adding value - tutor2u · explain two benefits of virgin adding value to the products and services...

tutor2u AQA GCSE 3132 Revision – Virgin Group

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Adding value

Definition Adding value refers to the element(s) of service or product that a business provides, that a customer is prepared to pay for because of the benefit(s) obtained. Added values are real and perceived; tangible and intangible

Example Virgin Atlantic competed effectively against larger airlines by offering added value, including in-flight entertainment and extra services for first-class passengers. Before it starts a new business, one of the key questions Virgin asks is whether “value can be added”?

Further analysis

Explain two benefits of Virgin adding value to the products and services it offers Answers could include:

Enables Virgin to charge a higher price – if customers perceive that the added value is worth paying for

Creates a point of difference from the competition – a way of differentiating the Virgin product

Provides protection from competitors trying to steal customers by charging lower prices – e.g. larger airlines trying to prevent the rapid growth of Virgin Atlantic

Focuses a business more closely on its target market segment. By concentrating on delivering what customers want, the business is more likely to succeed (which in turn reduces the risk involved)



Brand name

Definition A name used to distinguish one product from its competitors. It can apply to a single product, an entire product range, or even a company. A brand name is usually associated with a logo or other graphical representation of the brand in order to strengthen the brand image.

The main purpose of branding is to differentiate the products and services of one product or business from those of competitors.

Example Virgin is one of the most distinctive and well-known brands in the world. Virgin is listed as a CoolBrand in the case study alongside the likes of iPod, Apple and Ferrari.

Further analysis

Describe two benefits to Virgin Group of having “one of the world’s most recognised and respected brand names”

Answers could include:

Successful brand-building helps profitability by “adding values” that customers are prepared to pay for.

Strong brands inspire customer loyalty leading to repeat sales and word-of mouth recommendation

The brand owner can usually charge higher prices, especially if the brand is the market leader

Better access to distribution - retailers, distributors and other sellers usually want to stock top selling brands. With limited shelf space it is more likely the top brands will be on the shelf than less well-known brands



Business opportunity

Definition An opportunity to set-up or acquire a business in a target market. Exploiting a business opportunity means developing a profitable business that earns the target rate of return. Business opportunities can be found from a variety of sources.

Example Virgin is constantly looking for business opportunities – i.e. it is not satisfied simply running its existing businesses. A suitable business opportunity for Virgin would have favourable responses to the key questions listed on page 6

Further analysis

Virgin claims to make money by creating ideas that benefit consumers. Describe two examples of how Virgin has successfully exploited a business opportunity by serving customers better than the competition


Virgin Health – Virgin Active health clubs offer a simpler, cheaper health club subscription model than most of the competition (e.g. David Lloyd)

Virgin Atlantic – focus on adding value to economy and business class user experience



Competition

Definition Competition refers to the rivalry between businesses in the same industry or market. Competitors are other businesses that offer the same or similar products. Competitors fight for a share of the revenues and profits available in a market

Example Virgin faces intense competition in all of its main markets. In some cases Virgin entered a market as a very small business compared with competitors (e.g. airlines). In other cases, Virgin has become the market-leader

Further analysis

Describe two ways in which Virgin could obtain information about competitors in a market before it starts a new business


Primary research

Surveys of customers about their existing use of competitor products & services

Observation of competitor methods (e.g. mystery shopping)

Analysis of competitor marketing strategies (e.g. pricing, distribution, promotional approaches)

Secondary research

Analysis of competitor financial information (if available, from published accounts)

Analysis of competitor profiles in published market research reports

Research from industry sources such as trade associations and industry magazines & directories



Customer feedback

Definition Customer feedback refers to the process of obtaining information from customers about the products and services that they use. There are many different methods of obtaining customer feedback ranging from the formal (e.g. customer service questionnaire) to the informal (e.g. discussions over the telephone whilst making a transaction).

Example Given the sectors in which Virgin operates (e.g. travel, media, entertainment), customer feedback is a vital part of the process for ensuring that Virgin delivers value for money and quality. Are Vigin holidaymakers satisfied with their latest trip? Can Virgin Media customers access their cable TV and Internet services without difficulty? Is the billing system for Virgin Mobile operating accurately?

