When Brand Power Threatens Brand Extension - Case Study Example

When Brand Power Threatens Brand Extension 1. Introduction Virgin Group, a UK based group, was established in 1970 by Sir Richard Branson, who is not only the owner but also chief director and chairman of this conglomerate. Quite unequivocally, the Sir Branson has transformed this Virgin Company into a large venture capitalist group because of implementation of excellent diversification strategy. There are more than 300 companies in Virgin Group’s portfolio and the operations are expanded to more than 30 nations across Australia, Africa, Europe, North America and Asia. The company has also provided employment to over 50,000 workers and its sales has touched record £11.5 billion (nearly $18 billion) during 2009 - 2010. The group has been involved in many businesses such as Air travel, media, retailing, entertainment (music, videos and gaming), financial, health and educational products and services, food and beverages, tourism, telecommunication, leisure and hospitality etc. Some of the major companies of Virgin Group include Virgin Blue, Virgin Atlantic Airways, Virgin Media, Virgin Bank, Virgin Megastore etc. Virgin has always focused towards brand recognition, innovation, differentiation and value proposition because these aforementioned are the foundations that determine success and sustainability of any group or business organisation. Indeed, the strategic planners (under supervision and direction of visionary leader Sir Branson) pay special attention to maintain and improve product quality because it enhances market reputation and goodwill among stakeholders and business partners. Total Quality Management principles such as benchmarking, continuous learning, experimentation, six – sigma etc. are adopted for value creation among potential consumers and for improvement in sales and profitability. Without any doubt, this provides Virgin Group a competitive edge over rivals. 2. Market segmentation of the company Target market: Virgin Group has a very broad target market, which comprises of customers from all the classes and age groups. In fact, the group targets customers from elite, upper – middle and middle – middle social classes. For instance, Virgin Group also markets its products to teenagers, young adults, middle – aged and elderly segments. The group also targets business personnel as it has already been offering financial services such as banking, money exchange, air travel packages, media etc. to facilitate executives in carrying out business activities. Geographic Segmentation The group has been targeting its goods and services to consumers in different geographic regiosn such as Australia, Africa, Europe, North America and Asia. Nonetheless, th group has adopted a mix of globalisation, adaptation and localisation marketing strategies so that it could entice customers from all countries towards its brands. Demographic Segmentation The group does consider the demographic factors such as age, gender, marital status, education etc. before designing and marketing its goods and services. For example, the group is targeting teenagers and young adults (between 10 – 22 years) by offering books, leisure, gaming, music, videos, TV channels, radio, tour packages, sporting activities, health care, hospitality and others etc. Psychographic Segmentation The company has also segmented its customers after analysing their tastes, living standards, life styles and other psychographic factors. For example, the Virgin Atlantic and Virgin Blue airlines offer special packages for elite travelers and passengers that demand convenience, safety, comfort and luxury. Similarly, the top class accomodation services (Virgin’s hospitality business) are also provided to the elite and upper - middle visitors that meet or exceed their tastes, desires and preferences. Behavior Segmentation Behavior segmentation overlaps (to some extent) with psychographic segmentation because it also includes consideration of consumer behaviors, life styles, perceptions, attitudes, beliefs etc. Hence, marketers at Virgin Group are also involved in behavior segmentation because they design and market specific products to consumers with different background experiences, education level, standard of living, beliefs and attitudes. 3. Differentiation and Positioning Differentiation refers to the specific product features, characteristics and attributes that help improving the perception about a product and obtaining unique, clear and distinctive image in the minds of potential customers. It is worthwhile to mention that differentiation comes from innovation followed by Research & Development, which enable the company marketers to add new features in the products, enhance quality and packaging. Virgin Group of Companies has recorded phenomenal growth and success since its very inception in 1970 - 1971 because of continued / regular focus on product differentiation, innovation and development. Indeed, the strategic planners not only have created and offered new goods and services in financial, entertainment, leisure, tourism, air travel, hospitality, telecom and retail sectors but also improved the existing products as part of product development strategy. The group pays special attention to marketing research to garner and analyse information regarding competitors, which is later utilised in strategic decision – making, problem solving and product differentiation. As far as positioning is concerned, it should be pointed out that the term refers to communication of ideas, value proposition and promises made by the Virgin Group to tempt a large pool of customers in the marketplace. Indeed, positioning is usually done by marketers through pull and push marketing techniques. For instance, the marketers employed at Virgin Group have conducted aggressive informative, persuasive and reminder advertising campaigns to obtain a clear and unique image in the mind of customers, which later may trigger purchase responses. For example, Virgin Blue initiated campaign with a slogan of “Get What You Want” followed by “flying billboards” marketing strategy. Also, the same airline launched a new campaign named “Now there's an idea”. Next, the group had also sponsored Australian National Basketball League so that it could position its products customers of different age groups from various market segments and social classes. In addition, the strategic planners not only used globalisation but also localisation and adaptation marketing strategies for brand positioning, recognition and awareness in a broad target market. 