There are several micro-environmental factors, which have a serious impact on business environment. Those are as follows.
- Satisfying Customersare one of the central concerns, as generating revenue is dependent upon them. Therefore, organisations focus on framing effective marketing strategies to attract the potential customers and it is helpful to retain existing customers as well. It can be said, if the services have been designed with the help of advanced the advanced technologies keeping the requirements of the customers in mind then customers will feel satisfied enough to travel with VA repeatedly (Leon, Szmerekovsky and Tolliver 2013).
- Skilled and efficient human resourceis the backbone of any business organisation as far as accomplishment of the goal is concerned. Employees with several years of work experience or qualification can execute regular business operations more efficiently and their work has always been towards gaining customer’s trust. Behind the efficiency of employees, the company’s contribution is the most. In order to possess such effective human resource VA needs to revise the hiring policy and following training programme for development of employees. Especially in service industry, development programmes and consistent motivation help to execute regular operations effectively.
- Presence of competitorshas direct impact on framing business and marketing strategies. In order to gain a competitive edge the airline company should practice creative ideas and innovative models to add value to their provided service unlike their competitors (Purkayastha and Sharma 2016). There should be a non-imitable unique selling point, which will make the company different from the existing airlines. Virgin Atlantic should make their idea clear about their competitors and the way they would react at the time of transformation of market environment. In this case, several strategic tools like PEST, SWOT and analysis of marketing mix can deliver ideas about the competitors and their nature. Major competitors of this airline company is EasyJet, which operates in Singaporean routes and the name of British airways can be taken into account.
- Shareholders,investors are important components, as without monetary resource none of the activities can take place. As far as new business model is concerned, realising the risk factors company can think of shifting ownership to public from private as private shareholders have a pressure on the company to return a considerable amount of profit against their investment.
Porter’s five forces analysis
- It is known to all that, airline industry is much saturated and new carriers are entering into the market with the central idea making profit consistently. Although, not all the airlines can make profit throughout the year yet it cannot restrict the entry of new airlines into the industry. Therefore, it can be easily assumed that high intensity of industry rivalry is effecting the market opportunity of Virgin Atlantic on a large scale. Acknowledging the effect of globalization into the aviation industry, fare war is increasing and so the competition on every aspect. Again, the trend of acquisition can be spotted as well because of rivalry within the industry.
- Aircraft manufacturers are one of the major suppliers. Boeing and Airbus are the main suppliers for the airline company along with the fuel companies (Sarlioglu and Morris 2015). Fuel is the necessity of airlines in order to execute daily operation. The airport itself supplies the basic needs of aircrafts (Dursun and Soutis 2014). Besides, multinational IT companies support the company by providing IT solutions. As fuel is a premium product the numbers of buyers are low, therefore, Virgin Atlantic carries an advantage and aviation fuel companies consider them as one of the premium customers (Lee, Seo and Sharma 2013).
- The airline company is eminent enough to carry a brand name for serving the passengers with quality. Airfare is affordable too in a market of economic recession as well. Previously, passengers used to buy tickets directly from the airlines so power of the buyers were low in terms of bargaining and comparing fares with other existing airlines. However, distributions channels has been increased like, with technological advancement ad globalization people can easily compare the deals and can choose the best deal according to the requirements (Suki 2014). Moreover, presence of low budget airlines is successfully conquering the market share of established airline companies. Power of the buyers have elevated that is a known fact yet business model must possess non-imitable qualities and Virgin Atlantic should figure out the strategies by which they can save their market share from small budget airlines.
- According to Budd et al. (2014), a strong barrier can be found in terms of entries and exits as huge monetary resource is involved within this aviation industry. airlines cannot quit the venture according to their wish as pressure is there from the end of regulators to accomplish the prior promised tasks to the stakeholders. Apart from this, airline companies have to maintain several rules and regulations regarding safety and for that, the company must be financially stable. Therefore, it can be said Virgin Atlantic confronts with an external environment, which is comparatively tough because when some company is entering into the market it can be assumed that new rival is going to engage itself into all kinds of competitive aspects.
- Business organisations like Virgin Atlantic even with such market presence and brand value can suffer from the threat of substitution considering the global approach of every company within airline industry. Acknowledging the effect of ongoing recession, as mentioned before business organisations are cutting off travelling costs by arranging virtual meetings which is called teleconferencing. Apart from this larger number of people feel to travel to destinations, which are within their budget. Therefore, consequences are people are becoming less dependent on quality airlines like Virgin Airlines and the area of target market is decreasing.
