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Adding Value through Marketing- Virgin Group
 

Adding Value through Marketing- Virgin Group

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    Adding Value through Marketing- Virgin Group Adding Value through Marketing- Virgin Group Document Transcript

    • 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 ContentsIntroduction............................................................................................................................................. 2Changing customers and needs .............................................................................................................. 2Intensified Competition........................................................................................................................... 4Changing Business Environment ............................................................................................................. 5Technological advances ........................................................................................................................... 8Conclusion ............................................................................................................................................. 10References ............................................................................................................................................. 11 1
    • IntroductionAfter being first envisaged by Sir Richard Branson in 1970, Virgin is amongst some of themost well known brands in the world. The Virgin Group operates with more than 200 brandedcompanies within many different business sectors ranging from, travel, financial services, andmobile telephony to transportation, media, music and fitness (Virgin, 2011). Virgin isclassified among the 25 most innovative companies in 2010 (Bloomberg, 2011). The aim ofthis paper is to identify how Virgin is using the drivers of innovation in order to add value toits 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 toconsider in terms of adding value to their offerings through innovation; Changing customersand needs, intensified competition, changing business environment, and technologicaladvances. These dimensions will be examined in turn. Finally, a conclusion withrecommendations will follow.Changing customers and needsInnovation is significant only if it creates value for customers. At the end of the day, it is notabout how innovative the company thinks it is, but customers are the ones who decide theworth of innovation (Sawhney et al, 2006).Shawney et al (2006) suggest that to add value along „customer‟ dimension, companies canfind out new segments or discover unmet needs by the market. Virgin Mobile USA can beconsidered as an example in terms of discovering an „underserved‟ segment. The companyentered 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 style, image, convenience thecompany offered a value proposition which consists of simplified pricing, no contractualcommitments, entertainment features, and stylish phone designs (Sawney et al, 2006).Moreover, Hippel (1988) points out that the users are an important source of innovation, andthey can drive technological innovation as well. In this respect, Virgin Mobile includedconsumers, especially those between 12-25 age range who are the heavy users of mobiletechnology, in the programme called „Virgin Insiders‟ and provide input on the development 2
    • of the latest mobile phones. Regarding the feedback, for instance, the company made photouploads easier (Walker, 2004; Ziv, 2005).Another example related to serving for the right target audience and their needs can beobserved in the case of Virgin Express. The airline mainly operates from Brussels to southernEurope destinations, which are frequently used by business travellers. Virgin Express operatesas a low-cost, no-frills, short-haul airline. According to the IATA Corporate Air TravelSurvey 1997, 70% of business travellers are „willing‟ to use no-frills airlines. The key featuresthat 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 becomean attractive choice for business travellers with relatively inexpensive offerings compare toother internal flights. However, the key competitive advantage here underlies the perceivedquality of the Virgin brand. Although Virgin Express serves as a low-cost airline, the brandname 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). Inthis vein, Virgin Cola has recorded a significant success in the US carbonated drink marketdespite of its two major competitors; Coca Cola and Pepsi. Vignali (2001) points out thatbranding is more important for the younger generation, especially those aged between 15-19years old. They are more concerned with the brand they drink than the taste. Virgin Colatargeted to this group through one of its main values, that is „being fun‟ (Dobni, 2006). Thebrand launched a bottle shaped like Pamela Anderson in the USA, which was well receivedby the target audience (Vignali, 2001). It can therefore be concluded that the given exampleshows how the brand matched consumers‟ needs and wants with the brand‟s value by usingpackaging components in order to add value to its offering.It is not only the increased choices that affect the consumer buying behaviour today, but thesocial 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 theirbuying decisions. Moreover, 20 per cent of consumers are ready to pay price premium forproducts that are socially and environmentally responsible. To this end, for instance, VirginAtlantic is in partnership with charities related to both community and environmental issues 3