Further analysis

Describe two ways in which Virgin could obtain customer feedback about its products


Customer service questionnaires – sent to customers once they have experienced a Virgin product (e.g. when holidaymakers return home)

Focus groups – face-to-face discussions with customers, discussing their experiences with Virgin Group businesses and products

Online customer satisfaction survey

Informal discussions with customers whilst they transact with Virgin (e.g. during installation of cable TV products in the home, or by customer service representatives on a Virgin holiday or at the Virgin Atlantic check-in desks



Delegated responsibility

Definition Delegation involves the assignment to others of the authority for particular functions, tasks, and decisions. Delegation is commonly associated with better motivation – particularly amongst junior management

Example Virgin employs people who “enjoy having delegated responsibility” and who can cope with demanding jobs. Extensive use of delegation allows Virgin to operate simple and flat organisational structures

Further analysis

Describe two advantages and disadvantages of delegation


Advantages Disadvantages

Reduces management stress and workload

Allows senior management to focus on key tasks

Subordinates are empowered and motivated

Better decisions or use of resources (potentially)

Good method of on-the-job training

Cannot / should not delegate responsibility

Depends on quality / experience of subordinates

May increase workload and stress of subordinates



Discrimination

Definition Discrimination refers to the unfair treatment of a person or group on the basis of prejudice. In the workplace, it is illegal to discriminate against employees on the basis of:

Age or gender

Sexual orientation

Disability

Race, colour or ethnic background

Nationality

Religion or belief

Example Virgin states that it will not tolerate discrimination or bullying in the workplace.

Further analysis (none)



Diversification

Definition Diversification is a business strategy is offering a variety of products and services in different markets. Diversification can be “related” (i.e. there is some connection between the markets served) or “unrelated” (i.e. little if any connection). A strategy of diversification is often associated with higher business risk

Example Virgin has diversified its activities into a wide range of industries and markets. However, its core activities are centred around entertainment, travel and lifestyle

Further analysis (1)

Describe two risks that Virgin faces when it attempts to enter a new market


Competitor response – existing competitors are unlikely to welcome the Virgin brand into their market; they will likely respond with additional promotional activities

Underestimate the investment required – lack of industry knowledge may create unrealistic expectations of the returns that can be achieved

Customers will not respond positively to the Virgin brand – possibly out of loyalty to existing competitors

Unexpectedly higher costs or lower demand than planned – which will reduce actual profits


Discuss how Virgin could reduce the risk of diversifying into a new market


Market research (important) – understanding the key aspects of what customers want, competitor strength, methods of distribution, pricing, cost structures etc

Use franchising – reduces the amount of investment required

Partner with another business – e.g. a joint venture partner with experience of the industry concerned. This shares the investment and the risk



Acquire an existing competitor in the market and look to rebrand the operation with the Virgin name (Virgin did this through its acquisition of cable TV operator NTL which it then rebranded Virgin Media)



Entrepreneur

Definition An individual who sets up and runs a new business and takes on the risks associated with the business. The rewards for an entrepreneur come in the form of profits and other intangible factors such as success, satisfaction etc. The entrepreneur also suffers the losses that can come with the failure of a business.

Example Sir Richard Branson is, perhaps, Britain’s most famous entrepreneur. His persistence in setting up a portfolio of businesses, despite many hurdles, is a great example of enterprise in action

Further analysis

Describe two characteristics that entrepreneurs like Sir Richard Branson need in order to be successful


Passionate about their product or service and about getting things right for the customer

Visionary – they have faith in what they are trying to do

Energetic and driven – prepared to work consistently long hours, especially in the early stages

Self-starting and decisive – they don’t wait for others to take decisions

Calculated risk-taking – not reckless; they are prepared to take a risk in order to maximise the rewards

Multitasker – able to take on more than one role (product development, selling, recruitment)

Resilient – able to handle problems and overcome hurdles

Focused – sets clear goals and self-imposed high standards

Results-orientated – take pleasure from achieving targets and setting the bar higher



Franchise

Definition The right under which a franchisee (person or company) may market a product or service, as granted by the franchisor (the owner of the franchise).

Example Virgin acts as a franchisor to businesses that licence the Virgin brand to apply to their business. For example, Virgin Media (which runs the largest cable TV operation in the UK) licences the right to use the Virgin brand from Virgin Group Limited.

Further analysis

Describe two benefits to both Virgin Group and to franchisees of using the Virgin name in a franchised business


Benefits to Virgin Benefits to Franchisee

Lower risk for Virgin (important) – assuming that the franchisee has sufficient expertise in the market to which the Virgin brand name is being licenced

Most important – investing in a trusted and well-known brand. Virgin has a proven track record of extending its brand in this way

Lower investment requirement. Virgin Group receives a licensing fee and does not have to fund start-up or other investment requirements.

It is easier to raise finance – banks and investors much more likely to provide finance if business is backed by Virgin

A way of diversifying into new markets more rapidly – for example by rebranding an existing business with the Virgin brand (e.g. cable operator NTL was rebranded Virgin media)

The franchisee may benefit from buying power and other resources from the Virgin Group – e.g. purchasing economies of scale



Innovation

Definition The term innovation means a new way of doing something. It may refer to small or significant changes in the way things are done.

Innovation is closely linked with the idea of new product development.

Example Innovation is one of Virgin’s core values. Innovation is associated with the “product” element of the marketing mix. For example, Virgin innovated by adding in-flight entertainment to transatlantic flights.

