Virgin Atlantic Airways: 10 Years Later.
Virgin Atlantic Airways: 10 Years Later
(and beyond)
(Case prepared by Pantea Denoyelle, Research Associate, under the supervision of Jean-Claude Larreche, Alfred H. Heineken Professor of Marketing at INSEAD.)
"June 1994, Virgin Atlantic Airways celebrated its 10th anniversary of its inaugural flight to New York. Richard Branson, the airline's chairman and founder, reminisced about its tremendous growth. In 10 short years, he had established Virgin Atlantic as Britain's second largest long-haul airline, with a reputation for quality and innovative product development. Richard Branson turned his thoughts to the challenges that lay ahead."
Virgin Atlantic Airlines
Executive Summary
In our globalize economy that we live in, companies, such as Virgin Group are constantly improving and looking for new opportunities to sell their products and services to the world. As stated by Richard Branson, Chairman and Founder of the Virgin Group, "Our vision is to provide the highest quality innovative service at excellent value for money for all classes of air travelers."
The case study tells how Richard Branson has climbed from a managing and editing his own local school magazine, to owning a record label, creating and bringing Virgin Atlantic Airways into an already crowded market, and has joined with others such as the Singapore Airlines to expand and grow Virgin Atlantic Airways.
The Virgin Group will be discussed in detail to define the parent company and it's subsidiaries to illustrate the success of the company and its endless possibilities.
The financials of Virgin and its outlook will also demonstrate the success of the organization and how the flight schedules and alliances with other airlines has allowed Virgin Atlantic Airlines to access passengers from around the world.
The marketing techniques and how Richard Branson has "branded" his product will also be discussed so that a clearer understand of the man behind the dream can be found. The ideas that Richard believes in, are understand what customers are looking for and what they want so that they will travel on Virgin Atlantic Airlines again.
The History of Virgin Atlantic Airlines
Virgin Atlantic Airlines was introduced by Richard Branson in 1984. Richard Branson began his entrepreneurial success at the early age of 12 selling Christmas trees while still in school. Shortly after graduation, he began one of his many successes, a national magazine titled Student. The magazines format was to identify and discuss "all shades of opinion of all beliefs and ideas." The magazine centered on somewhat controversial issues to create interest amongst its readers. Richard Branson used this platform to create and chair one of the most successful companies in British history.
In 1970, Branson founded and developed a mail-order record business which he called "Virgin" to exploit his own innocence and lack of knowledge about the business industry. At this time, little did he know, he actually knew more than he gave himself credit for. In 1971 Richard Branson opened his first Virgin record shop in London's Oxford Street. Soon after this opening, Richard Branson followed with a recording studio and a production label which, over time, captured many great recording artists such as: Genesis, Boy George, The Sex Pistols, and (with the demise of Genesis) Phil Collins.
In 1980 Virgin Records began to expand its eyes and look over the Atlantic Ocean to a whole new market which it had not tapped into...yet. At first Virgin Record was only a licensing partner to a few companies within the States. Before long Richard Branson captured a fair share of the United States music industry. With the afore mentioned successes of Richard Branson it was not long before all of his businesses were capped under one umbrella which he called, "The Virgin Group."
The Virgin Group was better known in the eyes and ears of the worlds pop and rock-and-roll music industry than it was in any other industry across the country. In 1984 Richard Branson was surprised to hear from an Anglo-US lawyer named Randolph Fields with an offer for his involvement in an airline named British Atlantic. Fields had envisioned operating an airline that would maintain a 747 air service from England to New York City. This original plan failed because of British licensing authorities.
At this particular time, Richard Branson realized that there was more to life, and business for that matter, than music. It was time for the Virgin Group to diversify itself. Maybe an airline?
Branson, tired of passengers being treated solely as a number, realized that not only was the music industry a consumer led industry but air travel was as well. With this in mind, Richard Branson announced the first departure of Virgin Atlantic Airways which was to begin operating in less than three months. Understandably so, his fellow board members thought that he had lost touch with all reality.
Richard Branson has an infectious, sometimes overbearing personality. With that in mind, he insisted that staff be hired, aircraft were found and we are going to get this thing (for lack of better words) off the ground. On the 22nd of June 1984, Virgin Atlantic's first actual flight to Newark New Jersey took place. A flight filled with friends, media, and celebrities of course (for marketing purposes only.) Branson's vision was simple, "to provide the highest quality innovative service at excellent value for money for all classes of air travelers."
The airline continued to go from strength to strength to strength. In the beginning it was difficult for Virgin Atlantic to compete with other airlines because it was unable to go "head-to-head" with its biggest competitor British Airways. British Airways was able to depart from Heathrow airport, Britain's busiest airport, while Virgin Atlantic had to depart from Gatwick International Airport, Britain's second largest. After years of politics, complaining, and campaigning Virgin Atlantic finally was granted the privilege of being able to depart from Heathrow thus allowing the airline to "tackle" their competitor.
The feat allowed Virgin Atlantic the ability to have larger load factors and more full-fare passengers thus strengthening its position within the airline industry. Realizing that obtaining equal playing fields would not carry his airline to dominance, Branson was sure that if he offered passengers things that they wanted, and needed, he would dominate. Upon Virgin Atlantic's first flight, Richard Branson dressed as a pirate, plastered British Airways aircraft with the Virgin logo.
The management's philosophy at Virgin Atlantic was to never have a passenger be bored. With this in mind, Virgin Atlantic added an on board video system in 1989. Virgin Atlantic's on board system had 16 audio channels and up to 20 video channels, a feature that its competitor did not offer. Occasionally the airline offered a beautician, a tailor, and a massage therapist. For newlyweds champagne was served. Virgin Atlantic became the only airline to offer automatic defibrillators. Virgin Atlantic tries to understand its customer's needs and go beyond their wildest expectations.
Virgin Atlantic has demonstrated commitments to its employees and customers. To give them what they want, at reasonable prices, and provide great service along the way. This is apparent considering the numerous awards the airline has obtained over the years. Virgin Atlantic continues to be a major player in the airline industry with more than 34 aircraft flying to 19 destinations world wide.
In 1999 Virgin Atlantic announced its partnership with Singapore Airline. Under the terms of the deal Singapore would acquire a minority stake (49%) of Virgin Atlantic, with Virgin Group holding the majority 51% of the airline. This partnership seemed to be a perfect match. Both airlines have a reputation for offering unbelievable service and innovation and both have won numerous awards within the industry. Under the terms of the agreement, both airlines would retain their own individual identities. The transaction cost Singapore 600.25 million pounds which included a capital injection of 49 million. Virgin reinvested another 51 million and with this transaction for a minority equity investment valued Virgin Atlantic at a minimum of 1.225 billion.
It is apparent that will the leadership of Richard Branson and the ideas, balanced with hopes and dreams the success of Virgin Group the possibilities are endless.
Operating and Marketing Strategies
Virgin Atlantic is a strong company with solid financial performance, good name recognition, and committed leadership. As such, it has many options available for further expansion.
One possible strategy for expansion would be to increase the number of cities served by Virgin Atlantic. The company has a solid business model and demonstrated success, and would no doubt be able to gain access to more cities in the United States, Europe, Asia, and other regions of the world. As an example, some of the major U.S. cities not currently served by Virgin Atlantic are Chicago, Detroit, Philadelphia, Atlanta, Seattle, and St. Louis. There is an opportunity to not only increase the numbers of cities, but to make the Virgin Atlantic name more recognizable as an airline in the United States and abroad. This would require the company to lease more planes and gain terminal space, and would be a very big move.
