Piedmont Airlines recently invested over $1 million in state of the art equipment and employee development in order to forecast and analyze the appropriate amount of discounted fares to offer per flight. The company discovered that by offering several discounted flights to consumers willing to book their travel well in advance of their departure date left many options available for the business traveler who needed to book much closer to the actual departure date. The analysis was the task of the Revenue Enhancement Department (RED) managed by Marilyn Hoppe. While this state of the art equipment was a step in the right direction, Marilyn believed that there were still a lot of subjective decisions being made and automation was not as prevalent as she would have liked. She wanted the process to be more scientific in nature and leave less up to chance or human interpretation.
Smart Choices and Proactive Decision Making
The decision for the Revenue Enhancement Department to change the current process of allocating discounted seats is definitely a complex one. There are numerous factors and variables to evaluate before making an informed decision or even begin the decision-making process. Some pertinent things that come into play in making this decision include the reports of historical and forecasted data that the seven analysts built, the judgment of the analyst team, competitor activity, and economic trends. Marilyn is in a key role to guide proactively throughout this process, but it will be important to involve the appropriate stakeholders to provide information to help make the decision. This creates the most constructive environment to ensure the right questions are being asked based on the objective that is given. In order for Piedmont to benefit the most from these findings, the company should first look at the core decision-making process and how it applies. Objective- The objective for this case is to decide how the Revenue Enhancement Department can consistently maximize revenues for Piedmont Airlines by allocating discounted seats for every flight, while continuing to build trust with loyal customers. Problem- Marilyn has identified the overarching problem to be to determine if a more scientific means of calculating discounted seats is possible. By evaluating the current processes for discounting seats and examining alternatives, Marilyn can determine what improvements if any, are to be implemented. Alternatives- Alternatives include whether Piedmont will continue to offer discounted seats or not, offer a combination of discounted and full-fare seats based on the percentage of total seats, or offer a combination of discounted seats based on the travel date (whether weekend or weekday). Consequences- The initial potential consequence includes lost sales due to the misjudgment of the analysts. If the analysts mark down too many seats, flights could be oversold and the diverters (customers who pay the discounted fare but would pay full-fare normally) would be turned away or ‘diverted’ to a discounted fare. If too few discounted fares are offered, then the potential sales for ‘stimulator’ customers- or customers who travel only on discounted fares- could be lost. Whether a customer is a diverter or stimulator, a loss as a customer is a loss in revenue. Other consequences to consider are the reduction of trust and confidence from the analyst team- particularly when personal judgment cannot be avoided. Trade-Offs- There are two trade-offs to consider: 1-lost revenues due to a lack of stimulator travel with hope that diverters continue to pay full fare, and 2- the loss of the difference between the full and discounted fares that diverters would pay if the discount were available. With the of loss of stimulator traffic, Marilyn’s department would need to focus on building loyalty among business travelers and diverters in order to gain revenue.
Linked criteria to the core...
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