Further analysis

Before starting a business Virgin asks whether the customer in the target market is “confused or badly served”. Explain two ways in which product innovation can help Virgin successfully enter a new market


Innovation could benefit customers by simplifying the product or service. For example, the use of e-ticketing for airline passengers

Virgin could innovate by bundling services together in a simple, value-for-money package – e.g. offering a combination of Internet, telephone and other media services under a single price package at Virgin Media

Virgin could innovate by upgrading and improving the services provided – for example by offering better quality seating and at-seat services for passengers on Virgin Rail



Loyalty card

Definition A loyalty card is traditionally taken to be a card, issued by a retailer, with which a regular customer accumulates points that can be redeemed for discounts on future purchases

Example The loyalty card referred to in the case study is the Tribe Card – which is provided to Virgin’s 50,000+ employees (as opposed to Virgin customers). In a way, the Tribe Card is designed for Virgin’s “internal customers” – it is a way of delivering financial perks to Virgin staff.

Further analysis

Give two ways in which the Tribe Card helps Virgin motivate its employees


A financial “perk” or benefit – which allows Virgin employees to make cash savings on products or services they wish to buy. This might be substantial, given Virgin’s extensive range of consumer products (e.g. train fares, financial services, air travel). The Tribe Card also offers discounts from businesses outside the Virgin Group – increasing the financial value of the perk

Help build a sense of belonging to the Virgin Group – builds staff loyalty



Mail order

Definition Mail order is a kind of non-store retailing. It usually involves a catalogue from which customers select goods, then mail or telephone their orders to the supplier. Goods are delivered to the customer's home. The digital equivalent of mail-order is now e-commerce.

Example Richard Branson’s first successful business venture was a mail-order business – selling student magazine

Further analysis

Other than mail-order, give two examples of how a business can sell directly to customers


High-street retailing

Ecommerce – i.e. selling direct via a website

Local markets – a physical market (such as a car boot sale)

Direct mail – sending promotional leaflets through the post



Management hierarchy

Definition The management hierarchy describes the traditional form of organisational structure in a business. Layers of hierarchy reflect levels of seniority. The hierarchy basically describes who reports to whom and where decision-making responsibility lies.

Example The case study explains that Virgin tries to keep its management hierarchy as simple as possible. Virgin organises itself with few layers of management (i.e. a “flat” hierarchy).

Further analysis

Explain two benefits to Virgin of operating with flat management hierarchies


Few layers of hierarchy may also mean wide spans of control

Suitable for an approach which emphasises less direct managerial control + more delegation

Fewer opportunities for promotion within the same business, but staff given greater responsibility (Virgin also encourage staff to move within the Virgin group to access promotion opportunities)

Vertical communication is improved – fewer layers for communication to be achieved

Fewer layers = less staff = lower costs (i.e. more efficient)



Market research

Definition Market research is the process of gathering, recording and analysing data and information about customers, competitors and the size and structure of the market. Market research is used by businesses at every stage, including the start-up stage and by established businesses.

Example Virgin bases any decision to start a new venture on market research and analysis. It also makes extensive use of customer feedback, which is an important form of market research


Describe two ways in which a Virgin business might undertake market research for a new product


Primary research:

Focus groups to provide qualitative opinions on the proposed new product

Questionnaires or online surveys to obtain feedback on proposed elements of the Virgin product (e.g. price, preferred options, buying)

Secondary research:

Analysis of market reports on the size (revenues) and growth rates of the market

Review of competitor marketing materials


Give two examples of useful information that Virgin could obtain from market research about a new business opportunity


How fast is the market growing and what is the market growth potential?

Who are the existing competitors and what market shares do they have?

How is the market segmented? (“segments” are the different parts of a larger market – e.g. low price or high quality)



How big is the market? (measured by sales, volume etc)

What kind of customers are there in the market? What are their preferences in terms of when and where they buy, what prices they pay and which methods of promotion are effective?



Perk

Definition Also known as “fringe benefits”, perks are financial and non-financial benefits which employees receive in addition to their normal wages or salary.

Example The Virgin Group Tribe Card is a good example of perk of working for Virgin.

Further analysis

Give two examples of non-financial perks which Virgin could use to help motivate staff in the business


Staff discounts on Virgin Group products and services

Rewards for long-service or outstanding customer service

Days off for charitable work (e.g. on projects undertaken by Virgin Unite)

Profit sharing

Private health insurance

Contributory pension schemes



Private limited company

Definition The most common form of company. The shares of a private limited company are not available to the general public to buy and sell on a recognised stock exchange. The company is owned by shareholders and they enjoy “limited liability” – i.e. the most they can lose is the amount they have invested in their shares.

Example Virgin is a now private limited company. It briefly turned into a public limited company in 1986 but returned to private ownership two years later

Further analysis

Describe two advantages and disadvantages of a private limited company as a form of business organisation



Limited liability – by far the most important advantage of incorporation; protects the personal wealth of the shareholders

Greater admin costs (though much cheaper than being a public company)

Easier to raise finance – both through the sale of shares and also easier to raise debt

Public disclosure of company information (annual report & accounts + annual return)

Stable form of structure – business continues to exist even when shareholders change

Directors’ legal duties (set out by Companies Act)

Provides more privacy of information than an public limited company



Privatisation / deregulation

Definition Privatisation occurs when a business or organisation is transferred from ownership by the public sector to private sector ownership. Privatisation is the opposite of nationalisation – where businesses transfer from the private to the public sector.