Virgin Atlantic is currently aligned with a limited number of partners. These partnerships allow Virgin to offer service to more destinations, but the total is still fairly small compared to the major carriers. The costs associated with a strategy to increase partnerships would be much less than if they attempted to expand to more cities on their own. They would not stand to gain as much as they would from a solo endeavor, but the risks are much lower.
Another strategy for expansion would be to offer intercity service between airports to which Virgin already flies. Flight volume could potentially be doubled by adding shorter flights between cities, and they would not have to negotiate for access to new airports.
Gatwick Airport is located in London, and currently used by Virgin Atlantic. The airport is not accessible by London's Underground as is Heathrow, has only one runway, and is not recognized as an option by foreign travelers. It is located 28 miles outside the city, making transportation to and from the airport very difficult. As the airport is used for only a select few flights, it may be cost effective to switch those flights to Heathrow and get out of Gatwick altogether.
Virgin Atlantic could try increasing and adapting their marketing tactics. Currently, only two percent of turnover is spent on advertising; for comparison, the industry standard is five to seven percent. Virgin Atlantic could significantly increase their advertising budget and still stay well below the industry average. As far as their advertising message goes, they may want to think about using their charismatic Chairman, Richard Branson, in some of their advertisements. Consumers enjoy having a face and a personality to associate with a company - for example, Wendy's founder Dave Thomas had a hugely successful advertising campaign, and everyone associates Kentucky Fried Chicken with the Colonel. If a company has a dynamic, unique founder it can capitalize on that image and make it part of the customer's association with the airline. Also, when advertising outside the United Kingdom, Virgin Atlantic could emphasize the quality and superiority of service provided by the English. Certainly there is a reason that the best butlers the world over are English, even if it is just a public perception. Aside from advertising, another marketing strategy Virgin could employ would be to issue a credit card in partnership with Visa or another major company, to issue reward miles and cabin upgrades for every dollar spent.
Suggested Solution
The optimal solution for Virgin Atlantic is to expand their service by flying to more cities, offering service between cities, and increasing their promotion. The best way to accomplish this is to form strategic alliances with other high-quality airlines and fly to more cities while keeping costs and risk low. Virgin Atlantic can lease more planes to offer intercity service where they already have access to airports. If this strategy is successful, Virgin may wish to expand further by offering its own flights to new cities.
The company should increase advertising in its new target markets, and stress the quality and affordability of service in all promotions. Also, consider alternative marketing strategies such as a credit card rewards program, corporate sponsorship of events, and well-publicized donations to charity.
Virgin Atlantic is poised to become a major force in the airline industry. With careful planning and effective marketing, they have the capability to become one of the leaders in the worldwide airline industry.
Virgin Atlantic Marketing
Virgin Group
Virgin - the 3rd most recognized brand in the UK. Virgin is involved in planes, trains, finance, soft drinks, music, mobile phones, holidays, cars, wines, publishing, bridal wear and more. Virgin has created over 200 companies world-wide, employing over 25,000 people, with revenues around the world which in 1999 exceeded US$ 5 billion.
Virgin believes in making a difference. In Virgin's customer's eyes, Virgin represents a sense of value for money, quality, innovation fun and a sense of competitive challenge. Virgin monitors all customer feedback to continually improve the customer's experience.
Virgin's looks for opportunities where they can offer something better, fresher and more valuable. Virgin moves into areas where the customer has traditionally received a poor deal, and where the competition is complacent. Virgin is pro-active and quick to act, often leaving bigger and more cumbersome organizations in their wake.
Virgin starts new ventures based on hard research and analysis. Virgin reviews the industry and puts itself into the customer's shoes to see what could make it better. Fundamental questions are asked: is this and opportunity for restructuring a market to create a competitive advantage? What are the competitors doing? Is the service or product confusing or badly served to the customer? Is this an opportunity for building the Virgin Brand? Is there and/or we add value? Will it interact with our other Virgin businesses? Is there an appropriate trade-off between risk and reward?
Once a Virgin company is up and running, several factors contribute to making it a success. The power of the Virgin name; Richard Branson's personal reputation; the Virgin management style of empowerment and minimal layers of management; network of friends and business partners; small board of directors; and no massive global HQ, as well as these new ventures becoming part of a family of businesses, with empowerment to run their own affairs, but still receive help as need from other ventures if required. Virgin has shared ideas, values, interests and goals.
Virgin Atlantic Airways
Virgin Atlantic, founded in 1984 by British entrepreneur Sir Richard Branson, who prides himself on customer service, creativity and a great place to work, hovers in the same troubled skies as its U.S. peers, which have lost $14.5 billion since the beginning of last year (January 2002). Privately held Virgin Atlantic is expected to earn $15 million pretax for the year ended 30 April 2003, but it is showing signs of stress. Its North American arm, based in Norwalk, Conn., has laid off 28% of its staff of 3300, reducing it to 913, eliminated flights to and from ...
This is a preview of the whole essay
Virgin Atlantic, founded in 1984 by British entrepreneur Sir Richard Branson, who prides himself on customer service, creativity and a great place to work, hovers in the same troubled skies as its U.S. peers, which have lost $14.5 billion since the beginning of last year (January 2002). Privately held Virgin Atlantic is expected to earn $15 million pretax for the year ended 30 April 2003, but it is showing signs of stress. Its North American arm, based in Norwalk, Conn., has laid off 28% of its staff of 3300, reducing it to 913, eliminated flights to and from Chicago and Toronto and has slashed its ad budget by $13 million. An inside, un-named source o f Virgin Atlantic Airlines was quoted as saying, "We need to grow up and find a new role, our Peter Pan-ish founder isn't much help; Branson is too busy with mobile phones, trains and countless other ventures."
Virgin Atlantic competes in the world airline market by keeping its fixed cost low and partnering with other airlines. Virgin leases its airplanes rather than buying them. This has allowed Virgin to have the youngest airliners in the industry and the ability to increase or decrease the number of planes it operates depending on market conditions.Virgin Atlantic also believes in partnering with other airline companies that meet their quality standards. Through these partnerships, Virgin is able to book passengers through to more destinations on a Virgin Atlantic Ticket, Thus more air-miles for the frequent Virgin Atlantic flier.
The airline industry is affected severely by world economic, political and legal changes. The down turn in the world economy in early 2001 and further encumbered by the events of September 11th has had a dramatic effect on the number of people flying for business and pleasure. However, with deregulation of most of the world's airline industry and the creation of the European Union have helped mid-sized airlines such as Virgin Atlantic to expand into new markets with fewer restrictions. Virgin Atlantic has expanded its flights into larger cities in Africa, Asia and the Caribbean to meet the needs of European travelers.
Virgin Atlantic uses a wide range of marketing techniques. Advertising activity in the UK includes TV, press, magazines, outdoor posters and taxi sides, all featuring the Virgin logo. Advertising is used to raise awareness of new product developments and new routes.
Virgin Atlantic commissions quarterly customer satisfaction studies that are conducted by prominent market research organizations. This survey is to monitor everything from the punctuality of flight departures to the length of check in, as well as the quality of in-flight entertainment and service. Results are fed back to managers globally, providing the airline with the valuable opportunity to review and improve its services. Virgin Atlantic also participates in industry wide surveys conducted by the International Air Travelers Association, the Transatlantic Passengers' Survey, and the Survey of Passengers on Europe Asia Routs. These surveys provide a benchmark for all competing airlines on service, both on the ground and in the air.
Virgin Atlantic manages and maintains an extensive customer database. This database holds a wide range of information including details provided by customers who register their interest in precisely targeted campaigns and promotions, the database is also used to produce management reports on the behavior of the customers and to track the mileage of the airlines frequent flyers.