Hence, it can be stated after performing porter’s five forces analysis that Virgin Atlantic is surviving within a challenging and competitive external business environment. Considering these aspects operations should be more innovative in order to remain competitive in the market.
Market positioning: Bowman’s strategy clock
Bowman’s strategy clock is a representation of the relationship between customer value and service prices in a form of a diagram. The diagram presents eight probable strategies based on the axes of prices and value of the services. It clearly shows the linkage between ‘cost advantage’ or ‘differentiation advantage’ and competitive advantage of a certain company.
Position 1st: low price-low value
Several companies adopt this market strategy of delivering poor quality products at lowest price after coming under the influence of fare war. When competitors tend to supply products at lowest prices, a certain company in order to win the fare war cannot do anything but to adopt this strategy. However, in this case, companies fail to retain the customers and this strategy is appropriate for only to products of short life cycle. Virgin Atlantic can lower the prices yet compromising with the quality might be risky as far as customer retention policy is concerned.
Position 2nd: low price
Low price does not always mean the cheapest one. It can be termed as affordable too. In this case, companies fix the prices keeping the operation cost as low as possible and know how to balance high volume of passengers maintaining low margin of expenditure (Vieira and Loures 2016). Virgin Atlantic is famous for delivering quality service in an affordable price. Therefore, if the organisation have enough volume of passengers or strong strategic reasons for their market position, then opting for this approach can help the company to gain a sustainability within industry.
Position3rd: Moderate price and moderate differentiation
This position is termed as hybrid. Companies like Air Lingus keep the selling cost low yet serve better service than their rivals serve (O’Connell and Connolly 2017). These kind of companies raise a goodwill of serving better quality products at comparative low prices. Customer retention becomes easy if such position can be maintained. Virgin Atlantic’s present strategy is closer to the position. They have a reputation of serving quality service at affordable price. This hybrid combination of perceived value and price establishes a relationship of loyalty between customers and the company.
Position 4th: differentiation
Carriers that practice differentiation offer either high-perceived value or keep the cost low to occupy larger market share. Companies with a brand name can opt for this market position as whatever the price range may be customers will trust the brand as the services and products perceived high value. Virgin Atlantic serves quality product and if they have to lower the prices to win the fare war with their competitors then there is high possibility that customers will choose Virgin Atlantic over low budget airlines.
Position 5th: focused differentiation
Focused differentiation can be applied if the carriers target only the premium customers. Here, the decision of purchase does not depend on the price range. Consumers focus on the value of the product only. This does not mean that the product should be valuable, if the brand name carries the perception of the value that is enough for the customers to pay higher premium. When virgin Atlantic is thinking about expansion of routes, they can initially keep the product price low to occupy the market share yet to attract the attention of the premium passengers they have to make them believe the power of their brand name by following focused differentiation.
Position 6th: standard product/ increased price
This market strategy can be followed if the company wants higher profitability using their brand image in the initial stages of operating new routes to Singapore. This position may involve risks as companies increase the price without modifying the quality of the products. Eventually, if the market accepts the higher price the company runs on profit. On the other hand, if this plan does not work they try to adjust the cost with the perceived value of offered services. However, the carrier should keep in mind that this strategy is not applicable for long-term, as competitors and customers are capable of identifying the flaw within system.
Position 7th: low value/ high price
Airline industry is highly competitive where price generally equals to marginal cost and draws zero percent profit. In a monopolist setting, the firms experience economic profit by increasing the price above the marginal cost. Virgin Atlantic can perceive competitive advantage if both the price and the quality is efficient in terms of the market interest. As companies are forced to participate in the fare war among the competitors this perfect monopoly cannot be maintained and if customers find the services are meeting all the requirements they will eventually purchase without caring of the high price.
Position 8th: low value/ standard price
This position is not trustworthy as far as occupying the market share is concerned. The customers cannot prefer services, which are not valuable enough irrespective of the prices. Company will lose customer loyalty if they follow this strategy.
It can be observed that position 6th, 7th and 8th are not trustworthy as far as Virgin Atlantic’s interest of occupying the market share and competitive edge are concerned. In order to beat the competitors participating in the fare war is not enough. Simultaneously, brand value should be aligned properly with the offered price.