Deregulation occurs when an industry is “opened up to increased competition”. It typically occurs when a previous monopoly industry (e.g. rail, gas, electricity, water) is opened up for private sector businesses to compete.

Example The deregulation and privatisation of the UK rail industry in 1997 enabled Virgin to invest in two train operating companies.

Further analysis

Describe two advantages and disadvantages of the deregulation of the rail industry from the perspective of rail passengers



Increased competition has resulted in improved customer service standards

Greater accountability of rail companies to customers

More choice through franchising

Promise of greater investment (e.g. rolling stock)

Wider choice of fare structures

Fares have risen by more than inflation

Delays in getting new investment completed

Cost-cutting & job losses

Wide variations in the quality of customer service (some original train operating companies have since lost their licences)



Public limited company

Definition A public limited company (usually shortened to “plc”) is a company that has a share capital that members of the public can buy. The shares of a plc can be listed on a recognised stock exchange (however, note that they don’t have to be listed)

Example Virgin Group changed from private to public ownership in 1986 when the shares of Virgin were floated on the London Stock Exchange. However, after a disappointing period as a public, quoted business, Richard Branson bought the shares back and returned Virgin to private ownership

Further analysis

Describe two benefits and drawbacks of Virgin Group being a public limited company


Benefits Drawbacks

Ability to raise substantial finance from outside shareholders – particularly during the flotation process (when the shares are first offered for sale

Enables Virgin Group employees to invest in shares of their business + customers too!

Greater public visibility of the Virgin Group

Share ownership is spread over a wider base

Great public scrutiny – public (including competitors) have access to detailed financial information

Increased threat of takeover

Increased influence of external investors on the management of the business

Short-termism – a criticism of the stock market investment community: looking for short-term improvement rather than long-term growth



Public relations

Definition Public relations (“pr”) is a form of promotion intended to create goodwill for a person or institution

Example Richard Branson and Virgin Group may extensive use of public relations as a way of promoting the Virgin brand. Richard Branson’s daredevil activities generated substantial amounts of publicity for the brand, supporting its core values of fun and a sense of competitive challenge. Public relations are also used to support Virgin’s social and charitable activities

Further analysis

Describe two ways in which the Virgin Group uses public relations to benefit its businesses


Public relations can help Virgin launch new products and services – particularly if Richard Branson is involved!

Public relations helps Virgin draw attention to, and gain support for its social responsibility and charitable activities

All existing businesses in the Virgin Group benefit from successful public relations exercises, since they all share the Virgin brand.



Quality

Definition Quality means that a product or service that meets the needs and expectations of customers. A quality product is likely to have various features including being reliable, good functionality, durable and cost-effective to own

Example Quality is one of Virgin’s core values. It is closely linked to “value for money” – which suggests that the Virgin brand is associated with providing good quality at an attractive price rather than the highest possible quality

Further analysis

Describe two reasons why a business needs to be concerned about the quality of its product


Delivering a quality product or service is a key way in which a business competes effectively. Poor quality (or lower quality than competitors) is likely to result in a loss of market share, lower sales and profits in the long-run

Customers are quick to recognise and complain about poor quality – particularly in the service sectors in which Virgin has many businesses. These complaints can easily be made publicly (e.g. using social networks online) which can influence the opinions of other customers

Poor quality is often association with production inefficiency and higher costs



Recruitment

Definition The process of sourcing, screening, and selecting people for a job at a business.

Example Virgin is a substantial business (over 50,000 employees in over 200 separate businesses) with a significant recruitment need. Each Virgin business is responsible for its own recruitment. However, each Virgin business applies the same broad principles to selecting recruitment candidates


Give two benefits to Virgin of having a clear idea of the kind of employees the group wants


Consistency of recruitment helps build a consistent organisational culture across the Virgin Group

The screening and selection process is more effective and efficient – unsuitable candidates are eliminated at an early stage, allowing Virgin to focus on selecting the best candidates

Employees find it easier to move around different roles in the Virgin Group, because they share similar attributes

Better staff retention – because the recruitment process selects staff who are better suited to the Virgin culture


Describe two ways in which Virgin could ensure that it is able to recruit the best available candidates


Offer a competitive remuneration package – both financial and non-financial benefits

Career progression – Virgin’s emphasis on employees taking responsibility and “jumping in at the deep end” will attract employees who want to be pushed

Maintain the strength of the Virgin brand name – a key “selling point” for recruitment. Many high quality employees will be attracted to the prospect of working for Virgin



Responsible and ethical business

Definition This is concerned with placing a business priority on ethical and socially responsible activities to sit alongside the traditional approach of trying to earn profits from business activities.

