Analysis of Virgin Group

Executive Summary

This paper includes a strategic overview of the organization of the Virgin Community. The report includes an overview of the environmental and competitive advantages of the Virgin Community. External and internal components are included in the estimation of environmental variables. External factors are analyzed using the PESTLE review, which includes political, economic, social, technical, legal and environmental elements that have a negative or positive effect on the organization. Additionally, Porter’s five force model has been used to describe other external environmental issues that also affect the Virgin Group like a barrier to entry, supplier power, buyer power, industry rivalry, and the threat of substitutes. In the analysis of the internal environment, critical resources and competencies of the Virgin Group that have created a sustainable competitive advantage to help reduce the impacts of the above environmental challenges are identified. Factors discussed in this analysis include culture, branding, differentiation of services and pricing, and subsidiaries. Moreover, also examined are low costs and excellent services, provision of quality, outstanding management, and highly skilled labour force. The paper explains why despite the numerous environmental challenges that the organization is faced with, it has still been successful in its operations.

Background Information

Virgin Group is an organization that was founded by Richard Branson together with his partner Nik Powell in 1970. It has its headquarters in London in the United Kingdom. Virgin Group serves the global market and owns several businesses ranging from mobiles, hotels and airlines which include Virgin America, Virgin Samoa, Virgin Australia, and Virgin Atlantic (Lucarelli, 2014). The organization deals with variety of products and services such as the internet, health care, mobile phones, music, jewellery, travel, retail, and radio. According to Lucarelli (2014), the net worth of the business was approximated at 19.5 billion euros in 2016. Virgin Group employees are estimated to be more than 71,000.

External Environmental Analysis

The external environmental analysis entails the analysis of the macro-environmental factors through the PESTLE and Porter’s Five Forces analysis.

PESTLE Analysis

Political Analysis. Political analysis inspects the effects of government regulations, policies, and rules on the industry. Additionally, it covers several political aspects like restrictions on trade, taxation, and labor laws. Virgin Group is faced with various political encounters which include political instability in some countries, bureaucratic licensing procedures, and increased government control and regulation of the business (Lawton, Doh, & Rajwani, 2014). For example, in 2006, the United Kingdom deregulated the air transport industry leading to an easy entry of other firms into the business which increased the level of competition. Therefore, Virgin Airline had to work on new marketing methods. Furthermore, in 2008, British Airways is the largest firm in the UK fruitfully pushed for implementation of policies that would favor its operations (Lawton, Doh, & Rajwani, 2014). The adopted strategies impacted negatively on other airlines with Virgin Airline, Fly Emirates, and other Airlines also affected. Moreover, Virgin Airlines has to adhere to laws of employment, for instance, permitting its workforce to be involved in trade union events and non-discrimination in the recruitment of its labour force.

Economic Analysis. The Economic analysis examines factors that cause an alteration in the entire economy, for example, interest rates, foreign exchange rates, and inflation among others (Lawton, Doh, & Rajwani, 2014). Virgin Airlines has faced tightened competition from other firms within the industry. When its competitors such as Qatar Airline, Fly Emirates, and American Airlines reviewed their flight charges, Virgin Airlines were compelled to lower their rates to respond to increase in competition. Additionally, entry of firms like Singapore Airline and raised fuel costs are also economic factors that have affected Virgin Airlines. Moreover, the economic recession experienced globally between 2007 and 2010 led to massive losses to the Virgin Airlines and the airline industry in general. Furthermore, unanticipated changes in the universal, as well as domestic economies, have negatively affected the Virgin Airlines (Ashwini, Singh, & Power, 2013). In addition to these factors, the high levels of unemployment have reduced the ability of most people to travel either locally or internationally. However, Virgin Airlines has been efficient as a result of the solid brand image which has generated customer loyalty. Besides, the organization has established marketing strategies that have significantly enhanced sales.

Social Analysis. Globalization has led to rising in tourism activities. There is an increased desire by people to experience various lifestyles and culture of communities from all over the world (Lawton, Doh, & Rajwani, 2014). The improved desire to travel the world has increased than the number of travellers around the globe. The increase has been beneficial to Virgin Group and especially the Virgin Airlines because it leads to high numbers of customers. On the other hand, analysts claim that we are in an emotional economy where consumers seek satisfaction for their money. There is increased awareness by the customers concerning their rights and their capacity to influence the profit margins of an organization (Lawton, Doh, & Rajwani, 2014). Individuals have developed a high expectation about the travel’s services offered by airline firms. Therefore, the clients have become more critical when making decisions on which airline company to use while visiting. This scenario has placed the Virgin Airlines in a position where by the organization to struggle to have attained proper positioning among the customers to gain preference against other competitors.

