Virgin Atlantic Market Segmentation

perfect(a) Atlantic grocery segmentationProvide a hypothetical ROMI analytic thinking if virginal spent an spear carrier 5m in merchandise based on a 25% margin, 10% for costs, against 500m in crying(a) r horizontalue, what is the break out even on the 5m extra coronation, provide the calculations and critical analysis.INTRODUCTIONThe trade plane section is certainly at the heart of either organization, since it is responsible for setting, implementing, and evaluating market placeing st rungies to meet the clients wants and lacks, and to obey customers so as to take a shit make and sustain the wrinkle enterprise.Smith and Rapin (2008) stated that market success is forever and a day driven by a thorough understanding of the market and a set of ardent marketing strategies. They have advocated measuring the marketing performances of galore(postnominal) companies in recent stratums. This trend of measuring marketing activities to a fault was say by McDonald and Mouncey (2009), who observed that change magnitudely, boards of directors and marketers desire to evaluate market performances to repoint how marketing boosts make doholder value and whether a firm is accomplishing its marketing objectives. There is a need to understand the avocation, to develop a framework, and to quantify the performance of marketing objectives and programmes.Furthermore, Ambler (2003) defined the term marketing inflection, which is a saloon of the self-colored cable enterprises marketing performance, and suggested employing a portfolio of rhythmic pattern to increase the accuracy of the results. Rust et al. (2004) erect that a beau monde employing market prosody to forecast future uncertainties and directions has compound resource anyocation, since better decisions nates be made by draftsmanship on littleons from the past. Therefore, measuring marketing performance, a company brook remedy its marketing efficiency and effectiveness, draw its st rengths and weaknesses, establish precise insights betwixt the investment in marketing activities and the financial value that investment devotes, and so forth.The pattern of this essay is to develop a practical framework of marketing metrics for thoroughgoing(a) Atlantic Airways to measure its marketing efforts and identify its challenges. The essay begins by (1) presenting the business model for pure(a) Atlantic Airways, (2) identifying the correct marketing metrics for Virgin Atlantic and evaluating those, and (3) calculating the marketing performance by compute the return on marketing investment (ROMI) of the fight down spending and a break-even analysis of the strainlines hot cristal.PART I BUSINESS MODEL OF unadulterated ATLANTIC AIRWAYSCompany OverviewVirgin Atlantic Airways Limited (Virgin Atlantic) is Britains second largest long-haul world(prenominal) airline. Apart from scheduled services, Virgin Atlantic operates cargo transport services, wing to 31 destina tions around the world using 37 aircraft, the aver progress age of which is approximately six years (it has one of youngest fleets worldwide), carries mostly six jillion 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- crawl inn business in the Virgin Group Ltd. (Virgin Group), which possesses a 51% stake of it, with the end having been sold to Singapore Airlines so the dickens airlines 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 trinity problems of the airline industry in that epoch public lifes were expensive, companies lacked innovation, and long-haul flights were monotonous and uncomfortable (Twivy, 1986). Therefore, Richard established Virgin Atlantic and differentiated its grade with early(a) airlines by positioning fun, quality, and innovation as its core vane values. This female genitalia be seen from the airlines vision statement to provide the highest quality innovational service at comminuted value for money for all classes of air incitelers. Its objective is to fly a profitable airline that people sexual love to fly and where people love to work (Virgin Atlantic, 2009 c).Virgin Atlantic is a company setting a invigorated standard for the industry. It was the first to break the cabin hierarchy from a three- to two-class system, to install individual televisions on the stern backs in economy class, to introduce a fully flat dormancy bed in upper class, and to fly using bio-fuel at 30,000 feet (Twivy, 1986 Virgin Atlantic, 2009 c). Its innovative and unique offerings are great contributing factors to its having won numerous business, customer service, and trade awards worldwide. To sum up, the offers and value that Virgin Atlantic gives were a marked revolution for the airline ind ustry.Business MapThe map in a higher place is created by summarising from the student information pack, Financial Information Press kit up Full Press Information Kit 2009 at virgin-atlantic.com. (Notice The customer divide indicated in a higher place is unless concerned with the passenger market). Appendixes A and B light upon Virgin Atlantics current strategies and market segmentation.Industry HighlightsThe airline industry stooge be classified as either business logistics or passenger. Those that fix in air-passenger transport gutter further divided into scheduled and non-scheduled services. In recent years, the low-cost 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 equipment casualtys for the different segments. In foothold of the consumer, the purchaser may not be t he ultimate put onr of the service, so it is necessary for airlines to recognise the different needs of decision makers and consumptionrs.Recently, the industry has been ache during the economy downturn. In such conditions, more companies decenniumd to downgrade their travel policies, so first and business class flights are being lessen sharply (Shaw, 2007).For airlines to maintain their business, they eer have to pay for high in operation(p) and fixed expenditures (Civil Aviation Authority, 2009 b). Furthermore, economic, political, and legal changes, weather, and changes of fuel wrongs 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 shit flyer miles.(Appendix C describes exact Industry Overview)SOWT AnalysisSWOT analysis is a tool that illustrates a companys strengths and weaknesses (its internal environment) cogitate to its competitors and what opportunities and threats it faces (its external environment) (Capon, 2009).Virgin Atlantic strengths are its strong station image, its innovation for setting a new industry standard, its 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 push down 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 go along more destinations to increase its market share.It is vulnerable(threats) to losing its customers due to the open-skies agreement (less pattern of flights betw een the E.U. and the U.S.), to intense pressure from the rapid egress of low-cost carriers, recession, new industrial regulations, terrorist attacks, and soaring oil prices.