An ethical and socially-responsible approach to business and investment seeks to maximise profit and return on investment while minimising and avoiding where possible negative social effects on areas such as:

The environment & sustainability

Globalisation effects - e.g., exploitation, child-labour

Local community and other social impacts on people's health and well-being

Example The case study describes in detail some of Virgin’s business practices that focus on responsible business (page 8)

Further analysis

Discuss whether Virgin’s approach to responsible business practice is beneficial to the financial performance of the business


Possible arguments against:

The projects, whilst laudable, are not commercially significant

Most consumers have no awareness of Virgin’s ethical or charitable activities

There are costs associated with undertaking these kind of projects – which are tangible, whereas most of the benefits are intangible

Some arguments for

Virgin’s approach is more than just words – the projects described provide tangible benefits

Virgin employees can develop their entrepreneurial skills by participating in charitable projects for Virgin Unite, working alongside social entrepreneurs

When customers, suppliers, employees and other stakeholders in the Virgin business learn about Virgin’s approach, the brand name is enhanced – which has an intangible, but significant effect



Retained profit

Definition Profits that are earned by a business that are reinvested into the business rather than distributed to the business owners. For a company, shareholders either get a dividend (paid out of profits), or profits are kept in the company – i.e. retained

Example Richard Branson used retained profits from the Tubular Bells album to expand his business

Further analysis

Describe two benefits of retaining profits in the business to help finance expansion Answers could include:

Retained profits are one of the cheapest sources of finance. The “cost” of retained profits is an “opportunity cost” – i.e. the return shareholder could have made with the money if paid out as a dividend

The business is in control of retained profits – it does not have to pay a dividend

Shareholders are likely to support reinvesting profits into the business – it reduces the reliance on external finance



Risk

Definition The risk of a business decision is the probability that the expected returns (profits) from the business do not meet the required level.

Example Richard Branson and Virgin Group have a tradition of making “risky” investments in various industries. For example, Branson invested in the airline industry in 1984 despite having no previous experience of the industry.

Further analysis

Discuss whether Virgin’s entry into the airline industry was a more risky move than its decision to invest in train operating


Airline industry

High risk (on the face of it) since before then Virgin had focused on the music retailing and recording industries – which are not closely related to airline operation

Branson had no previous knowledge of the airline business – even with detailed market research, the move was a gamble

Faced intense competition from well-established and much larger competitors (principally British Airways and a large group of American airlines (e.g. Pan Am, Delta, American)

Airline industry has historically suffered from over-capacity and heavy losses – although transatlantic flights have tended to be more profitable

Rail industry

Also a risky move – but various reasons why the risk was lower:

Virgin Group much better established by 1997, including several businesses in the travel sector (e.g. holidays)

Rail franchise was a monopoly – e.g. right to operate the West Coast line = less competition

Deregulation favoured the new private sector entrants – allowed to increase fares above the rate of inflation

More stable industry than airlines



Shareholders

Definition The owners of the shares of a limited company. Shareholders normally have voting rights over the company decisions and are entitled to a share of profits earned (paid via a dividend).

Example Virgin Group is the sole shareholder for most of the Virgin Group businesses. However, in some cases the share ownership is split – for example Singapore Airlines owns 49% of the shares in Virgin Atlantic

Further analysis

Richard Branson entered the airline industry in 1984, despite having no previous knowledge of the airline industry (page 5). On page 4 we are told that the share ownership of Virgin Atlantic is split between Virgin Group (51%) and Singapore Airlines (49%).

Explain two ways in which Virgin Group benefits by sharing the ownership of Virgin Atlantic with another airline.


Risk is shared – airline industry suffers from severe over-capacity and losses, so the downside of Virgin Atlantic failing is shared across a wider range of shareholders

Economies of scale – Virgin and Singapore can share strategic assets such as marketing databases, landing slots, airport facilities

Access to greater finance raising – Virgin gains from selling shares in Virgin Atlantic without losing control over the business



Sources of finance

Definition The methods that a business uses to finance its activities. Sources of finance can be divided into “internal” (e.g. personal sources of the entrepreneur, retained profits, loans from family & friends) and “external” (e.g. bank loans, bank overdrafts, share capital, grants, leasing, trade creditors)

Example Richard Branson used personal sources to get his business empire up and running. The banks were reluctant to lend to him (presumably because of his lack of track record); so his Mother provided funds by re-mortgaging + friends and family supported his purchase of a recording studio

Further analysis

The case study explains how Richard Branson obtained financial support from family and friends. Discuss two possible reasons why the banks were “unwilling to lend” to him


Inexperienced entrepreneur with no track record of success (yet)

Perhaps no business plan

Absence of personal security which could be offered as collateral for a bank loan

Risks associated with music recording – banks are traditionally risk averse



Trade unions

Definition A trade union or union is an organisation of employees who group together to achieve common goals in key areas such as wages, hours, and working conditions.