Technological Analysis. Technological analysis deals with issues such as costs of obtaining new technologies, enhancement in technologies, and operational system automation among others. The Factors influence the level of advancement in technology and quality influence organizational operations (Lucarelli, 2014). For instance, to compete favorably in the market, a company must have improved technology than those of the competitors and also be advanced in technological inventions and innovations. Technological problems that have been faced by Virgin Group and other Virgin Airlines include challenges in adopting efficient booking procedures for its Airlines, and incompetent online customers care providers (Lucarelli, 2014). Nevertheless, contrary to all these limitations, Virgin Airlines, in general, have successfully managed to minimize communication cost through advanced communication technology, which has in turn reduced operational expenses. Moreover, the Virgin Airlines has experienced easy to transfer technology from one Airline company to the other.

Legal Analysis. Different countries have varied legal regulations concerning the Airline industry. For instance, changes in tax laws, legal decisions to stop direct flight from one state to another may as result of travel advisory or any other reason. The United States regulation on air transportation like FAA adversely affected other Virgin Airlines (Lucarelli, 2014). Moreover, increased campaigns against corruption in the United Kingdom, which is reinforced by legal watch dogs has compelled Virgin Airlines to design mechanisms to ensure that the business is crime free which is not an easy task to undertake.

Environmental Analysis. Environmental factors such as global warming have had serious effects on people. It is a demand that organizations should ensure sustainability in their developments such that their growth must not cause environmental degradation. There is a need that the business should consider carrying out Corporate Social Responsibility (Lucarelli, 2014). Carbon (IV) oxide gas emitted by Virgin Airlines and other airlines contribute heavily to ozone layer depletion through global warming. The outbreak of diseases such as Swine Flu, Ebola among others affects Virgin Airlines travel to affected countries until when the situation is resolved (Lucarelli, 2014). Destructive winds are also environmental factors that influence the airlines. An example is a hurricane which put the Virgins Galactic’s Spaceship to a dramatic end. With increased environmental awareness, many clients will make their travel choices based on the company’s environmental compliance. To use fuel in an environmental friendly manner, Virgin Group has resorted to biofuel, recycling programs, and providing food options that are sensitive to the environment in planes.

Porter’s Five Forces Analysis

Parts from the macro- environmental factors, other external environmental factors are examined under competitive assessment of the Virgin Group through Porter’s five force model. Still, taking the Virgin Airline as an example, the aspects involved in this evaluation include a barrier to entry and exit, industry rivalry, the power of buyers, supplier power, and the threat of substitutes.

The barrier to Entry and Exit. The airline industry experience very high entry obstacles as can be proved by the enormous amount of capital involved in joining the sector (Kawira, 2017). On the other hand exit from the aviation industry is not easy at all since before a company can quit, the regulators most at times demand that it accomplishes its contractual obligations to its stakeholders before leaving (Sengur & Sengur, 2017). Moreover, for an organization to be allowed into the industry, it must meet the standards of airline worthiness and stability and also the many rules and strict regulations that exist in the aviation sector. Therefore, Virgin Airlines faces these external environmental issues in making new entrances in other markets within the industry. Additionally, most governments, for instance, the United States government’s regulatory barrier standards to entry are set relatively high (Kawira, 2017). However, Virgin Airlines has stable monetary support from the Virgin Group and also other shareholders. Its brand image is also robust and provides a competitive advantage when entering new markets.

Industry Rivalry. Even though several airlines never manage to make profit continuously, the aviation sector is still saturated with airline firms that get into the industry to make money. The high number of carriers is an indication that there is rivalry within the industry primarily because the companies compete for clients (Kawira, 2017). The conflict has affected Virgin Airlines as it has to create strategies to survive this rivalry so that it cannot be out matched. Virgin Airlines has positioned itself as a low- cost carrier to outsmart its competitors. Furthermore, Virgin Airlines provide high- quality services through ensuring best performance by its employees, flying on time, minimizing cases of mishandled luggage, and quick response to customer complaints.

