After an exceptionally frustrating day at the office, Jessica set out to unwind in one of...

   

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After an exceptionally frustrating day at the office, Jessica set out to unwind in one of her favorite third places. The mood lighting immediately brought her blood pressure down as she walked in and took a deep, relaxing breath. She was happy that. her favorite spot was available-a comfy leather chair in the back corner of the room, where she used the touchscreen at the table in front of her to order her favorite drink. Then, putting on a set of noise-canceling headphones, Jessica began catch- ing up on her favorite TV show with her own personal entertain- ment portal. If this sounds like a local Starbucks or trendy nightclub, think again. Jessica had just boarded a flight on Virgin America, one of the youngest airlines in the United States. It's also the hottest airline, besting all competition in various industry and customer surveys. And after just six years in business, Virgin America also reached profitability faster than any other airline in all of airdom. How does a startup airline break into one of the most com- petitive industries in the world, notorious for barriers to entry? For Virgin America, the answer is two-fold-by putting customers first and by targeting the right customer segment. Targeting the Right Customers Virgin America first took to the skies in 2007. This wouldn't be the first shot at starting an airline for Richard Branson-founder of parent company Virgin Group. Virgin's international airline, Virgin Atlantic, had been crossing the pond between the United States and Europe since 1984. But Virgin America would be an entirely independent enterprise. And while Branson and other Virgin Group executives make no day-to-day decisions at Virgin America, the unorthodox Virgin culture-fun, creative, even whacky-is unmistakable. One of Branson's core values that permeates Virgin America is this: Take care of your people first and profits will follow. In an industry characterized by customer complaints about ser- vice, it would seem that a customer-centric approach would be enough to gain a foothold in the market. But when Virgin started air service in the United States, at least a few other airlines had already established themselves based on a "customer first" mantra, including industry leader Southwest Airlines. And Virgin America knew that it could not expect to succeed by playing the low-price game. Not only was Southwest the reigning champion on value, but the bulk of airline competitors were already beating each other up for low-price dominance. Virgin America found a different competitive hook. It targeted a segment of frequent fliers who were young, savvy, influential, and willing to pay just a little bit more for an airline that would take care of them-the Silicon Valley faction. By providing ex- ceptional service and amenities that appeal to this particular slice of airline customers, Virgin America has been able to charge slightly higher fares and still establish a growing base of fiercely loyal patrons. Homing in on the Details Offering unique amenities in the airline business is a challenge for any company. But from the beginning, the Virgin America experience was designed with its target customer in mind. Its fleet consists of 61 Airbus A300 series planes, each brand new when it went into service, minimizing the unexpected delays due to maintenance and repairs. Custom-designed leather seats are roomier and more comfortable than average coach seating. And that mood lighting? Not only does it bathe the aircraft cabin in an appealing purplish glow, it automatically adjusts to one of 12 dif ferent shades based on outside light. To appeal to tech gurus, Virgin America focused on equippin its planes with the latest hardware and software. From day on Virgin was the only domestic carrier to offer fleetwide in-flig Wi-Fi-a distinction that it maintains to this day, even as it t PART 3 Designing a Customer Value-Driven Strategy and Mix stayed ahead of the competition by upgrading the network to are the fastest in-fight speeds available. Every seat has its own power outlet, USB port, and 9-inch video touchscreen with QWERTY keyboard/remote control That touchscroon provides access to the most advanced entertainment and Information system in US skies. Virgin America's proprietary Red system allows each guest to choose on-demand movies, TV programs, music, or video games. Red also allows patrons to track their fight on interactive Google Maps, engage in seat-to-seat chat with other customers, and or der food and drinks for themselves or anyone else on board. It's a system designed to give passengers a fooling of control during an experience that is otherwise mostly out of their control. Many of these ideas came by way of Virgin America's techy clientele. It's no accident that the company's headquarters are located in Burlingame, Califomia, just a few short miles from the San Francisco airport. In fact. Virgin America is the only air- line based in Silicon Valley. Not only is the company constantly experimenting with every aspect of the business, it has made strong efforts to involve Silicon Valley entrepreneurs and execu tives in the process, helping Virgin to think like its disruptive cl entale. "We see ourselves as more of an incubator," says Luanne Calvert, Virgin America's chief marketing officer. Take VX Next, for example-a group of 30 or so frequent fi- ens who act as a brain trust for Virgin America, generating ideas for the company at no charge. Among other winning ideas, this group was instrumental in developing