Virgin Atlantic Product Offerings
Virgin Atlantic operates a frequent flyer program, "flying club" to encourage loyalty in existing flyers. However, in addition to offering miles which can be exchanged for free flights and other reward, "flying club" members are rewarded with a host oft other benefits, e.g., a "one call does it all" support service and Clubhouse access.
The frequent flyer program, "flying club" has recently been revamped and redesigned to provide more exciting incentives for first time flyers and to build passenger loyalty. The reward scheme has been restructured, now members can join the "flying club red" from their first flight, with existing customers being given extra incentives to move ahead to newly created "flying club silver and onto gold".
"flying club red" members will receive regular mailings of special offers and fare to Virgin Atlantic destinations, as well as promotions form our other airline partners .
"flying club silver" member status, once achieved cannot be down graded; to qualify members need to make the equivalent of one upper class one-way flight. They will enable member's priority status, Premium Economy check-in when flying Economy, priority wait listing, express handling of rewards and exclusive offers.
"flying club gold" membership brings extra status to frequent flyers. Benefits include Upper Class check-in regardless of traveling class, 24 hour access to theater and sporting ticketing with no booking fee and the ability to tailor-make their own awards.
"Economy Class" aims to give value for money:
*Contoured, space saving seats with adjustable headrests.
*Pillow and blankets.
*Choice of up to 20 video channels plus 14 audio channels and 25 Nintendo games on selected aircraft.
*Choice of three entrees with main meal including a vegetarian option.
*Free drinks.
*Outbound journey amenity kit, with socks, eyeshades, earplugs, breath mints, toothbrush, toothpaste, Virgin pen and 10% discount voucher fro the Virgin Megastore.
*Special features for children.
"Premium Economy Class", first introduced in 1992 as Mid-class, or Business-class features:
*Most comfortable economy seat in the world
*Pre-take off champagne.
* Choice of up to 20 video channels plus 14 audio channels and 25 Nintendo games on selected aircraft.
*Priority economy meal with choice of three entrees with main meal including a vegetarian option.
* Outbound journey amenity kit, with socks, eyeshades, earplugs, breath mints, toothbrush, toothpaste, Virgin pen and 10% discount voucher fro the Virgin Megastore.
*Newspapers.
*Express Economy baggage claim.
* Special features for children.
"Upper Class" passengers:
*receive complementary chauffer driven car or LimoBike service from their home or office to Heathrow, Gatwick or nearest regional airport if connecting flight is with Virgin Atlantic. Or you can travel free on the Heathrow or Gatwick Express (Trains to and from London).
*Exclusive area for "Upper Class" passengers to check baggage.
*Virgin Atlantic Clubhouse - rest, relax, snack, free drinks, three course meal, internet, and more.
*All Seats are "bed-chairs" uniquely styled for full stretch-out comfort.
*All Seats have personal TV screens offering video channels, audio, as well as Nintendo games.
*On flights from Heathrow you can enjoy a massage or manicure. There are more than 200 in-flight beauty therapists.
*Freshly prepared, three course meals served on china.
*Upon return - have a "power shower", have your clothes pressed.
*Full business facilities - phones, faxes and internet access.
*Gourmet Breakfast.
The Virgin Clubhouse:
*Bar - offering breakfast menu that includes hot and cold food, plus a drinks bar.
*Library - offers a wide selection of books, with antique leather furniture to relax on, as well as magazines, newspapers and board games.
*Game Room - offers Playstation and Xbox, with a section of children's toys and books.
*Business Center - offers individual workstations with phones, fax, photocopying, and internet connections.
*Virgin Touch - preflight grooming and relaxation salon offers wide range of facials, massages and beauty treatments for male and female passengers. Hair cutting and styling is also available. Foot spa and foot massage. Facial treatments. Eyebrow shaping, Acupressure face and scalp massage. Pressure point massage.
*Cinema - floor to wall padded surround sound cinema, which offers sofas and beanbags with a wide-screen cinema.
*Telescopes - view runways.
*Toilets and Showers.
*Wardrobe area - offering lockable lockers.
Virgin Atlantic is in a league of its own, competing in a global market, wanting to be the umpire, while still making up the rules. Virgin has employed entertainment value so universally across their businesses, that it has become a marketable attribute of their corporate and brand strategy. Sir Richard Branson's quirky, irreverent antics, combined with a daring, can-do-anything attitude, have so engaged consumers that they accept the notion of one company delivering well across multiple industries under one brand name - with very high customer loyalty.
Strengths
* Richard Branson - Branson's charisma and personal charm is one of the biggest strength's of the airline and the rest of the Virgin Brand.
* Privately Owned - Virgin Atlantic is privately owned; therefore, decisions can made quickly.
* Good Marketing - Virgin's marketing strategy of providing services has made the airline highly visible.
* Good Image - Branson and company has worked very hard at presenting an image of good employee, vendor and customer relations.
* Innovation - Virgin employees are encouraged to bring suggestions forward.
* Youngest aircraft in the industry - newer aircraft are better designed for customer comfort and consume less fuel.
* Low Overhead - Leasing aircraft instead of owning, hiring "retired pilots" along with other measures benefit the company with lower costs.
* Leased Aircraft - Leasing allows for quicker turnover of high mileage aircraft. It also takes advantage of having the latest technology available to its customers.
* Alliances - Virgin's Alliances with smaller airlines provides a feeder service for customers.
* Senior Management Team - Branson's top-level managers have the same innovative spirit as their owner.
Weaknesses
* Richard Branson - Brass, Arrogant, Successful and Daring. There are people who want to topple Branson just for the reasons above.
*Cash Flow - Branson seems to always need cash. Singapore Air owns 49% of Virgin-Atlantic.
* Direct Routes - On longer distance flights, Virgin's expenses can be very high.
* One Hub - Having only one point to work from is a disadvantage.
* Limited Destinations - Virgin has less flight opinions for airline travel.
Opportunities
* Major Cities - By adding more cities to their schedule, Virgin can increase market share.
* Bankruptcy of Competing Airlines - Picking up flight routes and gates can increase market share.
* European Union - As the European Union emerges less regulation is in place.
Threats
* World Economy - when the economy slumps, the airline industry is one of the first and hardest hit.
* New Airline Regulations - Always a constant threat.
* Fuel Costs - Another constant threat
* Terrorism - Virgin-Atlantic is a high profile company. An attack by terror groups is another constant threat.
* Over Flight Restrictions - Changing governments and policies in countries where Virgin occupies airspace could be a problem.
* New Airlines - New airline companies forming using Virgin concepts, could be a threat.
Situational Analysis
Virgin Atlantic Airlines is the second largest long haul carrier in the United Kingdom (UK) and the third largest European airliner operating in North America. The company was founded in 1984 and has grown rapidly in part due to deregulation of the world airline industry. The company is privately owned with Sir Richard Branson owning 51% of the company and Singapore Airlines owning the remaining. The company prides itself on customer service, creativity and a great place to work.
Virgin Atlantic Airlines is the second largest airliner in the UK, second only to British Airways. Virgin prides itself on competing head to head with British Airways and beating them in customer service and price. Virgin provides air service to several US city including, New York, Boston, and Orlando. Companies providing transatlantic airline service are made up of many large companies from most countries. For instance United, Delta and American Airlines are major United States Airlines, Air France from France, and Lufthansa from Germany, and British Airways from the United Kingdom. There are also many smaller carriers such as Virgin Atlantic that are working hard to take away market share from large companies mentioned above.