Example Virgin operates in a wide variety of industries and employs a substantial number of employees (50,000+) – many of whom belong to trade unions.

Virgin recognises relevant unions – that means that it is prepared to work with trade unions to negotiate relevant work-related issues. In some industries, such as rail operation and airlines, trade unions have a history of industrial disputes with employers – so Virgin is not immune to industrial action. Other Virgin industries are much less unionised – e.g. the health club or financial services markets.


Give two examples of industrial action that Virgin’s unionised employees might take


Strikes – which can be official (legal) and unofficial (illegal)

Bans on overtime

Work-to-rule or “go-slow” – essentially the withdrawal of employee goodwill

Non-cooperation with management projects


Discuss whether Richard Branson was right to resist a threatened strike by Unite in relation to a claim for higher pay for Virgin Atlantic cabin crew


Arguments against resisting the strike:

- Cabin crew a key part of the Virgin Atlantic brand

- May have had a valid claim

- Loss of cabin crew goodwill threatened the quality of Virgin Atlantic’s service

- A strike could disrupt the airline service and risk losing customers to



competitors (particularly BA)

Arguments in support of Richard Branson’s stance:

- Airline industry highly competitive and heavily loss-making: little scope for pay increases

- Perks may be substantial – they need to be taken into account

- Employees don’t join Virgin to be the best-paid in an industry

- Giving in to Unite might have encouraged other unions in the Virgin Group to consider industrial action



Training

Definition The process of ensuring that the workforce is able to perform jobs effectively. Training is, therefore, a process whereby an individual acquires job-related skills and knowledge.

Example Virgin likes to employ people who like to be “thrown in at the deep end”, which suggests that on-the-job training is a key part of working for Virgin! Across the Virgin group, employees are “trained properly”.


Give two examples of on-the-job and off-the-job training


On-the-job training Off-the-job training

Demonstration / instruction - showing the trainee how to do the job

Day release (employee takes time off work to attend a local college or training centre)

Coaching - involves a close working relationship between an experienced employee and the trainee

Distance learning / evening classes

Job rotation - where the trainee is given several jobs in succession (e.g. a graduate management trainee might spend periods in several different Virgin businesses or departments)

Self-study, computer-based training

Projects - employees join a project team - which gives them exposure to other parts of the business and allow them to take part in new activities

Block release courses




Give two benefits to Virgin of training employees “on-the-job”


Generally most cost-effective than “off-the-job”)

Employees are actually productive

Opportunity to learn whilst doing

Training alongside real colleagues



Work-life balance

Definition Work life balance is about employees having some control over when, where and how they work. It is achieved when employers accept an individual's right to a fulfilled life inside and outside paid work.

Example As part of its commitment to employees, we are told that Virgin believes that “all staff members have the right to a healthy work-life balance”.

Further analysis

Give two benefits to Virgin by supporting employees to achieve a healthy work-life balance


Increased productivity – research has confirmed that employees are more efficient if the balance is sensible

Improved recruitment and retention – employees are more likely to be attracted to, and stay with a business that takes work-life balance seriously

Lower rates of absenteeism – a significant benefit, particularly for businesses like Virgin which mainly operate in the service sector

Lower overheads – e.g. if the work-life balance is partly achieved by allowing flexible working practices such as home-working

Virgin Group – Specification Mapping

This document highlights the main areas of the AQA GCSE specification that arise in the Virgin Group case study

Specification Topic Areas Case Study Reference

The Business Environment

Wants in relation to scarce resources, how they lead to choice and the demand for goods and services

Satisfaction of wants through the supply of goods and services Variety of consumer sectors supplied by the Virgin Group – almost entirely based in the tertiary sector

Specialisation, trade and exchange and interdependence

Opportunity cost Link with risk and reward for an entrepreneur like Richard Branson

Planned, market and mixed economies

Primary, secondary and tertiary sectors Focus on tertiary sector in this case study

Factors influencing location

External decisions, legislation and policies including the local / central government, public ownership / privatisation, European Union – impact on business

Deregulation of energy sector (Virgin Energy)

Deregulation and privatisation of rail industry – Virgin Train Group in 1997

Economic, social, environmental and technological effects – impact on business decisions

Substantial focus on Virgin’s approach to responsible business practice (page 8)

Growth of the use of the internet and e-commerce – impact on business


Importance of support and advisory services to business

Moral, ethical, social, cultural and health and safety issues – effect on business

Virgin will invest in any industry provided the business opportunity has potential to help Company, consumers and local community

The degree of competition in the market – influence on business behaviour

Significant issue in some markets in which Virgin has invested

E.g. Airlines – Virgin forced to innovate to compete

Business Structure, Control and Organisation

Aims and objectives of business / the criteria for judging success – considered from all stakeholders’ perspectives

See criteria on page 6 – criteria for creating a new business

Different aims, objectives, forms of ownership, funding and liability of businesses