    • such as Shelterbox, an international disaster relief charity that delivers emergency shelters topeople affected by disaster worldwide; Myclimate, a Swiss based charity who fund cleanenergy solutions, especially in developing countries (Virgin Atlantic, 2011a; 2011b). As aresult, the company adds value to its offerings through adding value to its social and physicalenvironment.Intensified CompetitionIn recent times it has become ever more important for firms to conduct research in regards totheir competitive environment, as in a contemporary economy, business organizations need toact in a very fast in a changing and unpredictable environment, further in order to sustain ancompetitive advantage firms must add value by the creation of new knowledge which can beimplemented then in terms of products and services (Kstutis & Krišinas, 2008).Virgin is an example of a firm, which operates throughout multiple industries, as a result theyface competition across market sectors simultaneously, and this therefore requires them tohave a clear focus upon strategic directions of firm as well as its own competencies. Strengthof the Virgin Group has been the way it is viewed as a brand, its brand name has allowed it todiversify 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 beenimportant in terms of the way in which employees are motivated, furthermore how the firmaddresses the external environment, such a with competition, “More than any element, fun isthe secret of Virgin‟s success” (Branson, 1998). Vignali (2001) goes on to observe that key tothe success of Virgin has been its brand name. It is also suggested that the potency of theVirgin brand stems from consumers not associating the brand with product characteristics butrather with emotional associations, giving Virgin a powerful competence upon which they cangain leverage, which some of its competitors may lack. However, even with the strength ofthe Virgin brand, intensified competition can affect new products very much so, furtherreinforcing the need for innovation. An example of this is Virgin Cola. Due to increasedintensity of competition within the soft drink market in the U.K and U.S; it had become moreincreasingly important for firms to focus upon promotion, image and packaging rather thanjust the product itself, to gain a competitive advantage. Additionally wider varieties andincreased competition has meant that consumer are were willing to experiment with other 4
    • 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, thisexample helps explain that in the competitive world of global soft drinks, brand alone may notbe enough to sustain competitive advantage, further there is a need for innovation, not just interms of product and brand image but quality and competitive pricing. That put increasingpressure upon firms to be innovative (Vignali, 2001:143). Vignali & Schmeling (1998)explain how variances between countries also have an effect upon the way Virgin‟s brand isperceived. For example the Virgin brand is stronger and more recognized in the U.K than inthe U.S (Turcsik, 1994). This illustrates the importance for a company that operates globallyto consider awareness of their brand and strategy in different geographical markets. Thistherefore adds a complex dimension to the notion of intensifying competition in globalmarkets.The ever-changing environment makes it imperative for firms to be proactive in the face ofcompetition (Kroes, 2005). Changes in consumer tastes and technology makes it essential toinnovate new ways in which to offer customers an improved value proposition. Virgins brandconstitutes arguably its biggest strengths (Vignali, 2001). However the dynamics of thecompetitive environment makes it increasingly important for companies such as Virgin toinnovate. Hollis (2002) further elaborates on the importance of innovation in terms of beingfirst, 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 todistinguish themselves from competition, particularly within saturated markets. Virgin cannotsolely rely upon its Brand image, within global markets, and must increase focus on elementsof their marketing mix to offer better value for customers.Changing Business EnvironmentDixon & ODonohue (2006) manifest that the analysis of an organisations strategicmanagement factors such as consumer knowledge, comprehension of competition,revolutionised use of technology and challenges created by instable environmentalfluctuations create opportunities and moreover strengthens an organisations competitiveadvantage when refining a core yet unique purpose of existence within a market. In regards toadding value to Virgins globalising products/services catered to wide audiences in variousbusiness environments; a lot of considerations have to be taken to bring about the competitive 5
    • advantage over other rivalry products/services. This relates to the thorough environmentalscanning of Virgins operating environment through the use of PESTLE analysis; to betterunderstand external factors. For instance when looking at Political issues each country isdefined individually different hence a different set of political aspects for each country Virginhas expanded in.However the question at hand is how does Virgin add value to its brand products/services inregards to Political, Economical, Social, Technological, Legal and Environmentaldifferences? If we investigate UK and its oil shortage as a resource issue as an example; it hasbeen reported to threaten the travel and consumer goods industry (Roberts, 2010).Furthermore Roberts (2010) indicates that new travel policies will be considered by the newelected party; directly impacting Virgins CSR in regards to aviation and train travel services.Richard Bronsons founded Virgin and branched out to offer its consumers products/serviceswith added values through innovation and uniqueness in correspondence to the ever sochanging business operating environments (Associated Press, 2008). Associated Press (2008)further reports that Virgin aviations was the first to conduct commercial flights using Bio-fueland Richard Bronson is reported to investing billions to conduct further experiments to battleoil shortage and global warming issues by creating alternative fuels and minimising CO2emissions.Furthermore Virgin trains were the first to use Bio-Diesel (an alternative to diesel made fromcrops) in June 2007 to reduce CO2 emissions by 12% and furthermore have predicted to save3,500 tonnes of CO2 emissions (Collins, 2009). Collins (2009) indicates that Virgin Trainwastage is mainly from onboard magazines and newspapers, which also harms the air and inresponse they have made all magazines and newspaper 100% recyclable. The use ofalternative fuels will not only benefit the business environment but also benefit Virgin as theyare cheaper and will save costs in the future and Virgin will be given the opportunity to betterserve its consumers at reduced price labels (Collins, 2009).Innovation has been Virgins priority and reason of existence and it can be additionallywitnessed through Richard Bronsons Virgin Earth challenge where anyone who can createtechnology to capture and convert climate-changing gases will be awarded $25million (Chen,2007). This challenge adds value to Virgins brand through their interest in helping andimproving the environment it operates in and as well as the environmental issues consumerssuffer from. De Wit & Meyer (2005) emphasis on the synergic strategy "Inside-out 6