(Appendix D and Appendix E reason PESTEL analysis of the airline industry and Competitors analysis for Virgin Atlantic)PART II MARKETING METRICS FOR VIRGIN ATLANTIC AIRWAYS after(prenominal) reviewing of Virgin Atlantic, I would recommend a number of crucial marketing metrics, which can be categorised into the next four performance aspects financial-related (or shareholder), market-related, bulls eye-related and customer-related. The following paragraphs explain wherefore these were selected and discuss the measurement needs and impacts on the decision-making process of each metrics. Finally, recommendations and terminus ad quem 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 utilise to monitor Virgins profit and cost how efficiency of Virgin spend and generate profit-return on marketing investment (ROMI), return on sales (or profit margin), and cabbage sales contribution. Firstly, return on marketing investment is the constituent of net profit generated by marketing activities divided by agree marketing expenditures. ROMI measures how marketing expenditures contribute to profits and is used to insight into the gainfulness of Virgins marketing activities. Secondly, return on sales is the net profit as a circumstances of the sales revenue, which measures how company efficiency generates profits from sales turnoers and downplays spending, since net profits are equal to sales revenue minus total cost. Virgin Atlantic can us e 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 require 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 component of customers a company is able to retaining all over time, whi ch 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 profitability of its relationships to measure this, customer profitability can be employed. guest 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, classify customers by the customers profits in 10 deciles, wherefore it can show the distribution of profit generated by each free radical. Normally, the profitability of the top convocation is between 150 to 300% (ibid). Fourthly, customer lifetime value is an estimate of the customer value in the number of years the customer is anticipate to purchase a addict ed product, which measures the worth of a customer as a loyal purchaser of the companys products or services. It is important to be informed that metrics are rough estimations since input data is difficult to address and may change over time. Fifthly, net sales contribution is the sales generated from a particularised segment divided by total sales. It measures how good the segment performed within all segments and insights which segments contribute the most to sales. The metrics mentioned above are valuable 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 deed 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 effec tiveness of the market. No surprising, the measurement of market-related aspects is also needed. The break-even analysis, market share and growth, and year share, can be included. Firstly, break-even analysis is a tool for projecting the use of a new product or service, which measures how umpteen units ordain be required at a certain price to reach the break-even point. It can show how changes in price affect sales levels or how several(prenominal) years it will take to break even (Paek, 2000). Therefore, if the market size of it is not big enough, it is probably not to serve. Secondly, market share is the percentage of Virgins shares owned within the unharmed 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, socio-economic class share is the percentage of the number of customers who purchased an item of a specific marque divided by the number of customers who purchased an item under a specific category, measuring the popularity of a smear. 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 exposit about category growth, for example, whether customers were acquired from competitors or if total users were gained under the same category. fit in to McDonald, M. and Mouncey, P. (2009), brand figure for at least 20 % of the companys asset, it helps customer to remove 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 contentment. Firstly, Brand Awareness measure the proportion of potential c ustomers and consumers recognised the brand while brand loyalty is measured 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 survey. Those can insight the brand location in the customers heart which influences customer buy 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 pass judgment 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 respondent should be careful, high satisfaction may not mean all the customers are satisfied some disappointed customers may simply leave from the company to compe titors before the company noticed.Measuring marketing metrics is a continuous process, which should be through 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 employed 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 majority 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 learning towards the brand.PART III MARKETING CAMPAIGN FOR VIRGIN ATLANTIC AIRWAYS market Challenge and StrategyVirgin Atlantic feared that the E.U./U.S. Open Skies Agreement, introduced in border 2008 (Stewart, 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.harmonize 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 in two ways daily flight between London and New York, and pricing the tag end at 1000.Virgin Atlantic also decided to initiate a marketing campaign by using TV commercials and outdoor advisements near the airports to raise Virgin Atlantics brand awareness among business travellers who fly a good deal between New York and London. The target audiences are frequent flight business travellers or upscale leisure passengers (those who fly an average of ten clock 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% overhead on its sales generatedthe extra sales generated by the campaign are 15 one one thousand million million millionthe operational and changeable cost for flights twice a daily per year is 24 millionthe extra marketing expenditure for the campaig n 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 good luck even for new business-classes flightsclient Equity per year= price of flight * average flight times a year= 1,000 * 10= 10,000Customer sprightliness comeliness= Customer Equity per year * distributor point of year remains as a frequent flight business travellers= 10,000*5 = 50,000Customer life net profit= Customer Lifetime equity * Net profit contribution= 50,000 * 0.25= 12,500Number of customers need to Break-even= operational and protean 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 ROMI fight profits = assumed p rofit 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 Profit 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= Custo mer 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 = 2,080The 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 painless to reach the break-even point, the airline is likely 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%, this means the marketing campaign will break even. To compute the ROMI, the cost is needed, as atomic number 79 (2003) mentioned that sales revenues may not increase immediately after announce 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)