the company's recent in- teractive promotional campaign. At the center of the campaign is a slick cinematic site that provides viewers with a virtual tour of a Virgin America fight. Demonstrating the airline's in-flight perks are founders and CEOs of companies such as Pandora, Git, and Pitchfork. As part of the tour, visitors to the site discover that several of the passengers onboard are Virgin America frequent fiors and Silicon Valley celebrities who have made creative con tributions to the airline's services with things such as cuniting in-flight music and menu items Virgin America's home-brewed tech panel was also instru mental in creating the company's latest safety video. When the company started operations, it delighted customers with a safety video like none other-an animated short featuring a techie nun and a matador with his bull. Posted online as well, the video racked up millions of views and cemented Virgin America's im- age as a company that could find creative alternatives to just about anything, even a federally mandated reminder to wear soatbelts. That image has carried over to Virgin America's new salety video-one created by a top Hollywood director and world-class choreographers that features 10 So You Think You Can Dance alums, two former Olympians, and one American Idol finalist. Debuting in Times Square and getting plenty of coverage from the press, the new safety video racked up 6 million views in less than two weeks. Above the Clouds Although there is plenty of anecdotal evidence that Virgin America's customers are thrilled with its service, it's the industry quality rat- ings that count. Virgin America is coming through with flying colors there as welt in fact, Virgin America has been number one in the annual Airline Quality Report-a survey that rinks afines based on mishanded baggage, customer complaints, doned boardings and on-time percent-for the past three years in a row in a rocant Consumer Reports survey for customer satisfaction in the sine. not only did Virgin Amenca tako top honors, it came away with the highest score achieved by any US aitna in many years. Despite al of Vegin America's success, the airine industry is a tough place to survive and thrive in the United States, kust four airlines control more than 80 percent of the market. Virgin America knows that maintaining to high rankings will be a chal- lenge, especially as it expands into new markets-particularly markets with cold climates, a factor that increases the bood of canceled or delayed fights. As the number of passengers on flights increases, boarding and deplaning times will also in crease, affecting multiple customer service metrics. And with Virgin's techy and connected clientele, any sip-up is koply to be texted, tweeted, or otherwise broadcast for all the world to see Playing the features and amenities game is also problematic Things that delight customers today become ho-hum tomorrow, especially when competitors are constantly trying to improve their offerings as well. To ramain competitive as it moves into the future, Virgin America recently announced that it has agreed to be acquired by Alaska Airlines-another smal West Coast-based aine known for its high level of service and customer loyalty. With more than 1,200 daily fights and 280 aircraft, the combined air- line will provide much stronger competition on the West Coast, even with the largest airlines. This should be a boon for custom era of each airline who have boon frustrated by limited route options in the past. But with such a strong and unique positioning targeted to ward a specific segment of the industry, many are wondering what effect the union of these two airlines wil have on Virgin America's style and quality of service. After all, it "hip" best de scribes Virgin America's style, Alaska Airlines is best described as "practical." "My hope is that Alaska goes in with an open mind and that they leam some things," says one travel industry analyst. "It's not hip, it's not sexy, but Alaska has a lot going for it The deal is still subject to approval by regulators, and airline mergers can take years to complete. But one thing is for sure. Alaska Airlines is not only acquiring an airline with a strong ser- vice record. It's taking on an unusually profitable airline, Vegin America achieved an annual profit after just six years. Flying in the face of skeptics, the brash young airtne continued on its upward trajectory by posting strong increases in profits in each of the two years since. For the most recent year, Virgin America achieved $201 million in profit on $1.5 billion in revenues-139 percent higher profits than the year before and the highest ever for a young airine. The company also recently went public in the second-largest airline IPO in history. The question is this: Will the new Virgin America continue to do what it has done in the past-wow every customer with exceptional service while giving the tech community a little something extra? Or will that special Virgin America brand personality slowly disappear in the shadow of older, more established Alaska Airlines brand? Questions 7-19 7-20 7-21 7-22 for Discussion Using the full spectrum of segmentation variables, de- scribe how Virgin America segments and targets the market for airline services. Which market targeting strategy is Virgin America fol- lowing? Justify your answer. Write a positioning statement for Virgin America. What are the potential issues for Virgin America follow- ing the Alaska Airlines acquisition? Will Virgin America continue to appeal to the same types of customers? Why or why not? After an exceptionally frustrating day at the office, Jessica