Virgin Atlantic competes on the world airliner market by keeping its fixed cost low and partnering with other airlines. Virgin leases its airplanes rather than buying them. This has allowed Virgin to have the youngest airliners in the industry and increase or decrease the number of planes it operates depending on the market conditions. Virgin Atlantic also believes in partnering with other airline companies that meet their quality standards. Through these partnerships Virgin is able to book passengers through to more destinations on a Virgin Atlantic Ticket.
The airline industry is affected severely by world economic, political and legal changes. The down turn in the world economy in early 2001 and the events of September 11th had a dramatic effect on the number of people flying for business and pleasure. However, with deregulation of most of the worlds airline industry and the creation of the European Union have helped mid-sized airlines such as Virgin Atlantic to expand into new markets with fewer restrictions. Virgin Atlantic has expanded its flights large cities in Africa, Asia and the Caribbean to meet the needs of the European travelers.
Executive summary
"Virgin" is currently the third most recognized brand in Britain and it is commonly associated with the identity of its founder Richard Branson. Branson is not your typical corporate businessman but rather a risk-taking entrepreneur that emphasizes the fun in every activity he is driving the Virgin group into. Virgin's best known operations are probably air travel (the Virgin Atlantic and Virgin Express airlines) and music stores (Virgin Megastores), but they are also involved in trains, finance, internet services, soft drinks, mobile phones, cars, wines, publishing, and bridal wear to name but a few. Although Virgin has successfully developed a differentiation strategy in each of these sectors, some of the group's companies are currently experiencing financial difficulties.
Through a SWOT analysis, we identified four main strategic issues that will determine Virgin's future success:
*Leadership - how to foster a new Branson that will be able to lead Virgin trough its new challenges?
*Globalisation - how to leverage the Virgin brand recognition in the UK to an international one?
*Reorganization - how to organize such a large number of different companies with different business focus?
*Financial structure - how to structure the company's capital for an optimal return on investment?
Following a through analysis, using tools such as "the BCG matrix", leadership model analysis and Internet analysis, we concluded that in order to survive, the Virgin brand has to become global. We believe that building a leading worldwide Internet portal, giving access to all Virgin's business, is critical both for globalizing the brand and for managing the different business trough one platform. Furthermore, we believe that Virgin should finance its expansion to the electronic commerce by raising money in the capital markets trough an initial public offering of its shares.
2Project background
"Virgin" is the third most recognised brand in Britain today (Virgin.com website), and also has a significant and growing brand identity around the entire world. The Virgin group's brand identity is synonymous with the identity of the group's founder, Richard Branson, who has become famous for challenging business tradition both personally and through his company's activities.
Sir Richard Branson, as he is now known, remains in charge of the sprawling Virgin group. He is infamous for his adventurous exploits and publicity stunts, the most daring being his attempt to be the first to circumnavigate the world in a hot air balloon. This particular goal was not achieved, but both Branson and Virgin gained significant worldwide publicity from the several unsuccessful attempts. Branson is not your typical corporate businessman - he is rather recognised for his woolly jumpers, beard and toothy grin. He is neither the typical tycoon - but rather honest, unstuffy, nice even. But these impressions belie a hugely successful entrepreneur and businessman. Branson's strategy that he calls 'branded venture capital' (The Economist, 17-02-2001) puts forward the Virgin name and minimal capital. To date, wealthy partners have provided the bulk of the cash, whilst the Virgin brand is exchanged for a controlling interest in the new enterprise.
The name of the Virgin group hails from the original discount mail order record company. One of the initial popular contenders was 'Slipped Disc', but one of Richard Branson's girl student colleagues suggested 'what about Virgin? We're complete virgins at business. 'And there aren't many virgins left around here' laughed one of the other girls. Branson adopted the name on the spot (http://www.millservices.co.uk/ richardbranson.html).
Some interesting quotes from Sir Richard Branson that sum up the Virgin approach, brand and ethos include:
"We look for opportunities where we can offer something better, fresher and more valuable, and we seize them. We often move into areas where the customer has traditionally received a poor deal, and where the competition is complacent."
"I want Virgin to be as well-known around the world as Coca-Cola."
"We are a people brand and a people business in the purest sense of the word"
Virgin is an interesting company to study in order to gain a better understanding of how Richard Branson is continuing to achieve such apparent success through marketing and developing his unique Virgin brand. It is estimated that if Branson's stakes in the various companies were put on the public markets today, they would be worth approximately $3 billion (Time Magazine, 5 March 2001). Since Virgin has such a diverse range of businesses and international activities, the company presents a challenging study in seeking to understand the overall Virgin strategy, critical success factors and why specific Virgin companies were launched. Also of interest are some of Virgin's rare failures and apparent present difficulties. The choice of Virgin as a target company presents additional challenges since it is not a publicly listed company, and consequently there is a limited amount of thorough facts and analysis available.
The overall project objective is to gain an understanding of what Virgin's future strategic options might be and conclude with our considered final strategic recommendations.
3Company and industry background
The Virgin group of companies have a very strong brand name in Britain and is, according to Virgin's website, also "now becoming the first global brand name of the 21st Century". Virgin's best known operations are probably air travel (the Virgin Atlantic and Virgin Express airlines) and music stores (Virgin Megastores), but they are also involved in trains, finance, internet services, soft drinks, mobile phones, cars, wines, publishing, and bridal wear to name but a few. In total, Virgin has created over 200 companies worldwide, currently employing over 25,000 people. The total revenues of the Virgin group in 1999 exceeded US$5 billion (www.virgin.com/about/about.jsp)
The Virgin companies are generally service providers, i.e. they provide some kind of service to consumers such as travel or other services. Many of these services are available via the Internet. All the various Virgin companies are linked by the values of the Virgin brand and the attitude of the employees. Virgin competes in some of the most established and competitive industry sectors, such as air travel, financial services and mobile phone networks. Yet it has successfully developed a differentiation strategy in each of these sectors, attracting loyal custom and thus achieving success. However, very recently some of the Virgin companies are experiencing financial difficulties.
The following is a brief review of some of the major Virgin companies:
Virgin Atlantic Airlines: Virgin Atlantic, the first venture of Richard Branson outside the record business, started in 1994 challenging the established airline companies like British Airways flying cross Atlantic. It achieved steady growth during the 1980's and became one of the most profitable airlines during those years. With the sale of Virgin Records in 1992, fresh money was brought in to secure further expansion. Routes to Asia were added. At the end of 2000, Singapore Airlines took a stake of 49% in Virgin Atlantic for GBP 600 million. Virgin Atlantic is the sixth biggest cross Atlantic carrier with a total turnover of 1 billion GBP. It is one of the best-known Virgin companies (The Economist, 23-12-1999).
Virgin Express Airlines: Virgin Express Airlines started in 1996 with the acquisition of the low cost Belgian Airline EBA. Virgin Express is a low cost low fare airline. The main hub is Brussels and all destinations are within Europe. In 1997, Virgin Express was floated on the Brussels stock exchange and has been under performing tremendously with the stock falling two-thirds since the introduction. Virgin Express has generated hardly any profit since its foundation and is still loss making. In 1999 Virgin Express Ireland was founded to avoid strict Belgian labour laws and high costs.
Virgin Blue: This is the newest Virgin Airline company operating in Australia as a low cost airline. It started in 2000 with five Boeing 737-400 airplanes. The start had a setback due to the increase in oil-prices, devaluation of the Australian Dollar and the competitive strengths of Quantas and Ansett, the two other Australian airlines. The plan to make a loss for three years will probably be overtaken by reality, making the time to get the first profit probably longer (Business Week, 2000). Virgin Blue is gambling on the surge in Australian air travel for this future profitability.