Virgin ownership of many companies – most wholly-owned

Funding has changed as group developed (personal sources in early days, leading to stock market float in 1986)

Joint venture with Singapore Airlines to run Virgin Atlantic

How ownership, finance and control can become separated where liability is limited

Relationship between growth and objectives

How firms grow, diversification, integration; effects of growth, economies and diseconomies of scale

Virgin – highly diversified group

How to manage risk when investing in unrelated diversification

Structure of organisations, e.g. functional, product, geographical, centralised, decentralised

Decentralised approach to running individual businesses

Group businesses run according to core principles


Relationship between size, risk and profit; impact of changes in size on the business and its stakeholders

Virgin is a risk taker – but has clear criteria before taken on new investment (page 6)

Organising to Achieve Objectives

Marketing Importance of branding

Importance of market research in identifying markets / market segments at home / abroad, suitability of market research methods

Crucial role in evaluating new investments (page 5)

Importance of customer feedback (page 5)

Apply market research techniques within simple contexts Customer feedback

Marketing mix and the principal methods of marketing Product – brand name

Promotion – public relations (Branson – publicity)

International dimension, particularly in the context of the EU, and the impact of currencies

Multinational operation

Product life cycle including the way it influences marketing strategy

Role of distribution, and the changing nature of distribution channels

Production

Relationship between marketing, product development and production; importance of quality and quality assurance

Importance of quality – as a core marketing value (page 5)


Market and product orientation Clear marketing orientation

Ways in which production may be organised, including specialisation and division of labour; how production may be improved through lean production techniques, automation, new technology

Influence of production on a company’s location

Accounting and Finance

Sources, uses, management of finance Sources of finance for Branson start-up (page 4)

Stock market flotation (page 5) followed by return to private ownership

Nature and importance of financial and budgetary control, e.g. stock control, cash flow forecasting

Elementary interpretation of final accounts: gross / net profit percentage, current / acid-test ratios, ROCE

Summary of net assets – current ratio

Importance of profit as a reward for risk-taking; the ethics of profit-taking

Aggressive approach to risk-taking

Approach to responsible business practice

Classify costs, e.g. fixed and variable

Compare costs with revenue to determine profit, distinguish between gross and net profit, apply concept of break-even

Alternative ways to judge success, e.g. ROCE, market share, ethical considerations.


People in Organisations

Types of roles e.g. employees, managers, shareholders Delegated responsibility

Internal organisation structures, organisation trees, hierarchies; delegation; span of control; communication channels; interdependence and specialisation of departments, why structures reflect objectives and facilitate decision-making

Focus on simple organisation structures + flat hierarchies

Roles, relationships and management Delegation – management trusted; little supervision

Recruitment and appointment Clear recruitment principles

Methods of remuneration, financial and non-financial motivators / benefits, working conditions and job satisfaction

Focus on broad range of remuneration package – including perks

Not the highest payer in a market (e.g. cabin crew dispute)

Employees value working for Virgin – part of the deal = work-life balance

Motivation and management theorists, such as Maslow, Mayo and Taylor

Stresses role of non-financial motivation factors:

Delegation

Employee responsibility

Reasons for / benefits of training to employers and employees; role of government in training and retraining

Impact of groups on business decisions, e.g. consumers, pressure groups, trade unions

Relationship between Virgin and Trade Unions

Strike threats in certain industries (mainly airline and rail)

Impact of consumer protection and health and safety


regulations

The need for effective communication in business

Methods of communication including use in internal and external situations

Ways in which modern technology has affected stakeholders, e.g. its impact on communication and employment

Virgin Group

Case Study Glossary

In your AQA GCSE exam, you will be asked to explain briefly the meanings of several Business Studies terms and give an example of each. Your examples can be drawn from the Case Study or from any other source. There are normally four terms to be defined, all of which appear in the case study.

The glossary below defines all the key terms used in the Virgin case study. You must ensure that you know and understand these terms.

Term Definition

Adding value Adding value refers to the element(s) of service or product that a business provides, that a customer is prepared to pay for because of the benefit(s) obtained. Added values are real and perceived; tangible and intangible

Brand name A name used to distinguish one product from its competitors. It can apply to a single product, an entire product range, or even a company. A brand name is usually associated with a logo or other graphical representation of the brand in order to strengthen the brand image.

The main purpose of branding is to differentiate the products and services of one product or business from those of competitors.

Business opportunity An opportunity to set-up or acquire a business in a target market. Exploiting a business opportunity means developing a profitable business that earns the target rate of return. Business opportunities can be found from a variety of sources.

Competition Competition refers to the rivalry between businesses in the same industry or market. Competitors are other businesses that offer the same or similar products. Competitors fight for a share of the revenues and profits available in a market

Customer feedback Customer feedback refers to the process of obtaining information from customers about the products and services that they use. There are many different methods of obtaining customer feedback ranging from the formal (e.g. customer service questionnaire) to the informal (e.g. discussions over the

Term Definition

telephone whilst making a transaction).