    • approach"; where an organisations perception is revitalised through products/services to bestmeet the ever so changing aspects of the business environment, enhancing competitiveadvantage. This strategy starts internally where first the organisations key perception isverified (Virgin: innovation) within a particular market (travel) and then mixed and matchedwith 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 operatingenvironment; these not only create competitive advantage but also target the three consumerappeal scenarios, which is illustrated by Figure 1. Figure 1: Consumer Appeals Source: Papyr, 1995These are Rational (i.e. cheaper Virgin services by cutting fuel costs), Emotional (i.e. luxuryvirgin trains) and Ethical (i.e. environmentally friendly emissions) decisions to preferenceVirgin aviation and trains over rivals. Orwig (2004) indicates that these approaches not onlycreate a Unique Selling Point (USP) but also an Emotional Selling Point (ESP) which iscollaboratively achieved through the brand preference created by three mentioned appealswhen making a decision upon purchase. 7
    • Technological advancesAccording to (Johns & Saks, 2001), there are seven dimensions of culture, and Virgin has aheavy emphasis on three in particular: aggressiveness, innovation and risk-taking, and peopleorientation. However, a major facet contributing to the innovation and risk-taking can beattributed to the technological advancements perceived by the company. Jobber (2010)speculates about the importance for marketing driven companies not only to observetechnological developments but also to pioneer technological breakthroughs, furthermoreexplaining the power of technological advancements to transform markets and shiftcompetitive advantage in favour of those companies. Porter (1985) suggests that technologydevelopment 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 morevalue that a combination of the derived from the existing offerings (Mohr et al.,2008). Anexample of such a shift could be examined in the marketing offerings of Virgin Atlanticairline. 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 takingthe company well beyond airlines‟ traditional offerings and applying the logic of “valueinnovation”. Thus, technological advancement coupled with another innovation of the serviceplatform of Virgin Atlantic has pushed the company logic and culture to translate intocompany‟s value creation strategy.A report by BCG (2009) shows that Virgin sharpened its sustainable competitive advantageby employing adaptive advantage, attributing the company‟s quick entry and exit into newbusinesses and diverse industries. However, Virgin‟s perhaps most expensive brand extensionprogram (Keller, 2008) might be examined to bring not just adaptive advantage but also atechnological know-how. One example would be the use of alternative bio-fuel to powerVirgin airline fleet. Branson commented that: “although this test didnt use a viable fuel, its alandmark proof-of-concept” (Nilay, 2008). The statement, however, refers to an approach thatVirgin 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 atechnology embedded into company‟s latest spaceships. According to the Virgin Galacticwebsite, hybrid rocket motor - benign and non-toxic fuels would power the shuttle. Therefore, 8
    • it is evident that a transfer of technological know-how would benefit another highlyinnovative project.Another example of an application of technological advancements by Virgin is theintegration of WiFi internet into Virgin Trains (Jobber, 2010). Once more, a serviceimprovement has been facilitated by integration of a technology. Although Virgin did nothave own technology to employ in this the service, Jobber (2010) suggest that decision wasdriven by the notion of adding value to its customers. However, this technology additioncould also be examined as part of more deliberate model that Virgin encompasses known astechnology mapping. Mohr et al.(2008) refers to four main steps in technology mapping asdescribed by Capon and Glazer which develop and manage technology resources. The firststep of technology identification is used by Virgin once by recognising the value of the ideasthey have and second (Jobber, 2010) suggest that it is perhaps a natural extension of theirVirgin Mobile services already offering mobile internet. The second step of technologymapping refers to taking the decision about technology addition and on how to do it (Mohr etal, 2008). The decision to proceed with the adding the WiFi internet together with the internalenvironmental scanning, however, has led Virgin to partner with T-mobile as they considertheir own technological know-how can‟t deliver the perceived results(Jobber,2010).Therefore, acquiring partner‟s technological know-how, follows the third stepof 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 thetechnology. However, Jobber (2010) suggest that superior commercialization of technologywas and will be key success factor in many industries. Jobber (2010) also argues on the needto 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 thiscommunication process. 9
    • ConclusionConsidering the slow growth, commodization and competitive environment today, manycompanies view innovation as crucial to corporate success. In the course of the report, all theexamined examples regarding the Virgin Group relate to the four dimensions of the need ofinnovation. It was discovered that the Virgin strategic marketing focus use all of thosedimensions actively to innovate and perceive competitive advantage.A driving factors contributing to the changing consumer needs has been acknowledged byVirgin and the company has used them to include consumers in the production level in orderto correspond to their needs and wants in a value generation approach. In addition, deeplyrooted into company culture, innovation has being strongly driven by Virgin integration oftechnologies which were also mixed in the value proposition of their service and productofferings. Furthermore it is also apparent that intensification of competition plays animperative role within driving innovation. Market saturation has lead Virgin to distinguishthemselves from competition through innovation.It appears to be the case that innovation refers the creation of substantial new value forcustomers and the firm by creatively changing one or more dimensions of the businesssystem. In this regard, unlike the conventional belief, Virgin has broadly attributed the need ofinnovation not only as synonymous with new product development or traditional research anddevelopment, but by employing holistic view of the value innovation. 10
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