Supplier Power. The suppliers of Virgin Airlines are aircraft producers such as Airbus and Boeing, fuel companies and vendors who take care of ground support and also those who sell spare parts to the organization (Kawira, 2017). Given that there are few airlines compared to suppliers, the competition among providers is not much hence supplier power in the industry is low. In 2014, there was a 25% rise in the fuels cost (Kawira, 2017). The price increase of aviation fuel improved the supplier power of fuel companies. However, to reduce this power, Virgin Airlines bought 30 A320 neo aeroplanes whose engine is designed to minimize fuel consumption to up to 15%. Additionally, Virgin Airlines has established a corporate relationship with Airbus which enables the company to reduce pressure caused by supplier power in the industry.

Buyer Power. Buyer power has significant effects on Virgin Airlines since the aviation sector is critically a buyers’ market due to the existence of a variety of choices, wars over the fare, and the constant threat by the low-cost airlines that often intrude into the market share of their established competitors (Kawira, 2017). Virgin Airlines is a low-cost airline, however, over the past years, many other carriers have adopted this strategy and are taking away some of its customers. Furthermore, there are many distribution channels through which clients can obtain tickets, and advanced online booking services have raised buyer power. Therefore, Virgin Airlines has to reorganize their marketing methods and improve the quality of services to maintain their customers (Kawira, 2017). Passengers have become more independent when making decisions on the where to get their tickets. They research to obtain information on the prices and amenities before getting the card. The high buyer power within the airline industry has forced Virgin Airlines to provide inexpensive but high-quality services to their passengers to help build customer loyalty.

The threat of Substitutes. Virgin Airlines face more alternatives in domestic than international markets. In the local markets, travellers have options such as travelling by bus, train, or even cars instead of taking a flight (Kawira, 2017). Additionally, during the periods of recession, it is noted that many passengers opt to use other options, virtual meetings and teleconferencing to do away with the cost needed to travel to physical meet clients or partners for meetings. Moreover, therefore has been a trend in the recent past where people are noticed to reduce their leisure travel and substitute it with a low-cost event like slow tourism which does not depend on air transport and also budget cruises (Kawira, 2017). However, to survive in the market, Virgin Airlines targets business passengers who are more concerned about time than money and will always use air transport because it is considerably faster. The airlines also offer improved packages which involve high-quality services, reliable Wi-Fi, very comfortable leather seats among other things that help to minimize the effect of the substitutes.

Internal Environmental Analysis

The internal environmental analysis examines critical resources and competencies of Virgin Group that provide the organization with sustainable competitive advantage. Virgin Airlines has put in place strategies that are not easy to be copied by the competitors and that create value. The organization has distinct competencies and resources that other airlines have not been in a position to imitate. The factors are as discussed below.

Culture

Virgin Group has a culture that creates sustainable competitive advantage. The organization has developed a way of aligning its culture with its strategies (Homsombat, Lei, & Fu, 2014). It is a culture of Virgin Group that financial results and performance outcomes are put open for access by everybody, and this has empowered and encouraged the workforce to be responsible for their activities. The branding must be smart enough to convey the right reputation about the Virgin Group brand appropriately. Moreover, most of the stories told about the Virgin Group as a whole contain the outstanding personality and the style of management of the Richard Branson who is the founder of the organization. Richards’s innovative prowess paints a picture of Virgin Group perceived competencies.

Branding

Virgin Atlantic had its 25th anniversary in 2009. The event happened at the time of global recession. During the celebration, the company received a multi- award winning Still Red Hot campaign (Homsombat, Lei, & Fu, 2014). Richard Branson acknowledged that this was the best that Virgin Airlines had achieved. Looking at it from the perspective of marketing, the award significantly impacted on the brand of Virgin Atlantic and by extension to Virgin Airlines (Carter, 2013). For more about two decades the organization has maintained disruptive communications through the cultivation of a distinctive, stylish visual identity and brand voice. Marketing is just but one of the factors that have contributed to the development of a competitive brand for Virgin Group However, it has enabled the Virgin Airlines to claim its correct position among the world’s most favourite brands.

Virgin Airlines branding has also been improved through the establishment of three key objectives of communication which include maintaining public awareness of the brand so that customers would always think about the airline. Secondly, extensive discussion of the Virgin Airlines brand’s distinctive attitude that describes its “virgin”. Last but not least, provide passengers, regardless of the class they are travelling in, the reason to always prefer Virgin Airlines against the competitors (Homsombat, Lei, & Fu, 2014). The three aims of communication have significantly contributed to the improvement of the brand of Virgin Airlines which in turn has led to enhanced customer preference. Instead of using an inflexible campaign vehicle for the brand, the organization opted for an iconic appearance and unique brand voice. The approach enabled Virgin Airlines to readily pass through a wide variety of information to each audience, route, cabin, and channel. Additionally, it improved the capacity and the ease with which Virgin Airlines react to tactical opportunities.

