February Week 4

FEBRUARY 26, 2015

Airlines and Bad Service

Airlines have been posting huge profits lately, in large part because of low fuel costs. At the same time, they are living down to their reputation as inspirers of epic irritation. Passenger complaints were up 26 percent last year, The Wall Street Journal reports, and lost bag incidents were up 17 percent. Delayed flights rose from 1.9 percent to 2.7 percent.

Flawed models: The trend toward oligopoly in the airline sector (minimal competition) reduces incentives to provide good service. But Smith marketing professor Roland Rust also argues that airlines are relying on flawed and simplistic models of customer service. "They have to do a better job of designing models that connect customer satisfaction to profitability," Rust says.

A better way: When there's an innovation that simultaneously lowers costs and improves customer satisfaction, everyone seizes on it: Think web-based reservations. Those are no-brainers. Where airlines fall down is in failing to identify where slightly higher expenditures up front would lead to more return visits by consumers. "What the company needs to think about is the lifetime value of the customer, and model the effects of satisfaction on that value."

Press 1 for high blood pressure: It's a difficult task, but Rust has helped to implement such models at Fortune 500 companies. And airlines are hardly the only companies that sell consumer contentment short. Rust says every time you get lost in robo-phone-tree that sends your blood pressure soaring, you're in the presence of a company that has its eye on short-term costs, not long-term relationships.

Ports Return to Full Speed, Sort of

West Coast ports returned to full speed this week after a two-month labor dispute, leaving importers with a backlog of ships waiting to be unloaded. Smith professor Thomas Corsi, co-director of the school’s Supply Chain Management Center, says companies burned by the slowdown will consider other options the next time around. “The labor risk creates uncertainty,” Corsi says. “Companies like to have contingencies for uncertainties.”

Mark your calendars: Chances are, we'll see the next flare-up in another five years, when the tentative labor agreement expires. Chloe Demrovsky tells USA Today that businesses need to start thinking about that now. She is executive director of DRI International, a disaster planning organization that will hold its inaugural Collegiate Conference at the Smith School on April 10. Register here...

North and south: Corsi says Canadian and Mexican ports provide some contingencies, but more investment is needed. “At this point in time," he says, "these ports can’t handle the volume of traffic from Asia.”

Wider is better: More significant relief will likely come from the expansion of the Panama Canal, when a $5.25 billion project wraps up later this year. “Using the expanded Panama Canal, larger ships can bypass the West Coast and carry goods directly to the Gulf and East Coasts,” Corsi says.

This ain’t Rotterdam: Despite the progress, U.S. ports will continue to lag behind Europe and Asia in terms of automation and capacity. “Our ports are way behind the world,” Corsi says. Compared to the largest U.S. port in Los Angeles, Beijing moves quadruple the cargo and Rotterdam moves 45 percent more. So “full speed” is relative. Read more...

Sorry, Bill Gates; We Love Our Cash

Bill Gates recently called for the expansion of digital banking in developing countries as a way to lift people out of poverty. But even in the United States, where most consumers have access to checkbooks, debit cards and mobile tools such as Apple Pay, cash remains popular. In fact, use of physical currency has increased since the advent of the ATM. Kristen Fanarakis from the Smith School’s Center for Financial Policy explains where bills and coins come from -- and how Americans use them. Video (2:34) | Infographic (PDF) | Read more...

Meet your money: Most U.S. dollars in circulation are outside the country. 10 surprising facts (scroll down)...

Five Things You Should Know About Interest Rate Hikes

An interest rate hike could come as early as June, according to a New York Times analysis of Tuesday’s congressional testimony by Federal Reserve Chairwoman Janet Yellen. Smith School professor Peter Morici shares five things you need to know, if the Fed makes the move. Read more...

The Market Value of Ethics

The Ethics Resource Center Reports that almost half of U.S. employees witness unethical or illegal behavior every year. Smith Vice Dean Joyce E.A. Russell says theses lapses can be costly. Read more in the Washington Post...


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