Virgin Atlantic Market Segmentation

virginal Atlantic Market SegmentationProvide a hypothetical ROMI analysis if Virgin spent an bare 5m in mart based on a 25% margin, 10% for apostrophizes, against 500m in gross sales, what is the break crimson on the 5m bare investment, provide the calculations and critical analysis.INTRODUCTIONThe marketing de situationment is certainly at the heart of any organization, since it is responsible for setting, implementing, and evaluating marketing strategies to meet the clients wants and needs, and to stop nodes so as to build returns and sustain the business.Smith and Rapin (2008) stated that marketing success is always driven by a thorough sagaciousness of the market and a set of strong marketing strategies. They have advocated measuring the marketing exercises of many a(prenominal) companies in recent grades. This trend of measuring marketing activities in any case was noted by McDonald and Mouncey (2009), who observed that increasingly, boards of directors and markete rs desire to evaluate market performances to visual aspect how marketing boosts sh areholder protect and whether a firm is accomplishing its marketing objectives. There is a need to crystaliseherstand the business, to develop a framework, and to quantify the performance of marketing objectives and programmes.Furthermore, Ambler (2003) defined the term marketing metrics, which is a metre of the whole businesss marketing performance, and suggested employing a portfolio of metrics to increase the accuracy of the results. Rust et al. (2004) found that a caller-up employing market metrics to forecast future uncertainties and directions has enhanced resource completelyocation, since ameliorate decisions can be made by drawing on lessons from the past. Therefore, measuring marketing performance, a company can improve its marketing efficiency and speciality, find out its strengths and weaknesses, establish precise insights between the investment in marketing activities and the fin ancial value that investment generates, and so forth.The purpose of this essay is to develop a practical(a) framework of marketing metrics for Virgin Atlantic Airways to measure its marketing efforts and spot its challenges. The essay begins by (1) presenting the business model for Virgin Atlantic Airways, (2) identifying the reverse marketing metrics for Virgin Atlantic and evaluating those, and (3) calculating the marketing performance by computing the return on marketing investment (ROMI) of the melt consumption and a break-even analysis of the skyways invigorated offer.PART I BUSINESS MODEL OF VIRGIN ATLANTIC AIRWAYSCompany OverviewVirgin Atlantic Airways Limited (Virgin Atlantic) is Britains second largest long-haul world-wide air passage. Apart from schedule divine services, Virgin Atlantic operates cargo transport services, flies to 31 destinations around the world using 37 aircraft, the average age of which is about six categorys (it has one of youngest fleets wor ldwide), carries nearly six million passengers each year, and employs nearly 9,000 people currently (Civil Aviation Authority, 2009 a Virgin Atlantic, 2009 c).Virgin Atlantic is a subsidiary company and the best-known business in the Virgin Group Ltd. (Virgin Group), which possesses a 51% stake of it, with the remainder having been sold to Singapore Airlines so the two skyways could operate together as a strategic partnership (Virgin Atlantic, 2009 c).Virgin Atlantic was founded in the U.K. in 1984. Its founder, Richard Branson, was motivated by terzetto problems of the airline persistence in that time flights were expensive, companies lacked innovation, and long-haul flights were monotonous and uncomfortable (Twivy, 1986). Therefore, Richard established Virgin Atlantic and disparateiated its brand with separate airlines by positioning fun, quality, and innovation as its core brand values. This can be seen from the airlines vision statement to provide the highest quality innova tive service at excellent value for money for all classes of air travellers. Its objective is to fly a profitable airline that people love to fly and where people love to work (Virgin Atlantic, 2009 c).Virgin Atlantic is a company setting a rising standard for the assiduity. It was the get-go to break the cabin hierarchy from a three- to two-class system, to install individual televisions on the seat backs in economy class, to introduce a fully flat sleeping bed in upper class, and to fly using bio-fuel at 30,000 feet (Twivy, 1986 Virgin Atlantic, 2009 c). Its innovative and comical offerings are great contri hardlying factors to its having won many business, client service, and trade awards worldwide. To sum up, the offers and value that Virgin Atlantic gives were a marked revolution for the airline industry.Business MapThe map above is created by summarising from the student information pack, Financial Information Press getup Full Press Information Kit 2009 at virgin-atlant ic.com. (Notice The customer section indicated above is only concerned with the passenger market). Appendixes A and B describe Virgin Atlantics current strategies and market segmentation.Industry HighlightsThe airline industry can be classified as either business logistics or passenger. Those that specialize in air-passenger transport can further divided into scheduled and non-scheduled services. In recent years, the low- price carriers of the scheduled market have grown rapidly, while the high-cost carriers are continually struggling to grow (Manley, 2009).Many airlines offer three flying classes