SWOT analysis: evaluation of capabilities
SWOT analysis will define whether the carrier is capable of executing their new business plan based on their strengths and opportunities. In order to do that which weak points are needed to be overcome and which threats they have to face; those aspects will be discussed elaborately.
- The brand value: The airline company has its own brand value which helps to enjoy them a positive perception across the global aviation industry (Milioti, Karlaftis and Akkogiounoglou 2015). The company name is synonymous with quality services at affordable prices and entertainment, which make them exceptional from other existing airlines.
- Strong networks and joint ventures: The business remains profitable from the initial days, as the core area of generating revenue has been the strong north Atlantic network. The power of their business increased when they cut off some of the routes connecting London to Tokyo, Mumbai and Cape Town in 2015 to remain more focused to the core area of business. Following the structure of the revenue their decision of expanding the routes connecting the most popular Asian travel destination can experience huge success as far as their brand image is concerned. Apart from that, they can also think for joint ventures in order to get direct entry into the Asian market as they have positive experience previously of working jointly with Delta airlines.
- Customer satisfaction: The carrier has three categories termed as economy, premium and luxury, which reveal its wide range of target market. Services are personalized and the management looks after every detail regarding customers’ requirements and expectations (David Mc 2013).
- Low budget airline plan has been a failure: Virgin Atlantic launched ‘little red’ brand promoting it as a low budget airline for the domestic UK routes. However, it had been observed that the brand’s load factor was extremely weak.
- Financial difficulties: With the implications of BREXIT, Virgin Atlantic will experience challenges in terms of monetary resources. As the airline makes most of its expenses in dollars yet receives income in pounds. Businesses had faced heavy financial losses due to the drop in the value of pounds in recent times.
- Poor choice of positioning strategy: Virgin Atlantic has been operating business since 1984, so in terms of gaining sustainability the company was in need to launch innovative ideas into the system, which they did not do. As a result of that competitors easily imitated Virgin’s strategies and presented better perceived value which went against the Virgin Atlantic’s favour. Moreover, passengers consider their service as being expensive than other carriers which makes them reluctant to travel with VA at times.
- As businesses are being more serious about making global approach, travelling has been increased in frequency for business purposes rather than satisfying leisure. This is a positive sign as far as opportunity of making money is concerned for VA.
- The joint venture with delta airlines has made the entire north Atlantic network stronger than before. The revenues generated from the core business is going to be helpful balancing the operation costs of the proposed routes of connecting Singapore to London via their airlines.
- Threats of geo political events work as a threat for airlines. Threats of terrorist attack and natural calamities, which can disturb the customers’ perception (Grubesic and Wei 2013).
- Being one of the most reliable and eminent airlines, VA experiences a huge scale of competition from its rivals like British Airways, Emirates and many more.
- The business has seriously been affected by the implication of BREXIT as the number of foreign passengers has reduced due to the policy.
Strategic management tools
ANSOFF’s growth matrix model
As per the views shared by Bereznoy (2015), this model is may be old yet effective in terms of identifying all the strategic directions of a certain organisation. According to this model, there are four strategies of growth. Market penetration strategy for existing services and rest of the three strategies are for new launch of the services. Those are market and product development and diversification strategy. VA ideally follows diversification strategy by launching new routes to approach the new Asian market like its competitors (Redpath, O'Connell and Warnock-Smith 2017). The major reasons behind doing that are gaining efficiency in corporate sector of aviation industry, elevated market share. The founder’s innovative strategies worked in favour of the diversification strategy.
The company also went for market penetration strategy to modify existing services with the help of innovative ideas. It includes several acquisition decisions and 1000 dollars of cashback facilities on upper class flights of VA. Besides, their new venture of connecting Asian routes to London is an example of product development for that, strategies will be discussed in later part of the report.
BCG matrix model
As per Didia and Ateke (2017), this BCG matrix model determines the company’s profitability and potential cash contributions. The purpose is to evaluate two parameters such as, market share and the rate of market growth. The purpose of this evaluation is to understand profitability of the business model in terms of cash support and generated revenue from the business model.
Dogs carries low share of market and operate in a gradual growing markets as compared to its competitors. This factor deals with weak aspects of the organisations yet these are equally important to discuss before deciding strategies. In the case of Virgin Atlantic, considering the occasional low and unstable earnings strategic choices has been divestiture. Besides, cash flow was not that high, it has been consistently neutral.
