Business Analysis - Virgin Galactic - Essay Example

? Business Analysis: Virgin Galactic – A Virgin Group Company BY YOU YOUR SCHOOL INFO HERE HERE Business Analysis: Virgin Galactic – A Virgin Group Company 1. Introduction The Virgin Group is a British-based, multinational conglomerate maintaining market presence in a variety of industries, including travel, hospitality, music, telephony and entertainment. In 2011, Virgin Group earned revenues of over 21 billion USD, earned through positive brand reputation domestically and internationally and by maintaining relevant product offerings that are significant for key target markets identified through demographic and psychographic segmentation strategies. The Virgin Group is considered to be one of the world’s Superbrands, receiving regular industry-generated rewards and accolades for establishment of a successful business model built on effective marketing promotion. Maintaining presence in the United States, the United Kingdom and Australia, this multi-national organization maintains significant brand recall and recognition worldwide that gives it many new market entry advantages for foreign direct investment. A Virgin Group Company, Virgin Galactic, was founded in 2004 under the premise of providing space tourism to consumers whilst also advancing aerospace knowledge through a business model that supports space-based research. Virgin Galactic is currently working under a multitude of partnerships with reputable agencies such as NASA to develop space-faring tourism vehicles slotted for launch in 2013. The company’s founder, Sir Richard Branson, is currently doling out millions of Pounds to license Virgin Galactic products and services, attempting market entry in the United States for this revolutionary and innovative brand supported by Virgin Group superbrand status. This report highlights the impact of globalisation in this new market, the competitive advantages gained through this new business model, and provides a critical evaluation of market entry strategy developed by Virgin Group and Richard Branson. 2. The dynamics of Virgin Galactic Virgin Galactic is still in the development and construction phases in the space tourism industry. In 2009, Virgin Group contracted with Aabar Investments PJSC in the United Arab Emirates in which the company agreed to invest $280 million USD to assist in developing the space tourism industry (Space News 2009). Aabar Investments took a 32 percent ownership in Virgin Galactic, making them one of the largest venture capitalists supporting the Virgin brand. NASA, an American space organisation, also invested over 1.5 billion dollars to rent lab space in suborbital vessels and for contract to resupply the International Space Station upon launch of Virgin Galactic’s service (Del Castillo 2012). The space tourism industry is an untapped market, an innovation from conception to actual impending launch. To facilitate all of the operational components necessary to achieve a viable space tourism business model, Virgin Galactic must invest considerable capital resources. This involves establishing a cost effective and efficient supply chain consisting of multiple vendors in multiple industries (e.g. technology, metallurgy, software support systems, etc.). Virgin Galactic is currently developing an entire fleet of space tourism vehicles, each vessel maintaining its own focus for research and development as well as consumer-centric tourism services. The United States represented the most viable market for entry due to the ease of distribution supported by a vast and well-developed distribution infrastructure in the country and the consumer interest in space tourism as a potential lifestyle enhancement. To achieve the return on investment required on preliminary capital expenditures in the billions of dollars, Virgin Galactic had to identify a target market that would provide the best opportunity for revenue production upon launch of the tourism model. Figure 1: Ghemawat + AAA strategic framework applicable to Virgin Galactic Source: Ning, L. (2012). The most important conception in the Virgin Group global strategy framework is how the business achieves performance. That is by first understanding factors of adaptation, arbitrage and aggregation. Aggregation is the cumulative cost advantages achieved through globalisation. In the case of Virgin Galactic, such advantages are through alliance development, reduction of need for multiple facilities management, and physical production. Cost gains are achieved by maintaining localised production, which too satisfies adaptability to local market needs, by enlisting local talent to conduct physical assembly of the final product and all of its prototyping. Configuration in adaptability is satisfied as the U.S. market is representative of the UK market in which Virgin Group continues to perform and maintain positive brand reputation. Arbitrage is successfully incorporated into strategic design and planning through the establishment of vertical relationships with many different technology and metallurgic vendors to create equilibrium between cross-national supply chain borders. Host country cultures compared to the foreign U.S. market maintain many similar constructs, especially pertaining to individualism versus collectivism regarded as critical to strategy development by many respected models (Hofstede et al. 2010). Many of the same promotional concepts focusing on lifestyle (psychographic segmentation and targeting) are transferrable in a market environment maintaining similar socio-economic characteristics and principles. Home country characteristics represent significant advantages in terms of transferability of existing intellectual properties (i.e. advertisement) relevant to a market with similar cultural principles and values. This is a further example where adaptability leads to high performance for this emerging firm where industry-based competition and institutional conditions greatly impact performance and establishment of absolute economies. Virgin Galactic is a first mover in this untapped market, which will be providing the firm with considerable competitive