adding value through marketing- virgin group
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7BSP0419 – Adding Value through Marketing (Semester B
2010/2011)
VIRGIN GROUP: THE NEED FOR INNOVATION
MSc Marketing
Prepared by:
Deniz Kurugollu 10283502
Sundeep Rai 05111441
Mansoor Akram 07156040
Vladimir Georgiev 10271719
10th April 2011
Table of Contents
Introduction...........................................................................................................................................2
Changing customers and needs..............................................................................................................2
Intensified Competition..........................................................................................................................4
Changing Business Environment............................................................................................................5
Technological advances..........................................................................................................................8
Conclusion............................................................................................................................................10
References............................................................................................................................................11
1
Introduction
After being first envisaged by Sir Richard Branson in 1970, Virgin is
amongst some of the most well known brands in the world. The Virgin
Group operates with more than 200 branded companies within many
different business sectors ranging from, travel, financial services, and
mobile telephony to transportation, media, music and fitness (Virgin,
2011). Virgin is classified among the 25 most innovative companies in
2010 (Bloomberg, 2011). The aim of this paper is to identify how Virgin is
using the drivers of innovation in order to add value to its
products/services. To this end, this paper employs the model by Goffin and
Mitchell (2005) ‘The need for innovation’. The model suggests the four
dimensions for companies to consider in terms of adding value to their
offerings through innovation; Changing customers and needs, intensified
competition, changing business environment, and technological advances.
These dimensions will be examined in turn. Finally, a conclusion with
recommendations will follow.
Changing customers and needs
Innovation is significant only if it creates value for customers. At the end of
the day, it is not about how innovative the company thinks it is, but
customers are the ones who decide the worth of innovation (Sawhney et
al, 2006).
Shawney et al (2006) suggest that to add value along ‘customer’
dimension, companies can find out new segments or discover unmet
needs by the market. Virgin Mobile USA can be considered as an example
in terms of discovering an ‘underserved’ segment. The company entered
the US cellular services market in 2002 by focusing on consumers under
30 years old. Considering this group’s specific needs and wants such as
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style, image, convenience the company offered a value proposition which
consists of simplified pricing, no contractual commitments, entertainment
features, and stylish phone designs (Sawney et al, 2006). Moreover, Hippel
(1988) points out that the users are an important source of innovation,
and they can drive technological innovation as well. In this respect, Virgin
Mobile included consumers, especially those between 12-25 age range
who are the heavy users of mobile technology, in the programme called
‘Virgin Insiders’ and provide input on the development of the latest mobile
phones. Regarding the feedback, for instance, the company made photo
uploads easier (Walker, 2004; Ziv, 2005).
Another example related to serving for the right target audience and their
needs can be observed in the case of Virgin Express. The airline mainly
operates from Brussels to southern Europe destinations, which are
frequently used by business travellers. Virgin Express operates as a low-
cost, no-frills, short-haul airline. According to the IATA Corporate Air Travel
Survey 1997, 70% of business travellers are ‘willing’ to use no-frills
airlines. The key features that this segment demands from the airlines are
‘punctuality, scheduling, competitive prices, and frequent flyer programs’
(Gilbert et al, 2001). In this regard, Virgin Express has become an
attractive choice for business travellers with relatively inexpensive
offerings compare to other internal flights. However, the key competitive
advantage here underlies the perceived quality of the Virgin brand.
Although Virgin Express serves as a low-cost airline, the brand name
secures the high quality image, while offering value for money.
Regarding the increased competition and more variety in today’s market
environment, consumers are more willing to experience different choices
to satisfy their needs and wants. They want to enjoy new offerings even if
their needs are stable (Elliot and Percy, 2007). In this vein, Virgin Cola has
recorded a significant success in the US carbonated drink market despite
of its two major competitors; Coca Cola and Pepsi. Vignali (2001) points
out that branding is more important for the younger generation, especially
those aged between 15-19 years old. They are more concerned with the
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brand they drink than the taste. Virgin Cola targeted to this group through
one of its main values, that is ‘being fun’ (Dobni, 2006). The brand
launched a bottle shaped like Pamela Anderson in the USA, which was well
received by the target audience (Vignali, 2001). It can therefore be
concluded that the given example shows how the brand matched
consumers’ needs and wants with the brand’s value by using packaging
components in order to add value to its offering.