Virgin Rail: Virgin entered the UK privatised rail industry with Virgin Rail launched in 1997. It consists of 20-year franchises to operate two UK railway networks:
*CrossCountry - a series of routes that traverse the UK.
*West Coast - the main route from London to Glasgow.
These franchises were awarded to Virgin by competitive tendering following the privatisation of the British Rail network. Virgin is a train operator (rolling stock, ticketing offices, staff) whereas the tracks, signalling and stations are owned and operated by Railtrack, overseen by the government regulatory body - the Strategic Rail Authority. In 1999, Virgin Rail split its equity to incorporate a 49% holding from Stagecoach, a privately owned bus company. Virgin's reputation in the rail industry has been mixed. It has suffered from poor public relations including complaints regarding dirty trains, delays, and poor food. Customer numbers have also decreased recently in the aftermath of the Hatfield crash and the repairs required to the railway lines that have resulted in significant disruption and delays to services. Virgin Rail has attempted to win back customers through half-price ticket schemes, but the difficulties in even purchasing such tickets has initially led to further complaints. Virgin's goal to turnaround the rail service delivery concept is a definite challenge in a traditionally difficult sector. The business challenge is even greater given the complexity of the rail business environment and regulations, and profitability is likely to remain a distant goal.
Virgin Drinks: The developments of Virgin Cola as well as other drinks reflect the overall patterns of making business in Richard Branson's empire. Back in 1994 the British market of cola's was dominated by major players, worldwide brands whose position seemed to be untouchable and one could only imagine the inner battles of that preoccupied segment. Nevertheless, Virgin Cola and its related flavours have met with extraordinary success in the United Kingdom and many countries in Europe and Asia. In many instances Virgin(r) has risen to the number two selling soft drink line-up in the market (Desalvo, 1998)
Over the past five years Virgin Cola has grown significantly in the UK and internationally. They have demonstrated an ability to compete aggressively in other drinks segments too, and the name has been changed to Virgin Drinks to reflect this growth. The turnover ranges about GBP 300 million, which is really significant for the new entrant.
Recently it was agreed with Cott, the initial partner company, to buy out its interests to enable Virgin to pursue more radical and innovative marketing techniques synonymous with the Virgin brand. (Marketing Week, 16-03-2000) The company subsequently opened a brand new concentrate manufacturing plant in Ireland with the capacity to produce concentrate for 1 billion litres of cola a year. Last year TV advertising campaign generated an awareness of 36 percent among teens, which was higher than Pepsi's awareness over the same period and equals to Coke's. Though recent household penetration figures show Virgin's British market share at 7.4% compared with Pepsi's 13.4% and Coke's 30.6%, which provoked some critique to blame Virgin of failure, the other figures and facts show the company is still gaining significant market share. (Marketing Week, 30-03-2000) Since its launch in the US in 1998, Virgin has won less than 0.1 percent of the US drinks market, according to industry newsletter Beverage Digest (Fischer, 1998). As a representative of Atlantic Beverage, one of the Virgin's distributors, said recently: 'we are not going to take out Coke and Pepsi. They are the gold standards, but Virgin is the standard for fun and taste, there is a room for everybody'.
Radio Free Virgin: is a web based technology that turns a user's computer into the world's best digital radio tuner, Radio Free Virgin uniquely combines music and technology to bring consumers the highest quality music content available via digital distribution. Radio Free Virgin's state-of-the-art, CD-quality streaming audio combines the company's proprietary application software (available by download free of charge at www.radiofreevirgin.com) and innovative, original music channels programmed by well-known artists, celebrities, musicologists and DJs from around the world. Since the radio was launched, over one million listeners downloaded Radio free virgin. In the past three months, downloads of the Radio Free Virgin player have increased more than 3000 percent, time spent listening has more than doubled and the content offerings have expanded from 24 to over 40 music channels (PR Newswire, 17-01-2001). Recent content partnerships including the Grammy Foundation, Playboy, music.com, soul24-7, V2 Records and others, provide free access to high quality, digital music that fans applaud as the best online listening experience available.
Virgin Mobile: This is a 50:50 joint venture company between Virgin and Deutsche Telecom (One 2 One) and is the UK's first mobile virtual operator. It also sells mobile phones. Virgin Mobile is now established as the most successful virtual network operator in the world. Since its launch in November 1999, it has attracted over 750,000 customers, making it one of the fastest growing mobile phone companies ever (PR Newswire, 20-02-2001). Virgin has already taken the brand overseas with Virgin Mobile (Australia), a partnership with Cable and Wireless Optus; and Virgin Mobile (Asia) a joint venture with Singapore Telecom. Virgin Mobile is deploying InfoSpace's wireless technology platform and suite of services to promote the Virgin Group's global expertise in the fields of entertainment, leisure and travel. The launched offerings include "Music Services", such as music news, charts, event listings, and releases; "Going Out" and "Staying In" services, featuring movie news and guides, new releases, recommended event venues, and new video and DVD releases to buy; "Sports Services," featuring European football, rugby, cricket, and golf; "Travel Services," including last-minute travel deals; and, mobile horoscope and lottery offerings. All of the services are customisable, enabling Virgin Mobile's users to receive personalized local data, based on their preferences and profiles. In addition, the integration of InfoSpace's communication services suite allows Virgin Mobile's customers to send and receive e-mail messages, and access personal information from an electronic address book, calendar and to-do list.
Virgin.com: (www.virgin.com) is the Virgin portal and gateway to all Virgin online businesses. Branson spent $225 million in developing Net business and services. The Virgin.com site is a giant with 2 million visits per month after less than a year of operations. It ranks as the 12th most popular Web destination in the UK (Business Week, 22-01-2001); has a joint development, technology licensing and sales and marketing activities with Bright Station and solutions backed by Intel's technology backbone. With the rapid growth of Virgin's products and services, Virgin.com recognized the need to deploy solutions to serve the Virgin business and take advantage of the full brand potential. The enhanced Virgin.com portal will be featured in Virgin V.Shops as well as online. Virgin.com records about 22 million visits per year; the company online sales totalled US$ 216 millions in 2000 (from about US$ 5.2 billion total Virgin sales). Online sales include about US$ 53 million worth of airline tickets, 180,000 virgin mobile phones and US$ 3 millions worth of wine sales. Virgin direct financial services include one million customers and over US$ 4 billion in assets..
Just as Virgin's Bricks & mortar business, the virtual business portfolio covers everything from train and plane tickets to electricity bills. Some examples are:
Thetrainline.com- joint venture with British transport company Stagecoach. The site sells tickets for Britain's 23 train operators, has 2.1 million users and is adding 55,000 new ones each week (Business Week, 2001).
VirginEnergy- 5,500 London households paying gas and electricity bills online since July 2000
Virgin Cars- 2,000 cars sold online since June. This is a virtual showroom, where consumers can compare models before buying at a price 17% cheaper than traditional dealerships. Customers get maintenance and can arrange financing as well as sell their existing cars online.
Virgin Direct- 1 million customers using financial service for managing $4 billion in assets including
insurance, mortgage and investment funds
Virginwines.com- $58,000 worth of wine sold per week online
Virgintravelstore.com - One can book everything from airline flights to hotel rooms to guided tours from a
wide selection of travel companies, including Virgin.
Figure I: The Boston consulting group's Growth-Share Matrix
We can conclude that some businesses are cross subsidised by the travel and Megastores businesses. The variety of offerings covers an entire lifestyle and many businesses are complementary, such as Virgin travelstore.com and travel businesses.
