treated just as exemplarily as the customers. Airport employees are considered to be ‘crew members’ who are equally important to convey the right message. It is a superior delivery system which continuously evolves to match the customer needs. The CEO ensures to hear passenger feedback of a flight delay or any other inconvenience to customers.
Five core values and shared decision making
Safety, caring, integrity, fun and passion are the five core values of JetBlue which are beautifully expressed. They are described in behavioral terms. Employees are not controlled with supervision or tight rules. They are just enlightened on how the values are to be incorporated with decisions. Possessing shared values elicited the best out of the employees and led to shared decision-making (Johnson and Weinstein, 2004, p. 321).
JetBlue’s statistical achievements
JetBlue’s completion factor was 99.8 %, higher than any US airline (Johnson and Weinstein, 2004, p. 321). It operates 550 flights on a daily basis. The on-time performance was 85.7%, all flights arriving within 14 minutes of schedule. The delay, mishandling or lost bags was only 2.33 % and was the lowest among the US airlines. Rate of customer complaints was 0.43, much less than other US airlines but slightly more than the South West Airlines. When other airlines were reducing their available seat miles, JetBlue increased their available seat miles. In 2007, JetBlue increased it by 11.6% with a 24% growth in flight departures. Thereby the revenue grew by 20% in 2007 to 2.84 billion. More seating capacity and the company’s efficient use of it contributed to the growth in revenue (JetBlue Airways, Wikinvest). Point-to-point flights contributed 83% of JetBlue’s passengers and 90% of passenger revenues. Most of the flights operate from Boston, Fort Lauderdale, Long Beach (CA), New York City, and Washington D.C. New York is the primary operating airport. The 80.7% load factor shows that it used more aircraft than other airlines like South West Airlines which had a load factor of 73% in 2007. The average passenger airfare in 2007 was $123.23, slightly more than that for South West Airlines which had $ 106.60.
In 2008, the available seat miles is 32442 millions. The load factor is 80.4%, slightly less than 2007. The average fare rose to $ 139.40 from 123.23 in 2007. Revenue per available seat mile has risen to 9. 42 from 8.26 in 2007. Cost per available seat mile without the fuel is 5.94 cents.
Less challenges for JetBlue
Recession, terrorism and war have been a cause for constraints for most businesses (Johnson and Weinstein, 2004, p. 323). However JetBlue airlines continue to make profits.
The policy followed is to spend 50% of revenue on expansion or growth. These include the purchase of new planes, increasing the number of flights, having more number of destinations, expanding the human capital of employees, having new facilities and the purchase of live television. The young fleet with new planes keep maintenance and repair costs low. It spent only 106 million in 2007 which is 3.73% of its revenue. South West Airlines on the other hand spent 616 million which came up to 6.25% of its revenue. Each aircraft of JetBlue’s had 74 employees, much less than other airlines which had 103 (JetBlue Airlines, Wikinvest). Questions have arisen as to whether JetBlue can continue to make profit while adhering to its core values and policies. The fleet would become older, needing more maintenance expenditure.
The company’s operating margin would become less then.
JetBlue limits cabin service thereby keeping costs low. Only snacks are served. Costs are further controlled by having point-to-point flights (p. 324). Reservation staff work from home and reservations are online. New aircraft are always ready and flights reach smaller airports. The workforce is kept happy by offering profit-sharing and higher wages, discouraging them from joining unions. These measures keep costs down.
Possible problems of expansion
Within 4 years, the costs of maintenance of aircraft would increase by 25% to 1.6 million per year. Staff becoming senior would look for tangible benefits and pensions. Labor costs would rise if the employees join unions. If flights take longer to reach destinations, meals may have to be served. The executive staff may be less involved if expansion occurs. The CEO is aware of the price of growth. Competition from the South West and other upcoming airlines would be another headache.
