QUESTIONS

1. How does Virgin America create value for its customers? Explain.
2. Does Virgin America follow a customer-driven marketing approach? Explain.

CHAPTER 7 Customer Value-Driven Marketing Strategy 239 7-15 However, in 1998, olgibility was extended to enlisted personnel and is now extended to anyone who served and was honorally discharged from the military and their immediate famiy members. 7-14 Discuss the factors used to evaluate the usefulness of the military segment. AACSB: Communication; Reflective Thinking Using the chain ratio method described in Appendix 2: Marketing by the Nurnbers, estimate the market po- tential in the military (active duty and veterans) market. Be sure to state any assumptions you make. (AACSB: Communication: Use of IT; Analytical Reasoning) Video Case Sprout In the world of children's television programming. Sprout is a rela- tive newcomer. Owned by NBCUniversal, Sprout airs PES Kids programming as well as additional acquired material. A true multi- platform network, Sprout can be accessed as regular cable pro- gramming, as on-demand programming through Comcast, and online through Sproutonline.com. Sprout does not target only kids, however. It targets preschool families - households that have one or more pre school age children. Parents need to be involved with their children's viewing of interactive content, multiple access points, and 24-hour programming. For this reason, Sprout's promotional efforts are geared toward parents as well as children. After viewing the video featuring Sprout, answer the following questions: 7-16 Why does Sprout target preschool families rather than focusing solely on children? Give examples. 7-17 Which target marketing strategy test describes Sprout's efforts? Support your choice. 7-18 How does Sprout use differentiation and positioning to build relationships with target customers? Company Case Virgin America: Flight Service for the Tech Savvy After an exceptionally frustrating day at the office, Jessica set an industry characterized by customer complaints about ser- out to unwind in one of her favorite third places. The mood vice, it would seem that a customer-centric approach would be ighting immediately brought her blood pressure down as she enough to gain a foothold in the market. But when Virgin started walked in and took a deep, relaxing breath. She was happy that air service in the United States, at least a few other airlines had ner favorite spot was available-a comfy leather chair the already established themselves based on a "customer first" back corner of the room, where she used the touchscreen at mantra, including industry leader Southwest Airlines. And Virgin the table in front of her to order her favorite drink. Then, putting America know that it could not expect to succeed by playing the on a set of noise-canceling headphones, Jessica began catch low-price game. Not only was Southwset the reigning champion ing up on her favorite TV show with her own personal entertain- on value, but the bulk of airline competitors were already beating ment portal sach other up for low-price dominance If this sounds like a local Starbucks or trendy nightclub, Virgin America found a different competitive hook. It targeted think again. Jessica had just boarded a flight on Virgin America, a segment of frequent fiers who were young, sawy, influential, one of the youngest airlines in the United States. It's also the and wiling to pay just a little bit more for an airline that would hottest airline, besting all competition in various industry and take care of them--the Silicon Valley faction. By providing ex- Customer surveys. And after just six years in business, Virgin ceptional service and amenities that appeal to this particular America also reached profitabrity faster than any other airline slice of airline customers, Virgin America has been able to charge in all of a rdom. slightly higher fares and stiil establish a growing base fiercely How does a startup airine break into one of the most corr- loyal patrons. 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. 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 Targeting the Right Customers experience was designed with its target customer in mind. Its Virgin America first took to the skies in 2007. This wouldn't be leet consists of 61 Airbus A300 series planes, each brand new the first shot at staring en airline for Richard Branson-founder when it went into service, minimizing the unexpected delays due of parent company Virgin Group. Virgin's international airline, to maintenance and repairs. Custom-designed leather seats are Virgin Atlantic, had been crossing the pond between the United roomier and more comfortable than average coach seating. And States and Europe since 1984. But Virgin Arrerica would be an that mood lighting? Not only does it bathe the aircraft cabin in an entirely independent enterprise. And while Branson and other appealing purplish glow, it automatically adjusts to one of 12 dif- Virgin Group executives meke no day-to-day decisions at Virgin ferent shades based on outside light America, the unorthodox Viqin culture-ful, creative, even To appeal to tech gurus Virgin America focused on equipping whacky- is unmistakable. its planes with the latest hardware and software. From day one, Ore of Branson's core values that permeates Virgin Arrerica Virgin was the only domestic camor to offer feetwide in-flight is this: Take care of your people first and profits will folow. In Wi-Fi-a distinction that it maintains to this day, even as it has 240 PART 3 Designing a Customer Value-Driven Strategy and Mix located is the stayed ahead of the competition by upgrading the network to ensure the fastest in-flight speeds available. Every seat has its own power outlet, USB port, and 9-inch video touchscreen with a QWERTY keyboard/remote control. That touchscreen provides access to the most advanced entertainment and information system in U.S. 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 flight 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 feeling of control during a an experience that is otherwise mostly out of their control. Many of these ideas came by way of Virgin America' i's techy clientele. It's no accident that the company's headquarters are Burlingame, California, 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 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 cli- entele. "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 fli- ers 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 slick cinematic site that provides viewers with a virtual virtual tour of a Virgin America flight. Demonstrating the airline's in- in-flight perks are founders and CEOs of companies such as Pandora, Gilt, and Pitchfork. As part of the tour, visitors to the site discover that several of the passengers onboard are Virgin America frequent fliers and Silicon Valley celebrities who have made creative con- tributions to the airline's services with things such as curating 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 seatbelts. That image has carried over to Virgin America's new safety 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. there as well. In fact, Virgin America has been number one in the annual Airline Quality Report-a survey that ranks airlines based on mishandled baggage, customer complaints, denied boardings, and on-time percent--for the past three years in a row. In a recent Consumer Reports survey for customer satisfaction in the airline, not only did Virgin America take top honors, it came away with the book highest score achieved by any U.S. airline in many years. Despite all Virgin America's success, the airline industry is a tough place to survive and thrive. In the United States, just four airlines control more than 80 percent of the market. Virgin America knows that maintaining high rankings will be a chal- lenge, especially as it expands into new markets -- particularly markets with cold climates, a factor that increases the likelihood of canceled or delayed flights. As the number of passengers on flights increases, boarding and deplaning times wil also in- crease, affecting multiple customer service metrics. And with Virgin's techy and connected clientele, any slip-up is likely 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 remain competitive as it moves into the future, Virgin America recently announced that it has agreed to be acquired by Alaska Airlines--another small West Coast-based airline known for its high level of service and customer loyalty. With more than 1,200 daily flights 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- ers of each airline who have been 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 will have on Virgin America's style and quality of service. After all, if "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 learn 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 strong ser- vice record, it's taking on an unusually profitable airline. Virgin America achieved an annual profit after just six years. Flying in the face of skeptics, the brash young airline 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 airline. The e 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? a . 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