Virgin Atlantic A Premium Brand - Essay Example

Virgin Atlantic – A Premium Brand Virgin Atlantic, based at the UK, operates in the airline business creating a unique brand in the air travel industry for last over two decades. It is indeed not a mean achievement that from a single route in 1984, it has expanded its operations to over 38 routes across North Atlantic, Asia, Africa, and Caribbean with 38 aircrafts at its disposal. Richard Branson, the owner of Virgin Atlantic, formed a strategic alliance with Singapore Airlines in 1999 by selling 49% shareholding to the latter. Since then Virgin has successfully competed with British Airlines and other large carriers through its unique product positioning strategy. Premium Economy class offered by Virgin constitutes a major chunk of its business that provides larger seats, priority in baggage reclaim, a cabin-exclusive crew, dedicated check-in and more that distinguishes them from the other airliners. Over these years, the VA brand is recognised as one of the most reliable and consumer-friendly air carrier that people have been ready to pay premium on their air travel; however, post 2008 financial crisis has caused major upheavals in the aviation industry. In last couple of years, numerous mergers have taken place among the major airliners and that has posed a grave threat to the VA. It becomes utmost necessary that Virgin forms a suitable merger or a strategic partnership with some other large airlines to improve its competitive edge over its rivals. Introduction Virgin airlines (VA) began its operations a way back in 1984 with a single route to New York; however, expanding its operations ever since then, currently, the Virgin flies to more than 30 destinations with total 38 aircrafts at its disposal. At the home turf, Virgin competes with British Airways (BA) and holds number two position right behind BA beating many US carriers in the process. Competing with BA at all major routes is a big feat indeed! The paper aims at identifying and analysing the competitive strategy that Virgin Atlantic has deployed all these years against the formidable airlines of the world. Virgin Atlantic's Mission Statement Virgin Atlantic's mission statement is "To grow a profitable airline, that people love to fly and where people love to work" (Strategy and Policy, 2012). Objectives VA’s long-term objective is to grow and expand into a profitable airline creating a strong brand name in the aviation industry. In a bid to fulfill these objectives, the company moved to Heathrow in 1991. Since then the company has been able to push through many routes and several markets. Creating Competitive Strategy Lomax and Raman (2006) define competitive advantage as the means that are necessary for the company to outperform its rivals in terms of earning higher than average profits. Hooley et al. (2008) argue that a well-formulated marketing strategy should be in place based on the competitive environment in which the company operates. Product positioning or niche marketing can derive benefits to the company when harnessed strategically (Johnson, 2011). Virgin competes with British Airways, Continental, American Airlines, United and Delta on transatlantic routes; BA, Cathay Pacific, ANA, and JAL to the Far East; SAA and BA to South Africa. Virgin has instituted a two class system for its passengers: Economy class and Upper Class. Economy class is further segmented into Premium Economy and Economy Class. Virgin employs several marketing techniques using its distinct logo to market its products and services that include print media, electronic media, taxi sides, outdoor posters. The sole purpose is to increase the awareness among consumers about its products and services and inform the people about new routes. During off seasons, tactical promotional schemes are offered to increase the occupancy rates in air routes. Direct mail is another method used to inform about the new offerings and services. Frequent flyer programmes are used to increase the loyalty among existing customers. Flying club members are offered several other benefits such as Clubhouse access and support services (Marketing, 2012). Creating a Brand Value – A Long-term Objective Pietersen (2012) emphasises, “A brand is a perception of value in the mind of the customer.” Consumers regard VA as a fun-loving, distinct and highly innovative brand and admire for its integrity and consumer-friendly behavior. It is important to note here that Virgin Atlantic is the brainchild of Richard Branson with the sole aim to offer the best possible value to the customers. Richard himself proclaims, "A brand name that is known internationally for innovation, quality and a sense of fun – this is what we have always aspired to with Virgin"(Strategy and Policy, 2012). Expansion through Strategic Implementation Virgin Atlantic has been hugely successful across North Atlantic routes earning £3 billion as revenue in 2012. With only 3 percent slots at Heathrow, the company could garner 10 percent of the movements and almost 24 percent market share on its key market – the North Atlantic (Kingsley-Jones, 2012). That is a big feat indeed! Virgin Atlantic took a major strategic decision when Richard Branson, the owner of Virgin, entered into an agreement with Singapore Airlines in 1999 selling 49 percent stake to expand and form a unique global partnership with the latter. Singapore Airlines had to fork almost £600.25 million, injecting a fresh capital of £49 million. Branson retained the controlling stake of 51% in the airline (Marketing, 2012). Evaluating Competitive Strategy Whether VA holds a competitive advantage over rivals or not can be judged from the two factors: Ability to charge a premium price over competition without really sacrificing volume significantly; or whether the company has been able to increase its market share keeping the prices of its products or services same. Customers pay higher price when they perceive higher value on the products or services than the ones offered by competing firms. In a dynamic market, customer continues to judge the value on products or services and accordingly, the volume of business keeps on rising or falling. Pietersen (2012) emphasises, “Competitive advantage means achieving a bigger gap than your competitors between the values your customers see in your product and the costs you incur in providing that product". Author categorically states that competing on costs is a necessity for remaining in the game but creating superior value is a prerequisite to score over rivals and that is precisely where a competitive advantage lies. Virgin Atlantic creates a superior value because it can garner a higher price from the customers compared to their rivals. That simply means that Virgin not only knows consumer needs better but also delivers them successfully; customers perceive