advantages upon launch. Under marketing theory, a company that is the first to innovate and create a new market opportunity will predictably gain the most rapid brand loyalty. High involvement purchases, such as the $200,000 price tag for space tourism, makes consumers risk averse (Boone & Kurtz 2007). When a first mover provides excellence in service delivery or provides a viable product in key target markets, they will often compare late movers against the market pioneer with unfavourable assessments (Kalyanaram and Gurumurthy 2008). In terms of establishing a consumer loyalty base, Virgin Galactic’s choice of market entry into the United States, an environment where luxury consumers favour innovative brands, the company maintains significant competitive advantages simply by being a first mover. However, there are issues with this expensive business model related to globalisation that will determine the likelihood of success in gaining return on the investment through revenue production. One issue is the complexity of a diversified supply chain, a Virgin Galactic business imperative that consists of procurement needs both domestic and international in order to achieve a successful launch in 2013. Virgin requires component materials both metallurgical and technology-based, many of these being procured from international sources in India, China and the UAE (among other vendor nations). Under Michael Porter’s Five Forces Model (2012), there are risks to the business associated with the level of buying power held by supply chain partners. Virgin Galactic only has certain talent and expert resources by which to procure needed parts and technologies, thus there are high switching costs imposed on the company in the event that supply chain vendors are unable to deliver products timely or according to quality assurance specifications. Virgin Galactic does not have a great deal of leverage in procurement as the majority of parts, software technologies and components are not being developed internally by Virgin Group talent. This allows the vendors to establish pricing structures by which Virgin Galactic must comply or face risks of under-supply in an effort to find substitute vendors. Supply chain imperatives are a significant concern as it relates to budgetary needs for this venture as well as establishment of efficiencies in diversified procurement efforts. Additionally, Virgin Galactic will be operating in a market (The United States) in which social and cultural issues will dramatically impact the marketing strategy of the service. The United States consumer is highly individualistic and is inundated with brand conceptions and integrated communications from a variety of major businesses in very saturated competitive markets. The U.S. consumer must be marketed to differently than in other nations where the Virgin Group is familiar with operating, such as Europe and collectivist Asian nations. Under collectivist-based marketing strategies, group-centric communications are part of the promotional model whereby consumers look toward social reference groups to make product purchasing decisions (Hofstede et al. 2010; Hofstede 2001). How does this, then, translate for Virgin Galactic? In the United States, promotion is one of the fundamental brand-building and revenue-building strategies to gain return on investment for a new project or innovative service model. Consumers in this market are usually only loyal to a corporate brand when it provides ample opportunities for consumer self-expansion (Muniz and O’Guinn 2001). Self-expansion should be defined, in this case, as the ability of a brand to improve social status or reputation among reference groups or otherwise create new knowledge for the consumer. Virgin Galactic must determine what cultural attitudes and values are present in this luxury consumer market, one that is characterised by rather egocentric relationships with a brand (Boone & Kurtz 2007). Virgin Galactic cannot simply transfer existing international marketing strategies to the U.S. that had previously been founded on collectivist values as it would be largely ineffective in a market where psychographic segmentation is the most viable model to gain market attention. Thus, globalisation impacts the marketing direction of this Virgin Group company in terms of financial investment to create new and innovative, customised integrated marketing communications. Cultural dynamics of the United States consumer must be considered in order to establish a positive brand reputation and personality for Virgin Galactic. The business model, consisting of luxury-minded space travel at a price of $200,000 per trip, provides self-expansion to the consumer and the business must determine how to translate this effectively through promotional strategy targeted at individualism rather than collective social values. Furthermore, also under Porter’s Five Forces model, there are risks to a new business venture stemming directly from consumer markets. There are few risks of competition as this is an innovation for the hospitality industry and there are significant barriers established for companies that would seek new market entry. Barriers include legislative issues, supply chain costs, and cash capital needs to launch a multi-billion dollar business model. Lack of competition and the ability to ensure that barriers are established for new market entrants is one of the most fundamental competitive advantages maintained by Virgin Group. However, there are significant risks of giving consumers too much bargaining power in the value chain which could impact pricing structures and service delivery concepts. Post-launch in the United States, there is high demand from many luxury consumers in foreign nations that want to experience the new hospitality model and Virgin Galactic intends to extend service offerings to these markets after evaluating the viability of the current model and pricing structure in the United States as a test market for the company. Virgin Group has spent years using multiple media mediums to promote its significant investment into this new model, which has been promoted domestically