Buyer Behaviour: Virgin Blue

Executive Summary

Virgin Blue is a relatively new consumer airline created to take advantage of a specific gap in the short-haul domestic travel market within Australia. The gap exists in low cost service options for the airline traveling domestic market.

A key feature of low-cost carriers is simplicity. The opposite, complexity, tends to involve significantly greater cost. Satisfying customers is all about meeting expectations. Travelers know these carriers are low-cost and don’t expect any frills. On the other hand, over the decades full-service carriers have built a reputation. To reduce service, even if at a lower fare, is generally not acceptable to customers. We’ve seen this with Qantas over the past year. Even when passengers are only paying $77 for a flight, they still expect a certain level of service because they’ve become accustomed to Qantas.

This report will look sequentially at three important angles of consumer behaviour within the framework of the airline industry. These comprise:

  1. Virgin Blue’s target market characteristics including segmentation, targeting and positioning strategy;
  2. The situational influences that may impact on a consumer’s decision to purchase an airline ticket; that is, the report will describe the variables affecting the passenger's selection of a particular airline and compares and contrasts variables in the decision making process across the two key market segments of business travel and leisure travel.
  3. The last section of this report aims to describe how the consumer in the identified target market may ‘go through’ the consumer decision process.

Introduction: Virgin’s colourful beginnings… through to the founding of Virgin Blue

Fresh from the success of running a student magazine in London, Richard Branson founded Virgin as a mail order record company in 1970 at the age of 20. What inspired the name? "I was a Virgin in business" says Mr. Branson. However, things have changed quite considerably since.

Virgin – the third most recognised brand in Britain – is now becoming the first global brand name of the 21st century. Today, the Virgin Group has expanded into an international 'Megastore' involved in planes, trains, finance, soft drinks, music, mobile phones, cars, wines, publishing, clubs, hotels, cinemas, bridal wear and the list goes on.

Virgin is the only brand in the world to transcend such diverse product categories through 300 companies worldwide in 25 countries, employing over 35,000 staff. Each business operates independently under separate management structures, and what ties all these businesses together are the values of their brand, and the leadership, vision and attitudes of their people.

This assignment will concentrate specifically on the Virgin brand, Virgin Blue. Virgin Blue has access to substantial experience in the airline industry as part of the worldwide group of Virgin companies owned and controlled by Sir Richard Branson. The Virgin group currently operates three other successful airlines:

  • Virgin Atlantic Airways – one of the world’s premier international airlines.
  • Virgin Express – a low fare airline currently servicing ten major European destinations.
  • Virgin Sun – a division of Virgin Atlantic Airways operating charter services out of the UK.

Virgin Blue provides low-fare domestic passenger services and is focused on keeping air travel affordable for people traveling throughout Australia.

On 31 August 2000, Virgin Blue commenced its domestic passenger service, with a competitive strategy to provide efficient, reliable and friendly air travel at a low fare by removing unnecessary additional operating costs, such as the maintenance of large and expensive terminals, airport lounges, frequent flyer programs, ‘free’ meals, high cost marketing and distribution systems, and the additional cost of maintaining different types of aircraft.

Target Market Characteristics

A target market can be defined as a set of buyers sharing common needs or characteristics that a company decides to serve. There are three major steps involved in target marketing. They are market segmentation, market targeting and market positioning.

Market Segmentation

Segmentation can be defined as the process of dividing a total market such as all visitors, or a market sector such as holiday travel into subgroups or segments for marketing management purposes. The main segmentation variables for Virgin Blue fall under the following four broad categories:

  1. Geographic Segmentation

The travel and tourism market is separated into two main categories, domestic and international travelers. Domestic travel accounts for approximately 70% of industry revenues. The market is further separated into business and leisure travelers; each contributing about 45% to total revenue, the remainder of revenues are generated from combined business/leisure trips.

Virgin Blue is based in Brisbane, Queensland, targeting the major geographical regions of Australia including Adelaide, Brisbane, Cairns, Canberra, Coffs Harbour, Darwin, Gold Coast, Hobart, Launceston, Mackay, Melbourne, Perth, Sunshine Coast, Sydney and Townsville.

  1. Demographic Segmentation

Virgin Blue is said to target a demographic segment of male and female customers, mainly above the age of 18. Their family lifestyles may be anything from old to young; single to married; with or without children. Additionally, the occupations within each segment may be anything from business professionals, to students, to blue-collar workers; and education may be anything from uneducated to university graduate.

Virgin Blue is said to target both the business and leisure travelers. Business travelers can be divided into two categories: the medium to large corporate account, and the small independent businessman. Leisure travelers are classified according to the types of trips they take, income, or age. The four primary leisure travel groups are:

  • Adventure, Special-Interest, R & R (rest and recovery), Honeymoons & Sightseeing Trips
  • High-Income Travelers
  • Budget-Conscious Travelers
  • Families, Students & Seniors

Virgin Blue seems to have no major preferences when it comes to the demographics of their target market. Their basic motto is to reach anyone and everyone. They are interested in people who would not normally be able to afford to fly as well as anyone who believes that for far too long they have been paying far too much for airfares.

  1. Behavioural Segmentation

In this segment, Virgin Blue could be seen to target both the experienced flyer and the first-time flyers. The benefits sought within this segment include:

  • Convenient inter-city travel
  • Low-fares
  • Service availability – reflecting routes offered, schedules and capacity.
  • The design and performance of the vehicle – reflecting comfort, safety and speed.
  • Comfort, seating, ambience and any service offered during the journey, such as child face painting.
  • Passenger handling at terminals.
  • Convenient booking and ticketing arrangements.
  • Contact with staff.

Target Market Characteristics (continued…)

Market Targeting

Market Targeting involves evaluating each market segment’s attractiveness and selecting one or more segments to enter. When Brett Godfrey (Virgin Blue’s chief executive) was asked about Virgin Blue’s target market in May 2000, his response was simply…

‘I think we see anyone who believes that for far too long they have been paying far too much for airfares. Alternatively at the other end of the spectrum you have some people who have not been able to afford to fly simply because it has been too expensive…people that to date either had to go by bus, train or some other alternative means…students and even businessmen who cannot afford to do business on a regular basis through air travel simply because it was too expensive and inflexible in terms of affordable fares. After all, not every business person works at the big end of town, most small business people have to pay their own way one way or another and every dollar counts. So the reality is our product suits everyone. It’s everyone and anyone, we probably won’t pick up the gold card fliers and frankly if we don’t there is still about another 95% of the market out there waiting for us to target.’

Thus, Virgin Blue may be said to target the short-haul, discount fare market segment. This is a new segment defined by the demands of today's traveler.

Market Positioning

Positioning refers to arranging for a product/service to occupy a clear, distinctive and desirable place relative to competing products/services in the minds of target customers.

In today's marketplace the "price" positioning, in and of itself, is no longer a sufficient concept on which to build an airline. Since de-regulation the flying public has been inundated with low fares. Low fares have become an expectation, not a promise. Thus, the true market segment opportunities today have become a COMBINATION of service mix, price, and route selection. The more critical decision has become one of deciding on service mix and price in conjunction with LENGTH of route.

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Virgin Blue’s strategy is to position itself as the lowest cost producer of air travel services in Australia. Virgin Blue’s strategy is to offer a low price on all its fares, together with quality service, in order to attract an increasing number of passengers to air travel. Virgin Blue’s strategy can be distinguished from the strategic approaches adopted by Qantas, Ansett and Impulse.

At a recent seminar in Sydney, David Huttner – head of commercial at Virgin Blue – gave a speech to the AFR Boss Club on the subject of breaking some of the assumptions about what ...

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