The problem of having New York as main operating station
66% of JetBlue’s flights are taking off or landing in New York. Airport congestion and poor weather could cause delays or cancellations. The company’s performance and customer satisfaction could be frequently injured under the circumstances. When an ice storm occurred over New York, 1600 Jetblue flights were cancelled over 6 days (JetBlue Airways, Wikinvest).
This incident led to the creation of new initiatives for the Jet Blue Airlines. A compensation program was started for cancellations and other disruptions.
Preparation for the future
The company is well aware that its present enormous success does not in any way reduce its future problems (Johnson and Weinstein, 2004, p. 325). Every aspect of customer experience is thoroughly being studied and no stone would be left unturned to make the customer experience wonderful from the reservation to the delivery of the last baggage at the destination. The CEO has visualized three goals of people, performance and prosperity. “Great people drive solid operating performance which yields continued prosperity” (Johnson and Weinstein, 2004, p.325). Jet Blue’s strength lies in making the same passengers come back again and again to fly this wonderful experience. JetBlue has a TrueBlue program whereby passengers are given rewards for flying with it again. 1500 to 2000 people register for this program daily. Much of the revenue (15.6%) also comes from this program. It joined the American Express Membership Rewards Program in 2004 (American Express, 2004). With this new facility, points could be transferred by the Card members enrolled in this program into TrueBlue, which is a Flight Gratitude Program for flying with the JetBlue. American Express thus became a program partner of JetBlue. There was a prize for 50 enrollees in both programs : “The Pack for Paradise Bahamas Flyaway Sweepstakes for two”. The flight would be flying the winners and Grammy Award winning artist Seal who would be performing for them. Two days would be spent on the Paradise island resort. Mr.David Neeleman, the CEO of JetBlue is happy to be making one more contribution to increasing customer value. The same goes for Mr.Alfred Kelly, the group president of US Consumer. He believes that the new partnership has strengthened the excellent commitment to increasing “excellent value and superior service to our customers” (American Express, 2004).
Pampering the customers
Jet Blue is proud of its superior customer service. Providing more legroom than any other airline, customers are also able to watch 3% channels (36 in number) of Free DirecTV on personalized television screens and access 100 % channels of XM radio. Free unlimited snacks are also in the game (JetBlue Airways, Wikinvest). The friendly service staff enhance the wonderful experience. JetBlue is working to provide WiFi access to its passengers by acquiring the Airfone Unit from Verizon and become the first airline to do so. The mission is to bring humanity back to air travel. Ratings of customer satisfaction is highest for JetBlue.
Another step to improve its business
JetBlue has selected Interwoven Incorporation, which provides Enterprise Content Management solutions for business for its plans to improve “competitive advantage and business agility” (JetBlue Airways, Wikinvest). Interwoven is to expand the business online through easy-to- use solutions to promote strong customer relations and brand loyalty. Marketing campaigns are to promote innovation providing a platform for JetBlue’s growth. JetBlue Airlines is in for a long innings with its innovative policies of superior customer value.
References
“American Express and JetBlue to Give 50 Enrollees a Chance to Win the Ultimate Reward”. American express company. Web.
Davila, A. and Venkatachalam, M. (2004). “The Relevance of Non-financial Performance Measures for CEO Compensation: Evidence from the Airline Industry”. Review of Accounting Studies, 9, 443–464, 2004 Kluwer Academic Publishers. Manufactured in The Netherlands.
Duchessi, P. (2002). “Crafting Customer Value: The art and science”. Purdue University Press, Books 24×7.
Francis, J., K. Schipper and L. Vincent. (2003). ‘‘The Relative and Incremental Explanatory Power of Earnings and Alternative (to Earnings) Performance Measures for Returns.’’ Contemporary Accounting Research 20, 121–164.
JetBlue Airways. Web.
Johnson, W.C. and Weinstein, A. (2004). “Superior Customer Value in the New Economy: Concepts and Cases”. 2nd Ed., CRC Press.
Kohler, M. (2006). “A Crucial Part of the Brand: Superior Customer Service”. Accessories, Twice Consumer Electronics, Reed Business information, Reed Elsevier, Inc.