and internationally since 2004. These promotions have, fortunately, invited a great deal of venture capitalist interest in taking a stake in developing this service concept. However, high demand from consumers with adequate resources continues to apply pressure to Virgin Galactic to favour high-resource buyers in foreign countries rather than delivering services only to U.S. consumers. By catering to U.S. customers, it poses brand reputation risks from disgruntled foreign consumers who might feel they are being overlooked or taken for granted. When higher-resource consumers attempt to apply pressure on the Virgin Group by offering more than the established $200,000 to ensure first choice advantages for service utilisation, Virgin Galactic runs the risk of alienating potentially profitable markets. Thus, it should be identified that Virgin Galactic needs to consider how to effectively satisfy both U.S. consumer markets and foreign luxury consumers who are pandering to be the first to experience consumer-centric space flight. Publicity about the innovative conceptions at Virgin Galactic continues to erode market stability and damage long-run relationships that could be developed by expanding services to international buyer groups. 3. Market entry strategy Virgin Galactic maintains two distinct market entry strategies to tap the U.S. market. First, the business has established a turnkey philosophy. Under this model, the business management hires a contractor in the foreign country of entry who takes direct responsibility for new facilities development. The contractor manages all project dimensions including facility construction (or other appropriate operational development needs) and, upon completion, hands the keys over to corporate management. This was a viable model for a diverse and complicated service model at Virgin Group and one in which there is heavy inter-dependency on the talents and knowledge of U.S. vendors and manufacturers to achieve strategic launch goals. Virgin Galactic management and executives are engaged in other priorities, including creation of investment contracts and streamlining supply/value chain functions. The turnkey market entry strategy allows Virgin Galactic to focus on higher order business imperatives whilst relying on foreign talent managers to develop facilities needs. This is a form of competitive advantage, also, for Virgin Galactic as it provides for more rapid operational development and does not deplete Virgin Group of its executive prowess in strategy development. Virgin Galactic also chose alliances as a market entry strategy, gaining investment from independent, corporate, and venture capitalist investors. By offering firms a stake in ownership, it secures long-term return on investment and also prevents Virgin Group from having to make multiple, recurrent capital investments to achieve strategic launch expectations. Alliances are not only financially-based, but marketing/promotional-based under co-branding strategies that have powerful impact on many consumer markets. Co-branding with two companies that have a positive reputation on consumer markets builds trust in the service model. Alliances provide an element of competitive advantage and the ability to build a positive brand personality. In the United States market, the level of connectedness between consumers and the brand are important predictors of sales success. Marketing alliances have significantly positive outcomes, especially when using relevant celebrity endorsers. Virgin Galactic has recruited famous American celebrities William Shatner (Captain Kirk from Star Trek fame) and Ashton Kutcher, using their powerful celebrity status to gain more market interest (Boyle 2012; Soul Tek 2004). According to Pornpitakpan (2003) celebrity endorsements build trust in a brand when a business uses endorsers that are considered attractive, expert, and trustworthy. Virgin Galactic achieves not only competitive advantage by promoting celebrity interest (viable reference groups for many luxury consumers), but using co-branding alliances as a means of ensuring a successful launch in this new market. Celebrity endorsements and use of various press releases under the alliance strategies provide rapid brand recognition and brand recall, with trusted brands supporting Virgin Galactic through publicity. 4. Discussion of findings Marketing and promotion are clearly two of the most critical aspects in the United States market to predict whether the new service model will meet with long-standing consumer demand and interest. When brand loyalty has been established in the U.S. markets, it allows for premium pricing and premium positioning (Chaudhuri and Holbrook 2001). Branding strategies are a method of taking intangible dimensions of the business model and translating them into tangible benefits promotion (Abimbola 2001). These are fundamental success factors for Virgin Galactic, using effective advertising in a variety of different media formats to express corporate values, service beliefs, and socially responsible business function. Virgin Galactic, backed with proven and reliable marketing talent from Virgin Group, was prudent to include heavy emphasis on marketing promotion as an essential strategic objective. The U.S. market is unpredictable and can apply backward integration into the business model that can lead to higher cash expenditures or force adjustments to the operational and service models. By gaining positive market attention using theories of promotion that are relevant for lifestyle- and trends-focused consumers with highly individualistic values and attitudes, Virgin Galactic manages to create rapid brand loyalty that leads to competitive advantage through brand establishment and reputation. A superbrand in the United Kingdom and many Asian countries where Virgin Group operates, marketing as a key strategic obligation is successfully founded on pre-existing, positive consumer sentiments about the expertise and relevancy of the Virgin Group brand. Coupled with alliances and co-branding promotions, Virgin Galactic is well on its way to cornering a very profitable market. 