4. Ansoff Matrix There are four major marketing strategies as revealed by Product – Market expansion grid or Ansoff matrix. These include market peneration, produc development, market development and diversification. The author will throw light over importance and implementation of these four marketing strategies by Virgin Group of Companies. Market Penetration: This option is about targeting existing products to existing consumers in the amrket through aggressive informative, persuasive and reminder advertising campaigns. Nevertheless, the strategy also includes price reductions, sales discounts, rebates etc. as it helps the company in increasing brand awareness, popularity and sales in the short tun. Virgin Group uses this strategy during off – seasons to increase sales of certain goods and services. For example, the airline subsidiaries reduced their fare prices during economic recession when customers were reluctant to travel through air. Similarly, the prices of accommodation services also come down in winters when demand of tour packages and foreign trips is declined. In addition, the Virgin Companies also charges lower prices when they enter a new country or market to offer existing products. However, the products remains same, whereas only advertising campaigns are localised to sui domestic culture, norms, standards and values. Market Development: This strategy is about marketing existing products across new markets to enhance sales volume and profitability. It is worthwhile to mention that Virgin Group has established Virgin Megastores in North American, Australian and European countries where it sells a large variety of consumer products. For instance, the Megastores usually target the similar product variety (such as drinks, beverages, food, cosmetics, shampoos, soaps and other producs of daily use). However, the Megastores may offer products supplied by different local and multinational companies followed by products under Virgin’s brand name. Product Development: Another market strategy of Virgin Group is product developmen, which is about innovating existing brands and developing new products to existing consumers to increase market share and financial gains. Indeed, it should be highlighted that Virgin Group has adopted this strategy because it believes in innovation, produc differentiation, value proposition and brand recognition to obtain clear, distinctive and unique image in the minds of consumers. For example, the group’s airlines introduces new travel packages, new gaming options, new music albums, videos and entertainmen stuff to meet changing needs and desires of existing customers. Without any doubt, this provides Virgin Group a competitive edge over rivals because its Research & Development department enhances product quality and packaging of consumer products offered in retail megastores. Similarly, the new services such as saving schemes, exchange options, investment plans, insurance policies etc. are also offered in Financial sector. Diversification: Diversification refers to development of new products that are targeted to new customers in the marketplace. The companies diversify their businesses to reduce dependence on a particular business for sales and profitability. Diversification is core marketing strategy of Virgin Group because it has entered in various industries and business sectors such as as Air travel, media, retailing, entertainment (music, videos and gaming), financial, health and educational products and services, food and beverages, tourism, telecommunication, leisure and hospitality etc. 5. Application of BCG matrix Virgin mobile, internet broadband, active and leisure companies / businesses in USA, Canada, UK and India could be called as the question marks because they have relatively higher growth rate but low market share. Indeed, there is intense competition in the telecom sector of these above mentioned nations; however, the better planning, policy formulation and implementation have resulted in higher growth rate in lucrative communication sector. Virgin airline companies that provide services across USA, Canada, Europe and Australia are among the subsidiaries that have significant contribution in the total sales revenue. According to the researcher’s understanding, these should be called as stars because they have greater market share and relatively higher growth rate. In addition, the Gaming business, Virgin Megastores and Virgin Media are also among the star businesses because of greater popularity, reputation and acceptance by the potential consumers. In addition, the businesses in financial services such as Virgin banks, money exchange, insurance etc. and Virgin Radio, Virgin Wine and Drink subsidiaries could be considered as cash cows because there are cash problems faced by the conglomerate. Also, the market share of such businesses is better whereas the growth rate is slow due to cutthroat competition in the industry. As far as the last category is concerned, it should be pointed out that Virgin Books, Green Fund, Digital Help, Healthcare and Balloon flights etc. are some of the companies that have low growth rate and very low market share; therefore, it is justified to consider these units / subsidiaries as Dogs. In addition, Virgin also runs some non-for-profit organisations under the name of Virgin Unite in Africa, Europe, and North America continent, which do not have any contribution in sales and profitability. 