for its passengers-first, business, and economy class-and they set different prices for the different segments. In terms of the consumer, the purchaser may not be the ultimate put onr of the service, so it is infallible for airlines to recognise the different needs of decision makers and users.Recently, the industry has been suffering during the economy downturn. In such conditions, mor e companies tend to downgrade their travel policies, so first and business class flights are being decreased sharply (Shaw, 2007).For airlines to maintain their business, they always have to pay for high operating and fixed expenditures (Civil Aviation Authority, 2009 b). Furthermore, economic, political, and sound changes, weather, and changes of fuel prices can have a significant impact on airlines (Manley, 2009).Many airlines attempt to cooperate with other similar airlines to serve more destinations, to be more convenient for customers, and to retain customer by rewarding with condescend flyer miles.(Appendix C describes Detailed Industry Overview)SOWT AnalysisSWOT analysis is a tool that illustrates a companys strengths and weaknesses (its internal environment) related to its competitors and what opportunities and threats it faces (its external environment) (Capon, 2009).Virgin Atlantic strengths are its strong brand image, its innovation for setting a new industry standard, i ts excellent customer service products, its close interactions with its customers (Virgin Atlantic, 2009 a), and its strategic alliances with other quality airlines that offer more destinations (Virgin Atlantic, 2009 c).Its weaknesses are that it is too reliant on Branson (a sharp mow in sales occurred after Bransons death), weak in the economy class-leisure market, and offers only limited destinations.Its opportunities are to target new segments of customers due to the aging of the population, to improve its service quality to become a five-star airline in Skytrax, and to reach more destinations to increase its market share.It is vulnerable(threats) to losing its customers due to the open-skies agreement (less regulation of flights between the E.U. and the U.S.), to extreme pressure from the rapid growth of low-cost carriers, recession, new industrial regulations, terrorist attacks, and soaring oil prices.(Appendix D and Appendix E discuss PESTEL analysis of the airline industry and Competitors analysis for Virgin Atlantic)PART II MARKETING METRICS FOR VIRGIN ATLANTIC AIRWAYSAfter reviewing of Virgin Atlantic, I would recommend a second of life-or-death marketing metrics, which can be categorised into the following four performance aspects financial-related (or shareholder), market-related, brand-related and customer-related. The following paragraphs explain why these were selected and discuss the measurement needs and impacts on the decision-making serve well of each metrics. Finally, recommendations and limitation of the framework are drawn.Profit is the most important factor for a company to survive. Kerin and Sethuraman (1998) pointed out that marketers always monitor financial performance because increasing earnings and cash flow turnout increases shareholder values made, and all marketing activities are funding by it. Therefore it is need to measure the financial-related performance which at least three metrics can used to monitor Virgins profit an d cost how efficiency of Virgin spend and generate profit-return on marketing investment (ROMI), return on sales (or profit margin), and net sales contribution. Firstly, return on marketing investment is the percentage of net profit generated by marketing activities divided by total marketing expenditures. ROMI measures how marketing expenditures contribute to profits and is used to insight into the positiveness of Virgins marketing activities. Secondly, return on sales is the net profit as a percentage of the sales revenue, which measures how company efficiency generates profits from sales turnovers and downplays expending, since net profits are adjoin to sales revenue minus total cost. Virgin Atlantic can use the above metrics to understand itself and the market by comparing these metrics against its key competitors or industries. Other important indictors related to financial performance include sales, gross profits, profit before taxes, and liquidity ratio, which do not take metrics since they can be easily obtained from the companys financial statements.Ambler (2003) observed that managers always concern the financial performance, and ignore other non-financial activities, for instance, sales is driven by customers indeed. Therefore customer is definitely needed to measure. Before marketing department is responsible for attracting and retaining customers-without customers, identifying who target customers are is also important, how they generate profit to Virgin. So, retention and churn, customer profitability, customer lifetime value, and net sales contribution can include. Firstly, retention rate is the percentage of customers a company is able to retaining over time, which also measures customer loyalty, while churn measures the percentage of customers lost. If the retention rate is low, the company has to spend more effort to retain its customers since it costs less than attracting new customers. If it is high, marketers should investigate the pro fitability of its relationships to measure this, customer profitability can be employed. Customer profitability is the profitability of customers based on the differences in customer revenue and cost, helps the company