4Identification of the objectives of Virgin and the problems confronting the company
One of the main objectives of Virgin at this moment is developing its net-business. Other objectives would be to bring order into the Virgin conglomerate of very diverse businesses, which could be achieved by developing the net-business. The last objective is the further expansion of the brand to turn it into a truly global brand.
In achieving these objectives, a number of problems arise. Both external and internal strategic analyses are required to fully establish these problems as well as the opportunities facing Virgin. Issues that we consider relevant include:
*Has Richard Branson spread his unique brand too far? (i.e. brand dilution). What is Virgin's value proposition? What does the brand stand for and what is its business model?
*Will the group diversity mean less expertise and hinder the competitiveness of individual businesses in globally competitive markets?
*Is the company brand and culture too dependent on Richard Branson himself (what would happen if he departed/retired)?
*What is the group's future strategy? How can they leverage information and communication technology advancements to provide competitive advantage? Where are they in relation to their main competitors?
*How can Virgin leverage its brand and competencies to achieve global business success?
*How can the company best position itself for the future?
5Strategic Analysis
For the strategic analysis, a SWOT analysis has been used to determine what are the strengths, weaknesses, opportunities and threats that the company as a whole is facing. In-depth analysis has been performed on the leadership and brand, two main drivers of Virgin's success to date. Further analysis has been done on the Internet where Virgin is focussing its present attention.
5.1 SWOT ANALYSIS
Virgin Strengths:
Virgin has the following main strengths:
.Strong brand recognition: The Virgin brand name is one of the most recognized brand names in the UK, but also well known in other important markets like Europe and the USA. In a recent Financial Times/PriceWaterhouseCoopers' survey (Financial Times, 2000) of the world's most respected companies, Virgin was placed 28th.
2.Personal reputation and image of Richard Branson: Branson has a very good understanding of handling the media, strong negotiation skills and strong charisma. He is well respected for his unorthodox approach to business. He achieved 5th place this year in the Financial Times survey on the world's most respected CEO's (Financial Times, 2000). Being a "celebrity", he is easily able to get access to the right people and obtain partnerships or alliances when needed.
3.Strong and positive perceived values of the brand: The Virgin brand's perceived values include: Value for money, quality, innovation, fun and sense of competitive challenge. The Virgin brand is particularly strong in its home UK market. Branson is well aware that a good brand travels and that the brand elasticity is infinite.
4.Company structure and culture: The Virgin companies have an entrepreneurial spirit whilst minimizing bureaucracy. It is a cluster of loosely associated companies instead of a hierarchical company. Branson acts as a back seat leader, encouraging people to use their creativity and welcoming good ideas. The culture is one of "make work fun" and informality.
5.Experience in penetrating a number of diverse industries: Virgin has penetrated a large number of very diverse industries, from the music industry, airline industry to the telecom industry and on-line car selling. In themselves these industries are unrelated, yet Virgin has penetrated each of them with great or reasonable success.
6.Strong in establishing partnerships: Virgin has been able to enter new industries by establishing good partnerships. In the drinks business, this was for example done with the Canadian company Cott, in the Rail business with Stagecoach and in the insurance business with AMP (the Australian Mutual Provident Society).
7.Strong in strategy and tactics: When entering an industry, Virgin attacks the dominant companies, playing strongly the 'David' against the industry's 'Goliaths'. It carefully picks its battles trying to hit the Goliaths where it hurts. In the mean time, Virgin is proactive and quick to act, avoiding paralysis by long analysis. The company uses joint ventures or other partnerships to leverageexpertise. Virgin isn't afraid to make mistakes in order to learn.
Virgin Weaknesses
Virgin has the following main weaknesses:
.Loss making businesses: Most of the Virgin companies are loss making excluding Virgin Atlantic, the Virgin holiday companies and Virgin Rail (thanks to subsidies) (The Economist, 23-12-1999). Virgin has been forced to sell profitable businesses or parts of them to safeguard other ventures. This happened in 1992 with the sale of Virgin Records to safeguard Virgin Atlantic, and with the sale of a 49% stake in Virgin Atlantic to Singapore airlines to safeguard the Music retail business.
2.Vulnerability of the business to the brand image: Virgin has a 'No bankruptcy' policy for its almost 200 legally separate companies. To avoid damage to the Virgin brand and Branson image, the bankruptcy of any Virgin company is avoided at any cost. Unprofitable businesses are kept going.
3.Bad reputation with investors: Virgin companies that are floated are under performing tremendously. The clearest example is Virgin Express, whose shares trade at a fraction of the original introduction price. The Virgin Group was floated in 1986, but subsequently withdrawn from the stock market in 1987 when its share prices were slashed.
4.Late entry to e-business: Richard Branson recognizes he was very late in entering the e-business. He has already spent more than $225 million to develop the net business and services and is now planning to spend another GBP 100 million (Business week, 22-01-2001), mainly to catch up.
5.Dependence on Richard Branson: Richard Branson is in fact a private, branded entrepreneur. This makes the Virgin company unique but also very vulnerable. Branson's reputation is closely linked to the Virgin company reputation, thus if he were to tumble, the Virgin brand would also tumble. As they are so closely linked, the risk is also high should Richard Branson abruptly depart or die. There could be crisis of confidence, which could endanger the survival of Virgin.
6.Diversity: The Virgin conglomerate contains a huge number of businesses and joint ventures ranging from Vodka to Airlines and wedding dresses. The only synergy between the companies is the brand name. Therefore the corporate management expertise is spread very thin and diluted, which might cause under performing of the business. It may also result in a lack of strategic focus within the company.
Virgin opportunities
Virgin has the following opportunities:
.Global expansion: Virgin needs to achieve efficiencies from expansion outside the UK and Europe. Its initial target must be to expand in key markets like the USA and Asia. This expansion can be achieved in an affordable way when using the Virgin.com web portal and distributing electronic content. The company can leverage the celebrity status of Branson, the virtual radio and the Virgin brand name.
2.Virgin.com as global electronic marketplace for all Virgin products: Since Virgin has a huge portfolio of very different businesses Virgin.com can be used as a low cost sales channel for all the Virgin products. This will also bring meaning to the diverse portfolio of products, as they are complementary in offering one-stop shopping for an entire lifestyle range of products and services.
3.Become leading portal for wireless/mobile web access: Virgin enjoys a head start compared to traditional bricks and mortar integrated companies. Its amazing capability of initiating and growing "unrelated" businesses as separate entities competing in their own right in their respective industries is not easy to replicate. Also critical is the flexibility and speed of its organization and culture that combines with its proven ability to partner with technology competence holders. This making it well positioned to compete both via the wireless and traditional Internet.
4.Streamline operations: Using the Virgin.com as the main portal to access all the Virgin businesses, will be an opportunity to streamline the operations within and between the existing companies. Examples are the procurement and supply chain management side. It also presents an opportunity to get rid of those businesses that do not fit well within its growth and e-strategy.
Virgin threats
Virgin is experiencing the following threats:
.Failure of any of the businesses: Virgin is essentially a venture capital company that brands its investments Thus by definition some of its ventures will not succeed. As mentioned earlier, failure of one of the Virgin businesses, and especially one of the better-known businesses, could cause immense damage to the Virgin brand and Sir Richard Branson's image.
2.Brand dilution: The range of activities within Virgin is growing rapidly which may result in dilution and the Virgin brand becoming recognized as "a jack of all trades and master of none".
3.Strong competition in each market segment: In each market segment that Virgin enters, it is facing strong and experienced competition. This might bring the Virgin ventures into difficulty, as can be seen in the new Virgin Blue airline where the rich and profitable Quantas and Ansett competitors take up the challenge by beating Virgin Blue's low pricing (Business Week 23-10-2000).