5. Conclusion and recommendations Virgin Galactic selected the appropriate market for launching this new business venture, based on consumer resource availability and demand ratios as well as being able to create valuable inter-dependencies among knowledge experts in a variety of industries that can provide human capital to achieve launch goals successfully. This technology-reliant business model simply would not function properly or achieve cost goals in countries where there are limited distribution infrastructures, minimal technology industry talent in the local labour pools, and costly import/export activities related to the complex supply chain required to achieve construction and business model launch goals. Virgin Galactic should be considered a best practice benchmark in using effective market entry strategies and understanding consumer behaviours to create an effective brand personality that leads to brand loyalty so long as the service model is viable upon launch. The economic conditions of the U.S. and the prevalence of potentially price sensitive buyers leads to only one critical recommendation. Virgin Galactic cannot allow consumers to maintain considerable leverage and bargaining power as this will ultimately impact profitability and the establishment of a viable pricing model. Using ongoing emphasis on brand-related promotion, Virgin Galactic should position this new business concept under quality and exclusivity, thus allowing the business to boast a premium pricing model. Rather than seek diversified market opportunities, Virgin Galactic should first focus on its current niche market of upscale consumption until this market has provided ample profit opportunities post-launch. References Boone, L. and Kurtz, D. (2007). Contemporary Marketing, 12th ed. UK: Thompson South-Western. This text describes multiple dimensions of marketing, including global strategies, market positioning theory, and the tangible behaviours of consumers in multiple domestic and foreign markets. It provides guidance for understanding consumer attitude and how this can translate into marketing success. Boyle, A. (2012). Ashton Kutcher set for space trip, NBC News. [online] Available at: http://cosmiclog.nbcnews.com/_news/2012/03/19/10762066-ashton-kutcher-set-for-space-trip (accessed 25 November 2012). An article describing the power of celebrity in establishing a brand, using relevant celebrity actors and endorsers to provide more interest in the luxury market. Chaudhuri, A. and Holbrook, M.B. (2001). The chain of effects from brand trust and brand affect to brand performance: The role of brand loyalty, Journal of Marketing, 65(2), pp.81-93. This article describes the inter-dependencies associated with multiple brand-building activities and how this can translate into brand loyalty and attachments to the well-established brand. Del Castillo, M. (2012). Richard Branson wants to rent out his space lab to galactic scientists, Upstart Business Journal. [online] Available at: http://upstart.bizjournals.com/news/technology/2012/12/04/virgin-galactic-space-lab.html (accessed 24 November 2012). This article describes the many different partnerships that have been established with important investors in order to launch the new travel brand. It describes how Branson continues to diversify alliances in order to ensure successful launch by 2013. Hofstede, G. (2001). Culture’s Consequences: Comparing values, behaviours, institutions and organisations across nations, 2nd ed. Thousand Oaks: Sage Publications. An excellent resource for understanding the different cultural dimensions of society and consumers. The book draws on relevant research on cultural attitudes and principles that can translate into business and marketing success. Hofstede, G., Hofstede, G.J. and Minkov, M. (2010). Cultures and Organisations: Software of the Mind, 3rd ed. McGraw-Hill. This resource describes elements of culture that drive decision-making in the organisation. The resource highlights tactics for building a more cohesive organisation and how to successfully build a positive organisational culture in collectivist and individualistic societies. Kalyanaram, G. and Gurumurthy, R. (2008). Market entry strategies: Pioneers versus late arrivals, Wright University. [online] Available at: http://www.wright.edu/~tdung/entry.pdf (accessed 24 November 2012). This article describes how being a first mover in a new market gives a business significant competitive advantages. It describes how word-of-mouth can be improved when consumers begin assessing later market entrants to the original pioneer when making their consumption decisions. Muniz, A. and O’Guinn, T. (2001). Brand community, Journal of Consumer Research, 27(4), pp.412-432. Describes the concept of the brand community, one in which consumers spend more of their own resources on promoting and engaging with a brand. This typically occurs in the online environment, using social media as a tool by which to express loyalty to a particular favoured brand. Pornpitakpan, C. (2003). Validation of the celebrity endorsers’ credibility scale: Evidence from Asians, Journal of Marketing Management, 19(1), pp.179-195. This resource describes how celebrity endorsements can bring a brand more visibility and also credibility, so long as celebrities recruited represent the ideology of the brand personality. It highlights the elements of celebrity that must be included in a brand campaign in order to create positive persuasion in marketing. Soul Tek. (2004). Captain Kirk signs on for Virgin Galactic Ride. [online] Available at: http://www.soultek.com/space_privatization/Virgin_Galactic_Captain_Kirk_and_spaceshipone.htm (accessed 24 November 2012). A generic article describing interest in a relevant celebrity for engaging with the Virgin Galactic brand. Space News. (2009). Abu Dhabi company to invest in Virgin Galactic. [online] Available at: http://www.spacenews.com/article/abu-dhabi-company-invest-virgin-galactic-0 (accessed 25 November 2012). A resource describing another partnership and alliance with independent and corporate investors illustrating an interest in having an ownership stake in Virgin Galactic. Read More