identify the most profitable customers. Farris et al (2006) suggest a process to calculating it sorting customers net profits, grouping customers by the customers profits in 10 deciles, and so it can show the distribution of profit generated by each group. Normally, the profitability of the top group is between 150 to 300% (ibid). Fourthly, customer lifetime value is an estimation of the customer value in the number of years the customer is expected to purchase a given product, which measures the worth of a customer as a loyal purchaser of the companys products or services. It is important to be aware that metrics are rough estimations since input data is difficult to predict and may change over time. Fifthly, net sales contribution is the sales generated from a spec ific segment divided by total sales. It measures how well the segment performed indoors all segments and insights which segments contribute the most to sales. The metrics mentioned above are invaluable to mangers to identify profitable customers and which marketing programs can be developed to reinforce the customer relationship with them (Davis, 2007). Other important indictors related to customer performance include purchase frequency, average amount per transaction or sales, and the number of customers or new customers from transaction support systems.Market performance and trends directly link to financial result, and are indictors for manger since they would know how capability of the market. No surprising, the measurement of market-related aspects is also needed. The break-even analysis, market share and growth, and category share, can be included. Firstly, break-even analysis is a tool for projecting the use of a new product or service, which measures how many units volit ion be required at a certain price to reach the break-even point. It can show how changes in price affect sales levels or how many years it go forth take to break even (Paek, 2000). Therefore, if the market size is not big enough, it is probably not to serve. Secondly, market share is the percentage of Virgins shares owned within the whole market which can calculate by the number of customers or sales value. Market growth is similar to market share but shows the percentage increase of this year compared with previous years. Thirdly, category share is the percentage of the number of customers who purchased an item of a specific brand divided by the number of customers who purchased an item under a specific category, measuring the popularity of a brand. Over time, market share, market growth, and category share provides marketers insight about Virgins performance sales against its competitors by monitoring the growth of the company and its competitors and consumer trends within the market, but category share shows more details about category growth, for example, whether customers were acquired from competitors or if total users were gained under the same category.According to McDonald, M. and Mouncey, P. (2009), brand account for at least 20 % of the companys asset, it helps customer to distinguish the company and its product among competitors, so it is indispensable to measure, but the challenges are many approaches available and difficult to qualify. The measurement of brand-related for Virgin can include brand awareness and loyalty, and customer satisfaction. Firstly, Brand Awareness measure the proportion of potential customers and consumers recognised the brand while brand loyalty is metrical by usage, how was the frequency customers purchased a brand. Awareness, loyalty top of mind (the first brand in a customer mind within a given category), attitudes (the degree of customer belief towards a given brand) can simultaneously be measured by conducting a s urvey. Those can insight the brand location in the customers heart which influences customer purchasing behaviours and the sales. More importantly, recognizing consumer and non-consumer group is needed since results of them is always different (Gupta Lehmann, 2005). Secondly, customer satisfaction is a rating to measure customers experiences on specific aspects, also measured by a survey. It shows how well of their offers meets customers expectations. However, the selection of survey responder should be careful, high satisfaction may not mean all the customers are satisfied some disappointed customers may simply leave from the company to competitors before the company noticed.Measuring marketing metrics is a continuous process, which should be done regularly (Patterson, 2005). Over time, metrics can illustrate the effectiveness of marketing strategies and tactics and market changes. More importantly, the measurement methods of metrics also changes over time methods currently emplo yed are considered state-of-the-art.Although Virgin can use the above models, still reminding other intangible factors cannot be measured, such as relationships, reputation and trust, culture and values, skills and competencies, knowledge, and processes and systems. These are important because of generating value for a company, and account for the volume of a companys assets (McDonald and Mouncey, 2009).In conclusion, the metrics recommended to asses Virgins marketing outcomes involve the following performances areas financial-related (or shareholder), market-related, brand-related and customer-related. Working with these metrics Virgin can monitor its revenue and spending, identify and retain the valuable customers, identify the chance expanding its market, insight customer perception towards the brand.PART III