4.Personality cult: A major question is whether the Virgin brand is an independent entity and has an existence beyond its association with Richard Branson? The disintegration of Virgin should Branson depart is a very real threat, especially since Virgin is substantially owned by Branson's offshore family trusts. It is difficult to envisage the Branson trust continuing its involvement in Virgin, given that active family involvement would be required.
5.Non-public structure: Due to private ownership, the Virgin business ventures may come under less scrutiny than similar public ventures. Some ventures may not be being pursued for profitability or growth reasons but only to satisfy Branson's ego.
5.2 Leadership Analysis
One of the main issues coming out of the SWOT analysis that needs further attention is Richard Branson himself as chairman and owner of Virgin. Richard Branson has unique leadership skills, which has made the company what it is today. We can describe his leadership as personality-driven leadership that already has some significant similarities with market-driven leadership. The four practices in this respect are:
.A passionate connectedness: Richard Branson has shown how he is driven to satisfy his customers and motivate employees. He is known for showing up when Virgin Atlantic flights have delays, and giving free tickets to passengers to compensate for the delay. Which other airline CEO would do this? For his employees, Branson has the attitude that work should be fun.
2.A deep commitment to create meaning: Elements of Branson's strategy are reflected in his companies. He is trying to attack the Goliaths in different industries, and does that by creating an entrepreneurial spirit in the Virgin companies. The company's main aim is to grow and gain market-share, and profit is secondary.
3.An ability to mobilize people: Branson not only mobilizes people within the organization, but also outside by creating strategic partnerships when these can help him in the goals for that specific business.
4.The capacity to inspire: Branson inspires his employees by setting the example in entrepreneurship. He doesn't avoid risky ventures, often ones that catch the media attention like his recent attempt to fly around the world in a balloon. It generates above all publicity and free advertising.
The main issue with the inspiring leadership of Branson will be his succession. Could the abrupt departure of Richard Branson create a crisis of confidence within and outside the Virgin group thus endangering its existence? According to Branson, this shouldn't be a problem. He claims that the Virgin brand is an independent entity that has an existence beyond its association with him (Dick, 1999). The Virgin Charter, a sixty page agreement between the holding company and its subsidiaries creating clearer communication and information flows between the shareholders, management and companies, might be help with tackling this potential problem internally.
5.3 Brand Analysis
The Virgin Brand is unique in the sense that it is used for a huge variety of different product offerings. Within these offerings a number of common characteristics become evident:
-Challenger: Virgin is acting like the Robin Hood fighting the Sheriff of Nottingham.
-Value for money: Virgin is aiming at supplying better value for money as compared to the competition.
-Good quality: The quality of Virgin products and services is known to be reliable and consistent
-Fun, hip: Most of the Virgin businesses are lifestyle and travel related, which is developing the original image of Virgin records of being young, rebellious and hip.
-Branson: The Virgin brand relates to the personality (or brand) of Richard Branson.
The result of these characteristics is that the Virgin brand does not leave people indifferent. It creates emotional connectedness. The Virgin brand has also the advantage of simplifying the choice for consumers. When buying one of the products or services within the Virgin portfolio, people know what the brand characteristics are for this product or service. It also reduces the risk for these consumers, as they will know which quality to expect.
Virgin is trying to become a global brand. A number of issues are of importance in achieving this goal:
-Strength in home market: Virgin has a very strong presence and brand name in the UK; it's home market. If we look at the whole of Europe as the home market, than Virgin looks significantly weaker from the existing presence viewpoint.
-Geographical sales balance: Virgin still has to establish itself in the US and European markets as well as in Asia. Currently most of the businesses are in the UK only, and consequently the majority of the sales are generated there.
-Consistent positioning: Virgin is consistent in the positioning of its products in line with the characteristics of the brand.
-Addresses similar consumer needs worldwide: The characteristics as perceived by the Virgin brand represent consumer needs in most of the developed countries of the world. In third world countries the needs of only a small elite will be addressed as the majority of the population is struggling meeting basic needs to survive.
-Country of origin provides customer value: In most countries in the world, the strong name of Virgin in the UK will enhance the Virgin brand, specifically as it is known as a hip brand in a fairly conservative country.
-Product category focus: Virgin is unique in focussing on the end-user market with a wide range of products that don't seem to have much relationship. Focus is therefore lacking, but it has to be acknowledged that Virgin is maybe the only company successful in such a mixed range of products and services.
-Easy to pronounce name: The Virgin name is easy short and easy to pronounce in most cultures (It has proven to be easy to pronounce by the students in the very culturally diverse RSM student body).
We can conclude that the main obstacle for Virgin in creating a truly global brand is the geographical balancing of the sales. Expansion will be needed in countries outside the UK to achieve this and Europe and Asia will probably have to be the first major targets.
5.4 E-analysis
Virgin has decided to establish an e-strategy at a fairly late stage. At this moment, it is Branson's main focus since it will give him the ability to bring order to his conglomerate. It is in fact a digital giant in the making, attracting already 1.9 million visitors a month (Business Week, 22-01-2001). Branson has the following vision for Virgin on the Internet:
- Trying to build the Virgin.com into one of world's most popular Internet portals
By putting all of Virgin's businesses in the easy accessible site and cross-selling Virgin's products and services (e.g.: log on to buy ticket, check the mortgage and buy a case of wine). Customers are saying that they are surprised by the amount of things that they offer"
- Grow Virgin.com into a major m-commerce wireless portal by 2005
Branson believes that most of the traffic at Virgin.com will be made through cell phones instead of PCs in 2005. Today some of 20% of Virgin Mobile revenue is e-mail and other data communications, but Branson estimates that nearly 50% of the wireless network revenues will come from non-voice traffic by 2005. Branson envisions a day when Virgin Mobile users will be able to reserve a seat on Virgin train while waiting on the platform, simply by pressing a button of their phones. Once aboard they would check their investments via Virgin Direct, book vacations via Virgin Holidays or listen to top selling tracks at Virgin Megastores.
- Build Virgin Mobile into world's first global virtual network operator with broad customer base
First steps are expansion in Asia with total $450million investment and into US.
- Streamline operations
Branson wants to use Internet technology to increase efficiency and leverage scale across the conglomerate. He expects to cut costs by 15% this way (Business Week, 22-01-2001). For exampleby participating in B2B airline market place, Virgin Atlantic airline orders parts online as needed instead of having to keep huge inventories of parts close by. It can check local parts suppliers in case of emergency on a foreign airport. Non-fuel cost have been reduced by - 5% overall.
How is the Virgin group presently positioned to compete on the Net?
Virgin is late to the Web. Online sales ($216 million) are a fraction of( total Virgin revenues ($5.2 billion).
Powerful competitors have already reached critical mass of online sales: AOL( with $500 million online sales and Amazon that hit $1 billion this year (Business Week, 22-01-2001). Terra Lycos is the 4th largest Internet portal on the Web and will enjoy critical size advantage as a mobile commerce portal (Girard, 2000).
Virgin does not currently own enough content critical to attract site( traffic.
Virgin is also a small player versus its "bricks( & mortar " competitors in traditional industries (retail, airlines, mobile telephony).
No current global reach - most of services are currently only available in( Britain
In the US the brand does not break beyond a tier III/IV image in the US with( limited growth and market share (Girard, 2000).
The ambitious Asian expansion is a risky bet. It targets to build Asian( operations into 50% of total Virgin turnover by 2005 highlighting pessimistic prospects for European sales growth (Giley, 2000).
We have had a closer look at the Virgin E-activities and compared these to critical factors as mentioned by Michael Porter in Strategy and the Internet. Harvard Business Review. March 2001, pages 63-78:
Critical factors according to PorterVirgin
Establish distinctive strategic positioning.