set out to unwind in one of her favorite third places. The mood lighting immediately brought her blood pressure down as she walked in and took a deep, relaxing breath. She was happy that. her favorite spot was available-a comfy leather chair in the back corner of the room, where she used the touchscreen at the table in front of her to order her favorite drink. Then, putting on a set of noise-canceling headphones, Jessica began catch- ing up on her favorite TV show with her own personal entertain- ment portal. If this sounds like a local Starbucks or trendy nightclub, think again. Jessica had just boarded a flight on Virgin America, one of the youngest airlines in the United States. It's also the hottest airline, besting all competition in various industry and customer surveys. And after just six years in business, Virgin America also reached profitability faster than any other airline in all of airdom. How does a startup airline break into one of the most com- petitive industries in the world, notorious for barriers to entry? For Virgin America, the answer is two-fold-by putting customers first and by targeting the right customer segment. Targeting the Right Customers Virgin America first took to the skies in 2007. This wouldn't be the first shot at starting an airline for Richard Branson-founder of parent company Virgin Group. Virgin's international airline, Virgin Atlantic, had been crossing the pond between the United States and Europe since 1984. But Virgin America would be an entirely independent enterprise. And while Branson and other Virgin Group executives make no day-to-day decisions at Virgin America, the unorthodox Virgin culture-fun, creative, even whacky-is unmistakable. One of Branson's core values that permeates Virgin America is this: Take care of your people first and profits will follow. In an industry characterized by customer complaints about ser- vice, it would seem that a customer-centric approach would be enough to gain a foothold in the market. But when Virgin started air service in the United States, at least a few other airlines had already established themselves based on a "customer first" mantra, including industry leader Southwest Airlines. And Virgin America knew that it could not expect to succeed by playing the low-price game. Not only was Southwest the reigning champion on value, but the bulk of airline competitors were already beating each other up for low-price dominance. Virgin America found a different competitive hook. It targeted a segment of frequent fliers who were young, savvy, influential, and willing to pay just a little bit more for an airline that would take care of them-the Silicon Valley faction. By providing ex- ceptional service and amenities that appeal to this particular slice of airline customers, Virgin America has been able to charge slightly higher fares and still establish a growing base of fiercely loyal patrons. Homing in on the Details Offering unique amenities in the airline business is a challenge for any company. But from the beginning, the Virgin America experience was designed with its target customer in mind. Its fleet consists of 61 Airbus A300 series planes, each brand new when it went into service, minimizing the unexpected delays due to maintenance and repairs. Custom-designed leather seats are roomier and more comfortable than average coach seating. And that mood lighting? Not only does it bathe the aircraft cabin in an appealing purplish glow, it automatically adjusts to one of 12 dif ferent shades based on outside light. To appeal to tech gurus, Virgin America focused on equippin its planes with the latest hardware and software. From day on Virgin was the only domestic carrier to offer fleetwide in-flig Wi-Fi-a distinction that it maintains to this day, even as it t PART 3 Designing a Customer Value-Driven Strategy and Mix stayed ahead of the competition by upgrading the network to are the fastest in-fight speeds available. Every seat has its own power outlet, USB port, and 9-inch video touchscreen with QWERTY keyboard/remote control That touchscroon provides access to the most advanced entertainment and Information system in US skies. Virgin America's proprietary Red system allows each guest to choose on-demand movies, TV programs, music, or video games. Red also allows patrons to track their fight on interactive Google Maps, engage in seat-to-seat chat with other customers, and or der food and drinks for themselves or anyone else on board. It's a system designed to give passengers a fooling of control during an experience that is otherwise mostly out of their control. Many of these ideas came by way of Virgin America's techy clientele. It's no accident that the company's headquarters are located in Burlingame, Califomia, just a few short miles from the San Francisco airport. In fact. Virgin America is the only air- line based in Silicon Valley. Not only is the company constantly experimenting with every aspect of the business, it has made strong efforts to involve Silicon Valley entrepreneurs and execu tives in the process, helping Virgin to think like its disruptive cl entale. "We see ourselves as more of an incubator," says Luanne Calvert, Virgin America's chief marketing officer. Take VX Next, for example-a group of 30 or so frequent fi- ens who act as a brain trust for Virgin America, generating ideas for the company at no charge. Among other winning ideas, this group was instrumental in developing the company's recent in- teractive promotional campaign. At the center of the campaign is a slick cinematic site that provides viewers with a virtual tour of a Virgin America fight. Demonstrating the airline's in-flight