Differentiation of Services and Pricing

Virgin Airlines is committed to ensuring that its clients get unique travel experience distinct from other companies. The distinction in its departments has enabled the organization to acquire a sustainable competitive advantage over its competitors (Homsombat, Lei, & Fu, 2014). For instance, to help provide satisfaction to the customers, Virgin Airlines introduced an advanced aeroplane called the “Birthday Girl” which operates along the trans-Atlantic London to New York route. The interior of the aircraft is designed to facilitate the provision of comfort and high-quality service to the passengers. In the upper class, there are 31 Zodiac UCS3 seats which are arranged at an angle to create more space for the fliers. The clients can push the seats further out and increase the length of the bed (Homsombat, Lei, & Fu, 2014). The aeroplane has improved air filtration. The windows are larger; engines are quieter, ceilings are vaulted, there is proper air condition, bigger overhead bins, and enhanced humidity controls than the rest of its competitors. The customer elements embodied in the Birthday Girl has made the Virgin Airlines unique and highly preferred by passengers, and this is part of the reason why Virgin Airlines have been very successful.

Virgin Airlines also applies differentiation strategy in pricing. For example, Virgin Airlines is a low-cost airline, and this has enabled the organization to obtain competitive advantage among the airline companies that reduce costs (Homsombat, Lei, & Fu, 2014). Contrary to how people may think, lowered costs do not lead to minimized services. Virgin Airlines is, therefore, a full-service airline with touch-screen seatback entertainment, WI- FI in its planes, and full-service meals.

Subsidiaries

Subsidiaries and acquisitions have enabled Virgin Airlines to enter into various markets across the world, taking advantage of the Virgin name and encouraging the use of their services (Homsombat, Lei, & Fu, 2014). Successful establishment of an airline company leads to some set procedures and regulations, based on the location where the airline is operating. Virgin Airlines have continuously been consistent in upholding their business model. That is competitive pricing and high-quality customer services.

Low Cost and Excellent Services

The success of the Virgin Airlines is also as a result of the competitive advantage it gets through the provision of high-quality services and cost reduction. As outlined before, Virgin Airlines is a low-cost airline because it offers its services at lower cost to passengers (Homsombat, Lei, & Fu, 2014). It, therefore, means that the organization is in direct competition with other airlines that cut on cost and this implies that customers are presented with multiple options. To stand out among these companies, Virgin Airlines combines its cost reduction strategy with additional amenities and high levels of customer service. The combination of the two strategies have made Virgin Airline's exemplary and are always the deciding factor that pushes clients to choose Virgin Airlines over other airlines.

The low cost and excellent services approaches have additionally enabled Virgin Airlines to enter and survive in markets that are characterized with strong completion and numerous regulations. For instance, in the United States, the airline industry has strict rules and fierce competition making entry and operation in the market extremely difficult (Homsombat, Lei, & Fu, 2014). There are several amenities and offers from various airlines, the costs of travelling are high, and the profit margins are small. However, despite all these difficulties, the Virgin brand power is still compelling. The organization through the low cost and quality service strategy has managed to successfully operate in the United States and become one of the most favoured airlines by passengers.

Quality

Virgin Airlines has efficiently demonstrated the exercise of Total Quality Management which has facilitated constant advancement in the quality of services the organization provides and raises airline’s profits. Virgin Airlines is widely known for its innovations and advanced customer service. For example, Virgin Airlines’ slogan which states “Service the Virgin way” has created a proper positioning of the organization’s services in the minds of the clients (Homsombat, Lei, & Fu, 2014). Every time a customer books a ticket from Virgin Airlines, there is always an expectation that there has to be something more or new again. The Virgin Airlines organization believes that they are within a service industry and not transport sector. Therefore, the organization’s focus has majorly been on the quality of duty instead of prices. It aims at ensuring that the customers get the value for their money.