The goal - superior long term return on investment
Value proposition: unique benefits to a specifically defined set of customers.
Distinctive value chain: different activities than rivals or similar activities in a different ways.
Trade-offs: choice of what not to do in order to be unique versus others and better serve customers.
Fit: activities are mutually reinforcing each other and making it difficult for competitors to duplicate the whole system.
Continuity in what the company stands for to customers, necessary to develop unique skills and assets.
Strategic position at Virgin
Virgin is presently more interested in revenue growth than profit.
One stop shop for customers attracted by Virgin brand values.
The diversity within the portfolio and integration by means of the Web portal makes the value chain unique and difficult to copy.
Virgin doesn't try to copy any of the main players in the internet business.
Most of the Virgin businesses already reinforce each other, but some don't and might have to be divested.
What the Virgin company stands for is represented by the common characteristics of the Virgin brand and its values. To Virgin, "Virgin.com is not a company, it is a brand" says Will Whitehorn, director of e-commerce. "Our strength is that the brand is not inextricably linked to just one business or product" (Business Week 22-01-2001).
Critical factors according to PorterVirgin
Internet used as a complement to the traditional competitive advantagesThe Internet is a vehicle for global expansion, cross-selling of Virgin's products and services and broader customer reach via the mobile connection. The products will in turn attract customers to the Virgin web portal.
Bricks and mortar retailers tend to specialize in one area of market. Unlike other cell-phone operators, Virgin can cross-sell a variety of products and services to its mobile phone customers. Selling its own merchandise, is something that neither AOL, nor Yahoo! does.
Choosing the Internet as a channel should deliver tangible benefitsOne stop shopping for customers attracted by Virgin brand values, electronic content and services. The mobile connection adds additional ordering convenience and personalisation.
Create economic value: Virgin's revenue model based on selling off-line products via on-line channel might help the Virgin businesses to turn into profitable ventures.
The late Virgin entry to the Internet is a weakness but not a fundamental setback. Michael Porter questions the existence of first mover advantage on the Internet given i) relatively low barriers to entry (exemplified by the speed and number of dot-coms that were building up and a number of global players that emerged) ii) the cost of entry can outweigh the benefit e.g. Amazon's huge cash burn rate to establish a new name, and iii) no real customer lock-out effect. It is more important to have all the elements of Internet strategy right than to do it first and Virgin now has most of these elements in place.
From the above analysis, Virgin seems to be in the right position for succeeding in the e-strategy that they have chosen. The key factors ensuring Virgin's strong strategic position are:
I)Revenue model of selling off-line products via on-line channel
II)The variety of products offering covering the entire lifestyle range
III)Engaging distinctive brand as a common umbrella
Virgin will however have to prove its ability to make the businesses profitable and might have to divest some of its present ventures.
In the figure II, the position of Virgin versus major global players on the net is assessed against these important dimensions: brand distinctiveness and variety of products offerings
Virgin clearly has a very strong brand that is able to engage customers on hip and fun values. In this respect it has a stronger power than a brand like Yahoo! It also has a diversified products range to attract customers. However, if we examine more closely the factors differentiating companies in the high brand identity/high product range quadrant, we would notice that they differ in the revenue model and size of customer reach (fig. III).
From the above we can conclude that however, a player like AOL-Time Warner that is also cross-selling Warner's entertainment products has a more diversified content and a broader customer base as a leading Internet Service Provider.
We can see that, Virgin will have to address the question of how to get access to a larger base of customers? How to expand and finance operations globally? There are several models of achieving this on the Internet.
The first is by organic growth by tapping into its existing customers base from non-portal other activities like Microsoft 's MSN, AOL as ISP. It is however questionable whether Virgin advertising budget can sustain fast enough organic growth.
Another way is by providing even richer content similar to AOL, by partnering with content owners like Vivendi Universal or Bertelsmann,. The question here is whether these companies will be willing to forgo their own brands for Virgin.
Thirdly, a complementary partnership may occur with the fragmented European national telecom operators. As 3G telephony and GPRS make customers pay only for purchased content rather than time on-line, mobile operators will struggle to capture revenues from mobile commerce. Partnering with Virgin and making it the content provider and the pan-European brand may be beneficial for fragmented and commoditised operators. In return Virgin will benefit from a large customers base and strong European presence.
The analysis of the above scenarios is beyond the scope of our project. The key point is that Virgin will have to seriously consider partnerships or mergers and acquisition to achieve its global expansion and build a broader customers base. They should look for complementarily partners but avoid copying the AOL-Time-Warner content/ISP model or Telefonica-Lycos-Bertelsmann alliance as it likely to denigrate Virgin's strategic positioning to a weaker me-too player.
6. VIRGIN RECOMMENDATIONS
The key strategic recommendations for Virgin to address its threats and weaknesses and capitalise on its strengths and opportunities are:
)Globalise the brand
Virgin's strong UK presence and initial forays into the North American and Far East markets form a strong basis for now aiming at a global brand strategy. The primary advantages of this are the diversification of the group's revenue base and the economies of scale that can result from global product and services and the substantial marketing and advertising savings.
2)Leverage the Internet
Virgin has been late to the dot.com boom (The Economist, April 6th 2000), and to e-commerce in general. Leveraging of the Internet, through e-commerce and m-commerce has to be an integral part of Virgin's global strategy. Virgin now seems to have realised this, and both Virgin.net and Virgin.com are significant initial steps in this direction. Virgin's web strategy will be facilitated by having existing revenue models, i.e. the "bricks and clicks" model that is essential to web profitability. Virgin does not therefore have to rely on online advertising or subscriptions to survive.
The key to success will be to attract and retain customers. We believe that establishing a leading portal through either an Internet Service Provider and/or mobile operator provider is one of the best ways to do it. As content is a crucial issue, Virgin may need to expand it's own product and service lines and/or aggregate web content from external providers. Virgin also needs to consider alliances and mergers (with telecom companies for example) if the speed of organic growth is insufficient to meet with its required targets. It is important however throughout these processes that Virgin maintains the clarity and integrity of its brand.
The B2B aspects of e-commerce are already projected to provide Virgin with significant economies, and such savings can be expanded across the range of its operations.We believe that Virgin's existing strong brand can be leveraged to yield further success via the Internet. A unified approach will ultimately also reinforce the brand, and leverage the formation of further businesses. As has been seen in the Far East, Virgin's strong brand can successfully be used to leverage substantial partner capital inflows.
3)Improve the leadership and organisation
Virgin's dependability on Richard Branson has to be reduced, so that its future beyond Branson can be assured. The organisation's culture, image and values need to be aligned to enable a strong, profitable market-driven organisation. In this respect, Virgin's recent establishment of the "Virgin Charter" is a significant step in the right direction. Virgin needs to develop strong leadership across its organisation and to leverage its synergies and knowledge management.
4)Realign the financial objectives
Virgin needs to address its financial weaknesses. Companies that do not have a profitable future need to be discontinued without adversely affecting the brand image. Continuous cross subsidising of failing ventures can ultimately weaken the Virgin Group. The disintegration of Virgin should Branson depart is a real threat, especially since Virgin is substantially owned by Branson's offshore family trusts. It is difficult to envisage the Branson trust continuing its involvement in Virgin, given that active family involvement would be required. It is more likely that individual companies would be sold to the highest bidder, and maybe even a purchaser for the brand would be sought. It is for this reason that Virgin may need to consider an initial public offering of its shares. The main advantages of an IPO are a greater access to capital markets and a greater market drive (i.e. profit and growth oriented).