MARKETING CAMPAIGN FOR VIRGIN ATLANTIC AIRWAYSMarketing Challenge and StrategyVirgin Atlantic feared that the E.U./U.S. Open Skies Agreement, introduced in March 2008 (Stew art, 2007), would have a negative impact for the future of its market share. Virgin Atlantic may lose part of its customers, since 40% of Virgin Atlantics business class-travel now is between the U.S. and Europe (Foresight, 2008). No doubt Virgin Atlantic needs to retain its customers or to expand into other new markets.According to the World Tourism Organization, the route that serves the most passengers between the U.S. and London airports is between London and New York (ibid.). Virgin Atlantic plans to offer frequent business travellers an exclusive private luxury flight experience, operating a twice daily flight between London and New York, and pricing the book at 1000.Virgin Atlantic also decided to initiate a marketing campaign by using TV commercials and outdoor advisements near the airports to enhance Virgin Atlantics brand awareness among business travellers who fly often between New York and London. The target audiences are frequent flight business travellers or upscale leisure passengers (those who fly an average of ten times a year), male, aged 25 to 65, with more than 50,000 income per year.The following section employs two metrics, the break-even analysis and return on marketing investment, to forecast and measure Virgin Atlantics marketing performance.Assumptionsthe objective profit margin for the campaign was expected to be 25 %the 10% command processing overhead time on its sales generatedthe extra sales generated by the campaign are 15 millionthe operational and multivariate cost for flights twice a daily per year is 24 millionthe extra marketing expenditure for the campaign is 2 millionthe price of a flight is 1,000the average number of flights per consumer is ten per yearthe net profit contribution is 24 %the year of customer loyal and purchasing the tickets 10 times a year is 5 years.Calculation of break dance even for new business-classes flightsCustomer Equity per year= price of flight * average flight times a year= 1,000 * 10= 10 ,000Customer life history paleness= Customer Equity per year * period of year remains as a frequent flight business travellers= 10,000*5 = 50,000Customer animation net profit= Customer Lifetime equity * Net profit contribution= 50,000 * 0.25= 12,500 follow of customers need to Break-even= operational and variable cost for flights twice a day per year / Customer Lifetime net profit= 24m / 12,500 = 1,920If Virgin Atlantic can have 1,920 frequent flight customers who purchase the flight for 5 years, and 10 times per year, then this project will reach break even points.Calculation of ROMICampaign profits = assumed profit margin * extra sales generated= 25% *15 million =3.75 millionHowever, the campaign was overhead 10% in the 15 million sales,Extra cost for campaign= overhead percentage * extra sales generated= 10% *15 million sales =1.5 millionNet profit generated from the campaign = Campaign profits -Extra cost for campaign= 3.75 million-1.5 million = 2.25 million.ROMI = (Net Pro fit generated from the campaign / Campaign cost) *100%= ( 2.25 m / 2 m)*100% =112.5 %The result of ROMI is positive which means that marketing spending is deemed.As the extra cost 2 million is needed for the campaign, the break even point will be changed as followsCalculation of Post-Break even for new business-classes flights with extra cost in marketing.Customer Equity per year= price of flight * average flight times a year= 1,000 * 10= 10,000Customer Lifetime equity= Customer Equity per year * period of year remains as a frequent flight business travellers= 10,000*5 = 50,000Customer Lifetime net profit= Customer Lifetime equity * Net profit contribution= 50,000 * 0.25= 12,500Total cost for flights twice a day per year = operational and variable cost for flights twice a day per year + extra marketing cost= 24 million + 2 million = 26 millionNumber of customers need to Break-even= Total cost for flights twice a day per year / Customer Lifetime net profit= 26m / 12,500 = 2,080T he break-even analysis indicated that Virgin Atlantic will need 2,080 frequent flight customers who will purchase the flight ten times per year for five years to reach the break-even point for the whole new route with the new marketing campaign in play. After reaching 2,080 customers, the company will start to make a profit.The break-even analysis is computed twice to show the different outcomes if extra marketing spending is added. In fact, as the costs increase, the number of customers needed increases as well. Therefore, if the managers believe it is easy to reach the break-even point, the airline is in all likelihood to launch this route. As the break-even analysis uses customer lifetime equity for the calculations, it is possible for that the break-even point may fail to be met in the short term, but for long-term outlooks and for retaining customers, it still can be profitable (Dwyer, 1999).The positive ROMI indicates that the activity is healthy. If ROMI is equal to 100%, t his means the marketing campaign will break even. To compute the ROMI, the cost is needed, as Amber (2003) mentioned that sales revenues may not increase immediately after advertising begins, and it is difficult to determine whether the costs belong to the marketing department. Furthermore, spending decreases can result in maximizing the ROMI, so balancing expenses with marketing expenses with ROMI is also important (Lenskold, 2004).(3392 words)