It is not only the increased choices that affect the consumer buying
behaviour today, but the social and environmental concerns have become
a sought-after characteristic which, in turn, influences consumers’
relationship with a company in question. Research (Jobber, 2010: 202)
shows that 70 per cent of consumers really care about corporate social
responsibility in their buying decisions. Moreover, 20 per cent of
consumers are ready to pay price premium for products that are socially
and environmentally responsible. To this end, for instance, Virgin Atlantic
is in partnership with charities related to both community and
environmental issues such as Shelterbox, an international disaster relief
charity that delivers emergency shelters to people affected by disaster
worldwide; Myclimate, a Swiss based charity who fund clean energy
solutions, especially in developing countries (Virgin Atlantic, 2011a;
2011b). As a result, the company adds value to its offerings through
adding value to its social and physical environment.
Intensified Competition
In recent times it has become ever more important for firms to conduct
research in regards to their competitive environment, as in a
contemporary economy, business organizations need to act in a very fast
in a changing and unpredictable environment, further in order to sustain
an competitive advantage firms must add value by the creation of new
knowledge which can be implemented then in terms of products and
services (Kstutis & Krišinas, 2008).
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Virgin is an example of a firm, which operates throughout multiple
industries, as a result they face competition across market sectors
simultaneously, and this therefore requires them to have a clear focus
upon strategic directions of firm as well as its own competencies. Strength
of the Virgin Group has been the way it is viewed as a brand, its brand
name has allowed it to diversify and develop autonomous enterprises
under a single unified brand. Vignali (2001) explains the importance of
communication within a centralized company such as Virgin. However he
asserts that the unique culture implemented by Sir Richard Branson has
been important in terms of the way in which employees are motivated,
furthermore how the firm addresses the external environment, such a with
competition, “More than any element, fun is the secret of Virgin’s success”
(Branson, 1998). Vignali (2001) goes on to observe that key to the success
of Virgin has been its brand name. It is also suggested that the potency of
the Virgin brand stems from consumers not associating the brand with
product characteristics but rather with emotional associations, giving
Virgin a powerful competence upon which they can gain leverage, which
some of its competitors may lack. However, even with the strength of the
Virgin brand, intensified competition can affect new products very much
so, further reinforcing the need for innovation. An example of this is Virgin
Cola. Due to increased intensity of competition within the soft drink
market in the U.K and U.S; it had become more increasingly important for
firms to focus upon promotion, image and packaging rather than just the
product itself, to gain a competitive advantage. Additionally wider
varieties and increased competition has meant that consumer are were
willing to experiment with other carbonated drinks and flavours. As a
result of this increased competition firms such as Pepsi, and Coca Cola
used aggressive promotion campaigns in order to maintain market share,
this example helps explain that in the competitive world of global soft
drinks, brand alone may not be enough to sustain competitive advantage,
further there is a need for innovation, not just in terms of product and
brand image but quality and competitive pricing. That put increasing
pressure upon firms to be innovative (Vignali, 2001:143). Vignali &
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Schmeling (1998) explain how variances between countries also have an
effect upon the way Virgin’s brand is perceived. For example the Virgin
brand is stronger and more recognized in the U.K than in the U.S (Turcsik,
1994). This illustrates the importance for a company that operates globally
to consider awareness of their brand and strategy in different geographical
markets. This therefore adds a complex dimension to the notion of
intensifying competition in global markets.
The ever-changing environment makes it imperative for firms to be
proactive in the face of competition (Kroes, 2005). Changes in consumer
tastes and technology makes it essential to innovate new ways in which to
offer customers an improved value proposition. Virgins brand constitutes
arguably its biggest strengths (Vignali, 2001). However the dynamics of
the competitive environment makes it increasingly important for
companies such as Virgin to innovate. Hollis (2002) further elaborates on
the importance of innovation in terms of being first, which offers
companies a strong competitive advantage in terms of building
awareness. Ultimately escalating competition drives the need for Virgin to
be inventive, in order to distinguish themselves from competition,
particularly within saturated markets. Virgin cannot solely rely upon its
Brand image, within global markets, and must increase focus on elements
of their marketing mix to offer better value for customers.