perks are founders and CEOs of companies such as Pandora, Git, and Pitchfork. As part of the tour, visitors to the site discover that several of the passengers onboard are Virgin America frequent fiors and Silicon Valley celebrities who have made creative con tributions to the airline's services with things such as cuniting in-flight music and menu items Virgin America's home-brewed tech panel was also instru mental in creating the company's latest safety video. When the company started operations, it delighted customers with a safety video like none other-an animated short featuring a techie nun and a matador with his bull. Posted online as well, the video racked up millions of views and cemented Virgin America's im- age as a company that could find creative alternatives to just about anything, even a federally mandated reminder to wear soatbelts. That image has carried over to Virgin America's new salety video-one created by a top Hollywood director and world-class choreographers that features 10 So You Think You Can Dance alums, two former Olympians, and one American Idol finalist. Debuting in Times Square and getting plenty of coverage from the press, the new safety video racked up 6 million views in less than two weeks. Above the Clouds Although there is plenty of anecdotal evidence that Virgin America's customers are thrilled with its service, it's the industry quality rat- ings that count. Virgin America is coming through with flying colors there as welt in fact, Virgin America has been number one in the annual Airline Quality Report-a survey that rinks afines based on mishanded baggage, customer complaints, doned boardings and on-time percent-for the past three years in a row in a rocant Consumer Reports survey for customer satisfaction in the sine. not only did Virgin Amenca tako top honors, it came away with the highest score achieved by any US aitna in many years. Despite al of Vegin America's success, the airine industry is a tough place to survive and thrive in the United States, kust four airlines control more than 80 percent of the market. Virgin America knows that maintaining to high rankings will be a chal- lenge, especially as it expands into new markets-particularly markets with cold climates, a factor that increases the bood of canceled or delayed fights. As the number of passengers on flights increases, boarding and deplaning times will also in crease, affecting multiple customer service metrics. And with Virgin's techy and connected clientele, any sip-up is koply to be texted, tweeted, or otherwise broadcast for all the world to see Playing the features and amenities game is also problematic Things that delight customers today become ho-hum tomorrow, especially when competitors are constantly trying to improve their offerings as well. To ramain competitive as it moves into the future, Virgin America recently announced that it has agreed to be acquired by Alaska Airlines-another smal West Coast-based aine known for its high level of service and customer loyalty. With more than 1,200 daily fights and 280 aircraft, the combined air- line will provide much stronger competition on the West Coast, even with the largest airlines. This should be a boon for custom era of each airline who have boon frustrated by limited route options in the past. But with such a strong and unique positioning targeted to ward a specific segment of the industry, many are wondering what effect the union of these two airlines wil have on Virgin America's style and quality of service. After all, it "hip" best de scribes Virgin America's style, Alaska Airlines is best described as "practical." "My hope is that Alaska goes in with an open mind and that they leam some things," says one travel industry analyst. "It's not hip, it's not sexy, but Alaska has a lot going for it The deal is still subject to approval by regulators, and airline mergers can take years to complete. But one thing is for sure. Alaska Airlines is not only acquiring an airline with a strong ser- vice record. It's taking on an unusually profitable airline, Vegin America achieved an annual profit after just six years. Flying in the face of skeptics, the brash young airtne continued on its upward trajectory by posting strong increases in profits in each of the two years since. For the most recent year, Virgin America achieved $201 million in profit on $1.5 billion in revenues-139 percent higher profits than the year before and the highest ever for a young airine. The company also recently went public in the second-largest airline IPO in history. The question is this: Will the new Virgin America continue to do what it has done in the past-wow every customer with exceptional service while giving the tech community a little something extra? Or will that special Virgin America brand personality slowly disappear in the shadow of older, more established Alaska Airlines brand? Questions 7-19 7-20 7-21 7-22 for Discussion Using the full spectrum of segmentation variables, de- scribe how Virgin America segments and targets the market for airline services. Which market targeting strategy is Virgin America fol- lowing? Justify your answer. Write a positioning statement for Virgin America. What are the potential issues for Virgin America follow- ing the Alaska Airlines acquisition? Will Virgin America continue to appeal to the same types of customers? Why or why not?

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1 Virgin America segment and target the market for airline services by using the four approaches to market segmentation Geographic factors They next targeted a specific client by geography specificall... View the full answer