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

7

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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