Delegated responsibility

Delegation involves the assignment to others of the authority for particular functions, tasks, and decisions. Delegation is commonly associated with better motivation – particularly amongst junior management

Discrimination Discrimination refers to the unfair treatment of a person or group on the basis of prejudice. In the workplace, it is illegal to discriminate against employees on the basis of:

Age or gender

Sexual orientation

Disability

Race, colour or ethnic background

Nationality

Religion or belief

Diversification Diversification is a business strategy is offering a variety of products and services in different markets. Diversification can be “related” (i.e. there is some connection between the markets served) or “unrelated” (i.e. little if any connection). A strategy of diversification is often associated with higher business risk

Entrepreneur An individual who sets up and runs a new business and takes on the risks associated with the business. The rewards for an entrepreneur come in the form of profits and other intangible factors such as success, satisfaction etc. The entrepreneur also suffers the losses that can come with the failure of a business.

Franchise The right under which a franchisee (person or company) may market a product or service, as granted by the franchisor (the owner of the franchise).

Innovation The term innovation means a new way of doing something. It may refer to small or significant changes in the way things are done.

Term Definition

Innovation is closely linked with the idea of new product development.

Loyalty card A loyalty card is traditionally taken to be a card, issued by a retailer, with which a regular customer accumulates points that can be redeemed for discounts on future purchases

Mail order Mail order is a kind of non-store retailing. It usually involves a catalogue from which customers select goods, then mail or telephone their orders to the supplier. Goods are delivered to the customer's home. The digital equivalent of mail-order is now e-commerce.

Management hierarchy The management hierarchy describes the traditional form of organisational structure in a business. Layers of hierarchy reflect levels of seniority. The hierarchy basically describes who reports to whom and where decision-making responsibility lies.

Market research Market research is the process of gathering, recording and analysing data and information about customers, competitors and the size and structure of the market. Market research is used by businesses at every stage, including the start-up stage and by established businesses.

Perk Also known as “fringe benefits”, perks are financial and non-financial benefits which employees receive in addition to their normal wages or salary.

Private limited company

The most common form of company. The shares of a private limited company are not available to the general public to buy and sell on a recognised stock exchange. The company is owned by shareholders and they enjoy “limited liability” – i.e. the most they can lose is the amount they have invested in their shares.

Privatisation & deregulation

Privatisation occurs when a business or organisation is transferred from ownership by the public sector to private sector ownership. Privatisation is the opposite of nationalisation – where businesses transfer from the private to the public sector.

Deregulation occurs when an industry is “opened up to increased

Term Definition

competition”. It typically occurs when a previous monopoly industry (e.g. rail, gas, electricity, water) is opened up for private sector businesses to compete.

Public limited company A public limited company (usually shortened to “plc”) is a company that has a share capital that members of the public can buy. The shares of a plc can be listed on a recognised stock exchange (however, note that they don’t have to be listed)

Public relations Public relations (“pr”) is a form of promotion intended to create goodwill for a person or institution

Quality Quality means that a product or service that meets the needs and expectations of customers. A quality product is likely to have various features including being reliable, good functionality, durable and cost-effective to own

Recruitment The process of sourcing, screening, and selecting people for a job at a business.

Responsible / ethical business

This is concerned with placing a business priority on ethical and socially responsible activities to sit alongside the traditional approach of trying to earn profits from business activities.

An ethical and socially-responsible approach to business and investment seeks to maximise profit and return on investment while minimising and avoiding where possible negative social effects on areas such as:

The environment & sustainability

Globalisation effects - e.g., exploitation, child-labour

Local community and other social impacts on people's health and well-being

Retained profit Profits that are earned by a business that are reinvested into the business rather than distributed to the business owners. For a company, shareholders either get a dividend (paid out of profits), or profits are kept in the company – i.e. retained

Term Definition

Risk The risk of a business decision is the probability that the expected returns (profits) from the business do not meet the required level.

Shareholders The owners of the shares of a limited company. Shareholders normally have voting rights over the company decisions and are entitled to a share of profits earned (paid via a dividend).

Sources of finance The methods that a business uses to finance its activities. Sources of finance can be divided into “internal” (e.g. personal sources of the entrepreneur, retained profits, loans from family & friends) and “external” (e.g. bank loans, bank overdrafts, share capital, grants, leasing, trade creditors)

Trade union A trade union or union is an organisation of employees who group together to achieve common goals in key areas such as wages, hours, and working conditions.

Training The process of ensuring that the workforce is able to perform jobs effectively. Training is, therefore, a process whereby an individual acquires job-related skills and knowledge.

Work-life balance Work life balance is about employees having some control over when, where and how they work. It is achieved when employers accept an individual's right to a fulfilled life inside and outside paid work.

adding value - tutor2u · explain two benefits of virgin adding value to the products and services...

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