Comparing Virgin Airlines with other airlines such as Ryan Air, Virgin Airlines’ tickets are expensive. However, passengers prefer the airline over its competitor Ryan Air due to the competitive advantage, it has acquired through the provision of quality (Homsombat, Lei, & Fu, 2014). Virgin Airlines deliver quality food and services that make the passenger’s journey memorable. The organization offers specific products to specific customers, for instance; it provides three classes of travel which include Economy, Upper class, and Premium Economy.

Outstanding Management

Virgin Airlines has a Customer-Centric Revenue Management, which helps in the provision of the right services and appropriate products that are in line with their clients’ needs (Homsombat, Lei, & Fu, 2014). The management approach used by the organization is a combination of Consumer Relations and Revenue Management. The level of customer focus involved in this model creates an identity and builds a solid organizational brand which distinguishes the products of Virgin Airlines through utilization of available data on the customers’ buying history and profiles to develop products for Virgin Airlines market (Shaw, 2016). As a result of differentiation in product and reduction in costs, Virgin Airlines has built a competitive advantage because customers whose consider services alongside other merits when making their bookings are more valuable as compared to those are only concerned with low pricing.

Highly Skilled Employees

As discussed above, high quality of customer service is a major component Virgin Airlines mission. The organization’s employees place unmatched value on the passenger services and Virgin Airlines has obtained a competitive advantage through its highly competent workforce. Virgin Airlines workers provide quality customer services through individual pride, friendliness, a sense of warmth, and organizational spirit (Bereznoi, 2015). Virgin Airlines uses a strategy whereby its employees come first and customer second. That is, the organization treats its workforce with respect, cordiality, and openness and the employees are then tasked to reciprocate by doing the same to the organizations customers.

By focusing on client services, the organization has been able to single out key drivers of customer services and centre its operations on these factors (Wilkerson, 2016). For example, through research Virgin Airlines discovered that passenger satisfaction is influenced by low-cost travels, on- time flights, and friendliness in service delivery. The organization’s management used these findings to guide its approaches to ensure that Virgin Airlines acquire a favourable position in the minds of its customers. Therefore, Virgin Airlines positioning strategy has been based on reliability, low pricing, and friendliness.

Virgin airlines employees value team building and respect in carrying out their activities. The organization has created a working environment that has empowered its workforce to provide solutions to customer problems and do the best in line with the interests of the clients. Moreover, the workers put more efforts in performing their duties because they know that the outcome will be appreciated and rewarded (Bamber, Gittell, Kochan, & Von Nordenflycht, 2013). Therefore, in advancing customer services and also building a strong brand name for Virgin Airlines, the presence of highly skilled employees and their performance have made an essential contribution.

Summary

In a nutshell, Virgin Group, taking Virgin Airlines as an example, has substantially controlled and strategically dealt with the several challenges that it has faced with respect external and internal environmental factors. Additionally, the organization has efficiently used its resources and competencies to obtain sustainable competitive advantages which have enabled it to survive even in markets with fierce competition. Macro- environmental issues that affect Virgin Airlines both positively and negatively include political, economic, social, technological, legal, and environmental elements. Other environmental aspects that have influenced the operations of the Virgin Airlines are a barrier to entry, industry rivalry, supplier power, buyer power, and threats of substitutes. From both Porter’s five force and PESTLE analysis, the implication is that Virgin Airline and Virgin Group as a whole is faced with a challenging and competitive external environment that directly impact on its operations. Therefore to survive, the organization has to implement strategies that enable it to obtain sustainable competitive advantages over the competitors. Despite the environmental challenges, the organization has been successful because of a solid brand image it has created for its clients. Moreover, it has employed effective marketing approaches that have significantly improved its sale. Furthermore, the business has outstanding management, offers high-quality services, low-cost travel, and recruit highly skilled workforce.

Recommendations

Notably, Virgin Group and more specifically Virgin Airlines have done well concerning technology. However, there is the need to continually align its operations with technological changes and advancement within the industry to continue enjoying the technical advantages it enjoys today. Additionally, the group needs to review some of its strategies and policies. For instance, it should accommodate both joint and independent ventures, which would enable the business to be bailed out during off peak seasons. A change of approach will help the Virgin Group to maintain its competitiveness even in dynamic business markets and increase the capability to meet the preferences and expectations of its customers. Furthermore, as much as the organization has a solid brand name, this alone is not sufficient. The public is growing more sensitive day after another, and with time they will change to corporate strategies rather than brands. It should then improve its investments and development of actual expertise to add practical quality to its operations.

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