Changing Business Environment
Dixon & O'Donohue (2006) manifest that the analysis of an organisation's
strategic management factors such as consumer knowledge,
comprehension of competition, revolutionised use of technology and
challenges created by instable environmental fluctuations create
opportunities and moreover strengthens an organisation's competitive
advantage when refining a core yet unique purpose of existence within a
market. In regards to adding value to Virgin's globalising products/services
catered to wide audiences in various business environments; a lot of
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considerations have to be taken to bring about the competitive advantage
over other rivalry products/services. This relates to the thorough
environmental scanning of Virgin's operating environment through the use
of PESTLE analysis; to better understand external factors. For instance
when looking at Political issues each country is defined individually
different hence a different set of political aspects for each country Virgin
has expanded in.
However the question at hand is how does Virgin add value to its brand
products/services in regards to Political, Economical, Social, Technological,
Legal and Environmental differences? If we investigate UK and its oil
shortage as a resource issue as an example; it has been reported to
threaten the travel and consumer goods industry (Roberts, 2010).
Furthermore Roberts (2010) indicates that new travel policies will be
considered by the new elected party; directly impacting Virgin's CSR in
regards to aviation and train travel services. Richard Bronson's founded
Virgin and branched out to offer its consumers products/services with
added values through innovation and uniqueness in correspondence to the
ever so changing business operating environments (Associated Press,
2008). Associated Press (2008) further reports that Virgin aviations was
the first to conduct commercial flights using Bio-fuel and Richard Bronson
is reported to investing billions to conduct further experiments to battle oil
shortage and global warming issues by creating alternative fuels and
minimising CO2 emissions.
Furthermore Virgin trains were the first to use Bio-Diesel (an alternative to
diesel made from crops) in June 2007 to reduce CO2 emissions by 12%
and furthermore have predicted to save 3,500 tonnes of CO2 emissions
(Collins, 2009). Collins (2009) indicates that Virgin Train wastage is mainly
from onboard magazines and newspapers, which also harms the air and in
response they have made all magazines and newspaper 100% recyclable.
The use of alternative fuels will not only benefit the business environment
but also benefit Virgin as they are cheaper and will save costs in the future
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and Virgin will be given the opportunity to better serve its consumers at
reduced price labels (Collins, 2009).
Innovation has been Virgin's priority and reason of existence and it can be
additionally witnessed through Richard Bronson's Virgin Earth challenge
where anyone who can create technology to capture and convert climate-
changing gases will be awarded $25million (Chen, 2007). This challenge
adds value to Virgin's brand through their interest in helping and
improving the environment it operates in and as well as the environmental
issues consumers suffer from. De Wit & Meyer (2005) emphasis on the
synergic strategy "Inside-out approach"; where an organisation's
perception is revitalised through products/services to best meet the ever
so changing aspects of the business environment, enhancing competitive
advantage. This strategy starts internally where first the organisations key
perception is verified (Virgin: innovation) within a particular market
(travel) and then mixed and matched with the environmental fluctuations
(Bio-fuels vs. oil shortage policies) faced within a market. These are only
few steps taken by Virgin to add value by understanding their operating
environment; these not only create competitive advantage but also target
the three consumer appeal scenarios, which is illustrated by Figure 1.
Figure 1: Consumer Appeals
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Source: Papyr, 1995
These are Rational (i.e. cheaper Virgin services by cutting fuel costs),
Emotional (i.e. luxury virgin trains) and Ethical (i.e. environmentally
friendly emissions) decisions to preference Virgin aviation and trains over
rivals. Orwig (2004) indicates that these approaches not only create a
Unique Selling Point (USP) but also an Emotional Selling Point (ESP) which
is collaboratively achieved through the brand preference created by three
mentioned appeals when making a decision upon purchase.
Technological advances
According to (Johns & Saks, 2001), there are seven dimensions of culture,
and Virgin has a heavy emphasis on three in particular: aggressiveness,
innovation and risk-taking, and people orientation. However, a major facet
contributing to the innovation and risk-taking can be attributed to the
technological advancements perceived by the company. Jobber (2010)
speculates about the importance for marketing driven companies not only
to observe technological developments but also to pioneer technological
breakthroughs, furthermore explaining the power of technological
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advancements to transform markets and shift competitive advantage in
favour of those companies. Porter (1985) suggests that technology
development is one of the supporting value-creating activities to customer
value chain.