Most profitable brands are termed as ‘cash cows’ and demanded to be fed with ‘milk’ to generate as much as revenue as possible. The cash flow generated from these most profitable brands are meant to be invested into Stars to maintain the consistent growth. Profitable brands usually can be innovated into new products and they even possess the capability of becoming future stars. Without proper financial support, though these cannot grow into such biggest revenue generator. Therefore, VA should maintain a flow of investment in order to generate high and stable income as well as cash flow.
Stars are operators of high growth services, hence it involves highest amount of cash flow as it generates highest amount of profit as well. These services are expected to become ‘cash cows’, although not all of them can be that. Following this theory, the airline company can concentrate on product and market development.
Question mark factor is considered in the case of brands, which hold low market share. Brands, which possess a low market share in a rapidly growing market, consumes larger amount of money and fail to gain profit. In the case of ‘little red’ budget airline VA faced such a situation (De Poret, O'Connell and Warnock-Smith 2015). These brands need huge investments to become ‘cash cow’ of organisation. Therefore, before deciding about a new venture VA should evaluate its capability in terms of investment.
Blue ocean strategies
Instead of concentrating only on the competitive environment of the aviation industry across Singapore, according to Agnihotri (2016), blue ocean strategy instructs to follow certain strategic approaches.
- The strategy revolves around differentiating the products maintaining a low price to introduce a brand into a new market space. This ensures rapid and profitable acceleration of business. VA can propose the plan of low budget airline in order to enter the new Asian business environment following blue ocean strategy.
- Therefore, irrespective of the industry challenges, VA can operate business maintaining their way of execution perfectly.
- The central concern of VA must be to focus on customers’ perception and preferences instead of competing with the existing airlines. In order to do that VA must diversify its capabilities consistently by adopting innovation.
- Company must consider customers as a community instead of segmenting them into different segments.
- In the case of any crisis, VA will try to solve it centrally instead of doing it in an isolated way.
VA should frame effective marketing strategies considering their new venture depending on its strengths and capabilities mostly. The concentration will be on weaknesses and threats in order to overcome them along with strategic approaches provided by tools must be taken into account in order to structure the most effective promotional strategies in order to remain competitive.
- As there is a perception of the customers of considering VA as expensive one, the company can go for a global campaign of ‘flying in the face of ordinary’ people. In order to gain popularity in the Asian market more than it used to be TV advertisements would be helpful to present their innovative yet traditional approach of making the journeys memorable and extra ordinary. The idea is to establish a bond with the emotions of the consumers not only considering their interest.
- As globalization has stepped in into the business industry, it would be immensely smart approach to launch their new venture over social networking pages on Facebook and Twitter. In order to spread a positive vibe media marketing managers must be recruited. These virtual pages work as tools to measure customer’s experiences. It can predict even the balance sheet depending on the direct verdict. As described in Hudson and Thal (2013), social media strategy is relevant in terms of establishing and managing customer relationship. The company can use consumers’ verdict in their advertisements to make a positive approach over the audiences.
- The carrier engages themselves into various customer loyalty programmes as mentioned before by providing them cash back offers. In future, in the case of connecting with Singapore if they position themselves by providing quality services with small discounts it will be beneficial for their brand value in a new business environment.
- It is the smartest strategy of the carrier as their founder Richard Branson involves himself into promotional activities unlike the rivals. Frequent presence in the advertisement reveals his personal involvement with the business and it works well as far as customer loyalty is concerned. In the case of new venture as well, if such initiative of celebrity endorsement can be taken it would be approachable enough to the Asian market (Wang, Kao and Ngamsiriudom 2017).
It can be concluded by revising all the strategic dimensions, that depending on the cash flow and profit it would be a wise decision to avail the opportunity of expanding routes to Asia. Their brand image, example of strong network across north Atlantic will work in their favour in terms of customers’ perception. Providing quality services, it has an image of balancing cost and perceived strategy. Based on the global characters of business customers’ preferences have been changed from occasional leisure trips to frequent business journeys. Again, company should plan the fare chart keeping the economic recession and customers’ behaviour in mind. Competitors must be handled with creative non-imitable strategies. Complying with the guidelines of Atienza (2015), ultimate strategic approach should be serving the customers with quality yet satisfying the organizational goals simultaneously.
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