receiving higher value for the money spent at Virgin. Thus, it is appropriate to say that Virgin holds a good competitive edge over its competitors (Pietersen, 2012). Premium Economy Class – Creating More Economic Value Barney (2010) argues that the firm should be in a position to create more economic value than competitors. Anna Knowles of Virgin Atlantic rightly acknowledges that from people on leisure to staff of small and medium-sized companies on business tours look out for more space while on air travel. This is a worldwide trend and Virgin has understood the customer requirement well by introducing Premium Economy class in their air routes. Usually, airline travel is segregated between economy class and business class. Premium economy class that falls between economy and business class serves the purpose in meeting customers’ needs by providing them some of the comforts of a premium seat at an affordable cost. Long-haul travelers always prefer the joy of occupying a bigger seat; extra space of seven inches to stretch out, in comparison to a normal economy class, provides them a joyful ride. Virgin Atlantic rightly understood the much-sought after requirement of the customer compared to competition and accordingly, provided a seat with a width of 21 inches – quite a bit luxury than 18-inch size provided by competing airliners in the equivalent class. Such consideration matters when consumers always lookout for a value buying for the money spent. Virgin Atlantic's premium economy cabin, in this sense, has always been enticing to the customers as they also get priority in baggage reclaim, a cabin-exclusive crew, dedicated check-in, meal served in chinaware and more. In a long-haul journey these points become quite crucial to attract the customer. It is not surprising that premium economy class has been growing fastest registering growth of over 50% between the year 2000 and 2005. Virgin could establish a competitive edge over other airliners because it offered a proper product-mix to the customers at the price that they could not refuse. This clearly establishes that Virgin is successful in distinguishing its products from those offered by competition (Just the flight, 2012). Competitive Advantage through Employee Training Programme Lynch (2008) argues that competitive advantage is achieved in many ways that include product differentiation, niche marketing, low costs, service orientation, technological superiority, quality aspects, developing synergy and more; however, stability and continuity among different parts of the organization is necessary to harness it fully. Virgin brand is known for its customer service since its inception. It is a fact that effective training helps create a productive, flexible and effective workforce. When businesses move southward, usually no company tends to invest on training of its people. Virgin Atlantic thought otherwise and preferred to spend on training its people to meet the future challenges. For last few years, sales conversion rate was stagnating at 6%. Virgin launched an intensive training programme for key sales managers. While launching this programme, a care was taken that the key focus on customer service is never compromised. The impact of the training programme was visible in the sense that sales conversion rate rose dramatically from 6% to 9% in two years. The results were hugely encouraging in the sense that revenue went up by 48 percent that was much higher than the travel industry as a whole. The admirable part was that the customer satisfaction went up by 92 percent. This happened because customers perceived a great value addition in the service provided by VA. This was also reflected in the BPA Travel Sector Customer Service Index which showed a nine point rise from 12th place to 3rd place. This is how the competitive advantage was further strengthened through training (Bluesky, 2012). Recommendation Post 2008, due to heavy recession and financial crisis across Europe and Americas, most of the airlines are bleeding that includes VA. Companies cannot survive if they continue to lose money year after year due to bleak economic and business conditions. Hooley et al. (2008) argue that in such circumstances "new dynamic capabilities must be built" through mergers, alliances or acquisitions to become more competitive in the marketplace. Merging or alliance also helps form new synergies, reducing cost and becoming more competitive. Several mergers in the airline business in last few years have to be seen in this light. BA, Iberia and American Airlines tie-up in 2010 posed a new threat to the VA (Milmo, 2010). VA needs to form a strong strategic alliance or merger with some other airlines that can enhance its competitive edge. The company needs to revamp its operations – some of the loss making routes that are not likely to revive in near future due to severe recessionary conditions should be discarded with and frequency of some of the routes need to be readjusted as per the available traffic. Merging with other airlines will create new opportunities reducing operational costs. At the same time, virgin needs to discover a new USP that can help position the company in a new avatar in the marketplace. Conclusion From the case of Virgin Atlantic, it becomes clear that the competitive strategy needs to be at place for the company to acquire a competitive edge in the marketplace. In the dynamic market, single strategy cannot serve the purpose for ever because the company formulates strategies in reference to the prevailing environment factors that include competition strategies and they always keep on changing. This simply means that the company needs to find newer and newer tactics or strategies to remain in the game and sustain growth. References Barney (2010). Gaining and Sustaining Competitive Advantage. New York: Prentice Hall Bluesky, (2012). Sales and Service Performance Improvement. Virgin Atlantic. 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Corporate Strategy, London: Prentice Hall Marketing, (2012). Virgin Atlantic. [Online] Available from http://www.virgin- atlantic.com/en/gb/allaboutus/ourstory/forstudents.jsp [Accessed 27 December 2012] Milmo,D. (2010). BA, Iberia and American Airlines tie-up heralds new era of transatlantic travel. The Guardian. [Online] Available from http://www.guardian.co.uk/business/2010/oct/06/ba-iberia-american-airlines-deal-sealed [Accessed 28 December 2012] Pietersen, W. (2012). Defining Competitive Advantage: How much more value do you deliver than your competitors? The European Business Review. [Online] Available from http://www.europeanbusinessreview.com/?p=2355 [Accessed 27 December 2012] Strategy and Policy, (2012). Virgin Atlantic. [Online] Available from http://www.virgin-atlantic.com/en/gb/allaboutus/ourstory/forstudents.jsp#finance [Accessed 27 December 2012] Read More