In order to shift customers from existing standards, the new technology
must generate more value that a combination of the derived from the
existing offerings (Mohr et al.,2008). An example of such a shift could be
examined in the marketing offerings of Virgin Atlantic airline. Kim C. and
Maubourgne R. (1997) describe the introduction of innovative technology
(i.e. including in flight music, games, and movies) on board of the Virgin
Atlantic as taking the company well beyond airlines’ traditional offerings
and applying the logic of “value innovation”. Thus, technological
advancement coupled with another innovation of the service platform of
Virgin Atlantic has pushed the company logic and culture to translate into
company’s value creation strategy.
A report by BCG (2009) shows that Virgin sharpened its sustainable
competitive advantage by employing adaptive advantage, attributing the
company’s quick entry and exit into new businesses and diverse
industries. However, Virgin’s perhaps most expensive brand extension
program (Keller, 2008) might be examined to bring not just adaptive
advantage but also a technological know-how. One example would be the
use of alternative bio-fuel to power Virgin airline fleet. Branson
commented that: “although this test didn't use a viable fuel, it's a
landmark proof-of-concept” (Nilay, 2008). The statement, however, refers
to an approach that Virgin has towards pursuing and exploiting new,
cutting edge technologies and innovations. However, what has been a
‘proof-of-concept’ couple of year ago, it is recently reported as a
technology embedded into company’s latest spaceships. According to the
Virgin Galactic website, hybrid rocket motor - benign and non-toxic fuels
would power the shuttle. Therefore, it is evident that a transfer of
technological know-how would benefit another highly innovative project.
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Another example of an application of technological advancements by
Virgin is the integration of WiFi internet into Virgin Trains (Jobber, 2010).
Once more, a service improvement has been facilitated by integration of a
technology. Although Virgin did not have own technology to employ in this
the service, Jobber (2010) suggest that decision was driven by the notion
of adding value to its customers. However, this technology addition could
also be examined as part of more deliberate model that Virgin
encompasses known as technology mapping. Mohr et al.(2008) refers to
four main steps in technology mapping as described by Capon and Glazer
which develop and manage technology resources. The first step of
technology identification is used by Virgin once by recognising the value of
the ideas they have and second (Jobber, 2010) suggest that it is perhaps a
natural extension of their Virgin Mobile services already offering mobile
internet. The second step of technology mapping refers to taking the
decision about technology addition and on how to do it (Mohr et al, 2008).
The decision to proceed with the adding the WiFi internet together with
the internal environmental scanning, however, has led Virgin to partner
with T-mobile as they consider their own technological know-how can’t
deliver the perceived results (Jobber,2010).Therefore, acquiring partner’s
technological know-how, follows the third step of technology mapping,
providing Virgin with the opportunity to directly commercialise on it.
Mohr et al.(,2008) agues on the marketing risk related to the
commercialization of the technology. However, Jobber (2010) suggest that
superior commercialization of technology was and will be key success
factor in many industries. Jobber (2010) also argues on the need to blend
marketing and technology in order to market technological innovations.
Therefore, Virgin might use marketing to elaborate on one of the elements
of diffusion of innovation, indeed its communication channels (Rodgers,
1995) and ultimately create value through this communication process.
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Conclusion
Considering the slow growth, commodization and competitive environment
today, many companies view innovation as crucial to corporate success. In
the course of the report, all the examined examples regarding the Virgin
Group relate to the four dimensions of the need of innovation. It was
discovered that the Virgin strategic marketing focus use all of those
dimensions actively to innovate and perceive competitive advantage.
A driving factors contributing to the changing consumer needs has been
acknowledged by Virgin and the company has used them to include
consumers in the production level in order to correspond to their needs
and wants in a value generation approach. In addition, deeply rooted into
company culture, innovation has being strongly driven by Virgin
integration of technologies which were also mixed in the value proposition
of their service and product offerings. Furthermore it is also apparent that
intensification of competition plays an imperative role within driving
innovation. Market saturation has lead Virgin to distinguish themselves
from competition through innovation.
It appears to be the case that innovation refers the creation of substantial
new value for customers and the firm by creatively changing one or more
dimensions of the business system. In this regard, unlike the conventional
belief, Virgin has broadly attributed the need of innovation not only as
synonymous with new product development or traditional research and
development, but by employing holistic view of the value innovation.
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