6. Market Research The core markets of Virgin Group are still European, North American and Australian economies; however, the group has been expanding its operations in Asia through formation of new subsidairy companies. Virgin Mobile India is one such example which provides telecommunication services to Indian customers. The group’s analysts have forecasted that emerging Asian economies will become most lucrative (due to greater population / market size and GDP growth) in next 3-4 years against Virgin’s traditional core markets. The group has adopted all four marketing growth strategies such as diversification, penetration, market and product development. Nonetheless, penetration is used to unload inventories at hand, market + product development are used simaltaneously in various sectors. Diversification is observed when groups enter in new business sectors and industries. Pull marketing is extremely necessary because it helps targeting and attracting masses. Push marketing at store level to inform, direct and persuade buyers, which later trigger purchase responses. Airline companies such Virgin Blue, Atlantic, USA etc. are the actual revenue contributors. The company has introduced a new trend about offering wi-fi, TV and internet broadband services within the aircrafts to tech-savvy customers. Sales crossed £11.5 billion (nearly $18 billion) in 2009, while the profit figures were disclosed to be between £1.1 billion. The estimated number of customers of the group has surpassed over 62 million and the group is considered among the top 25 innovating conglomerates worldwide. Virgin has recently (during 2009 - 2010) entered in Hotel Accommodation business and has bright future because of continued diversification, innovation and differentiation. International oil prices (expected rise in inflation) and late economic recovery are the actual challenges because they may impact purchasing power of consumers and consumption patterns worldwide. The oil prices and economic recession / downturn negatively impacted travel and tourism businesses because of sharp increase in unemployment followed by decline in income level. However, the price adjustments and attractive packages helped the group to survive in tough scenario. Some healthcare, education, entertainment and finance related business have low market share and growth rates; however, we are hopeful their sales and profitability will increase in next couple of years. Yes, the group has loyal customer base of over 62 million customers and the figures are constantly increasing with the passage of time. The expansion of our hospitality and accommodation business will further enhance these figures. 7. Summary In a nut shell, Virgin is a group founded by Sir Branson with over 300 companies operational in more than 30 nations in different continents worldwide. The company is known for its innovation, differentiation, positioning and value proposition. Today, the group has found place in the list of top 25 innovators, which is the evidence of its popularity, goodwill and excellent market reputation. For instance, Virgin is a very diversified group with annual sales turnover of over £11.5 billion or $18 billion in which airline subsidiaries have significant contribution. References Jackson Mahr “Virgin” Brand Channel, January 24, 2005 http://www.brandchannel.com/features_profile.asp?pr_id=215 Ritson, Mark “When Brand Power Threatens Brand Extension” Brand Extension, December 10, 2008 No author “Marketing / Brand” Virgin Company (n.d) http://careers.virgin.com/your_path/marketing_branding BW News “Virgin Group Ltd.” Business Week, October 26, 2010 http://investing.businessweek.com/research/stocks/private/snapshot.asp?privcapId=36312 Borden, Mark “Why Tech Nerds Love Flying Virgin America” Fast Company, July 30, 2010 No author “VIRGIN GROUP” ESE Courses (n.d) http://esecourses.com/cfincase.pdf No author “The Virgin Brand” Marketing Minds (n.d) http://www.marketingminds.com.au/branding/virgin.html Citeman Article “A Case study on strategy implementation of Virgin Group” Cite Man Network January 18, 2009 http://www.citeman.com/4749-a-case-study-on-strategy-implementation-of-virgin-group/ Official Website - www.virgin.com Appendix 1) What are your core markets? According to our research, you are also operational in Asia; Are emerging Asian economies such as India, China etc. highly lucrative than European and North American markets? 2) Virgin Group is very diversified. Do you also focus on penetration, market and product development strategies at the same time? 3) How Virgin uses Push and Pull marketing strategies / campaigns? 4) What are your actual bread – winning companies? Which companies have significantly higher contribution in sales revenues and profits? 5) Can you please provide any information about total sales figures and profitability from global business operations? 6) Where do you see Virgin after 5 years? 10 years from now? 7) Please elaborate on some of the global challenges faced by the group. 8) How recession has impacted your business? 9) Identify some of the companies with low market share as well as low growth rates. Precisely, what are the ‘dogs’ in your conglomerate? 10) Do you have a loyal customer base? If yes, then how and why? Read More