MARKETING FOCUS: Virgin a brand too far? - Suddenly, Virgin’s brand seems more vulnerable and Richard Branson’s touch less sure. Roger Cowe inspects the damage

It has been a bad summer for Virgin - bad enough for serious questions to be asked not just about Richard Branson’s ability to balloon round the world but also about whether he can continue the remarkable run which has made him a business hero.

It has been a bad summer for Virgin - bad enough for serious

questions to be asked not just about Richard Branson’s ability to

balloon round the world but also about whether he can continue the

remarkable run which has made him a business hero.



Time and again over the past couple of years the question has been

asked: ’Will the Virgin bubble burst?’ But that question, which has

intrigued marketing experts for some time has been given an urgent

business twist as the usual stream of good-news stories has been

overwhelmed by grim tales which take the gloss off Virgin’s carefully

nurtured image.



Virgin vodka has effectively been withdrawn from public sale. Cola

continues to struggle to make a serious impact on UK shoppers. The

launch of internet music sales has been postponed. There have been

official profit warnings from the two public companies associated with

the Virgin empire: the Virgin Express airline, and the

unfortunately-named Victory Corporation, which runs the clothing and

cosmetics operations. And through it all has run a stream of stories

about frustrated and furious passengers delayed and disillusioned by

Virgin Trains.



The unwelcome critical attention stems partly from the visible problems

on the trains, and partly from Branson’s recent flirtation with idea of

floating Virgin Atlantic and Virgin Trains. This encouraged close

scrutiny by the City and the business press, and resulted in

unaccustomed scepticism about the health of the business.



The Economist magazine suggested it might be necessary to sell Virgin

Atlantic to finance the railways. The Financial Times accused Branson of

destroying ’shareholder value’ and carrying a dangerously high level of

debt. Branson responded with characteristic vigour, berating the FT for

its short-termism and lack of understanding of a private empire’s

financial objectives.



Gordon McCallum, Virgin’s new strategy chief, admits times are tough,

but is confident the group will pull through: ’In the short run there is

a lot of frustration and the aura has taken a knock. In the long run we

will be stronger for it.’ Financially, he says: ’We’re probably stronger

than ever. If there is a recession we will come through it.’



Despite McCallum’s confidence, doubts remain about the performance of

the brand, which many believe has lost its way.



Until this year, the Virgin name threatened to carry all before it.

There had been failures but they were largely ignored (anybody remember

Virgin computers?). But now the Branson touch seems less magical and the

brand more vulnerable. The headlines about Victory’s value halving

overnight and the grim publicity about the trains threaten a contagion

which could undermine the value of other brands in the group.



Marcus Mitchell, marketing manager at branding consultancy CLK.MPL, puts

this theoretical risk into sharp focus: ’When I’m delayed on a Virgin

train I start wondering about Virgin Atlantic. Every experience of a

brand counts, and negative experiences count even more.’



On the evidence of an exclusive Marketing poll with Audience Selection

(see box), perceptions of Virgin’s brand are not as positive as you

might expect. While the majority of respondents do not think there are

too many Virgin-branded products, a similarly large group say the name

has no impact on their purchasing decisions. As for new ventures like

Virgin clothing and the Vie cosmetics chain, our survey shows a definite

thumbs down from consumers. Considering their target market, there is a

high proportion (over 50%) of people in the 15-24 and 24-34 age groups

saying they wouldn’t buy these goods.



Mitchell does not entirely subscribe to the common accusation that

Branson has stretched himself and his brand too far. But he does say

there are two big stumbling blocks in front of Branson’s aim of creating

a global business: generational and geographical perceptions of the

brand.



On the first issue, the problem is that the Virgin name probably means

most to the Branson generation, stemming from its roots in music and

Branson’s youthfulness when he first sprang to notoriety. Yet even

Branson cannot stay young, and the assumption that Virgin has bags of

youth appeal - which lay behind the move into cola and jeans - seems to

be misplaced.



’The response from young people to Virgin is: ’Who’s that middle-aged

bloke in the jumper?’ He isn’t young any more and to 16- to 25-year-olds

he is part of the establishment,’ says Mitchell. This is backed up by

our poll, which reveals that 70% of 15- to 24-year-olds are left cold by

Branson’s product endorsements.



Then there is the question of Virgin’s global appeal. The airline

business provides a good platform (and has the highest approval ratings

in our survey) but the other successes don’t build on that. There are

Megastores around the world, and cola has been introduced elsewhere, but

it will be difficult to repeat the progress made in the UK. The UK

operations have always benefited from Branson’s attachment, but that has

little value where the man is no better known than the new brand.



In some cases, notably Virgin Direct investment and banking, the venture

seems to fail on both youth and global counts. It is a specifically UK

business which would be difficult to transplant, and it does not appeal

to young consumers, as the current repositioning of the image

recognises.



The same brand difficulties apply to Virgin Trains. Much of Branson’s

success has stemmed from his desire to attack complacent oligopolies,

such as British Airways, the big banks, Pepsi and Coca-Cola. But Virgin

Rail is not competing with the old guard; it is against GNER, not

BR.



To some critics, these inconsistencies suggest Virgin has not understood

its brand at all. Winston Fletcher, chairman of Delaney Fletcher Bozell,

argues that Branson’s stunt-driven success led him to mistake customers’

appreciation of the product for a belief in the brand name itself.

Branson’s desire to challenge the establishment has also clashed with

the extension of the brand. That’s fine: Branson owns the business. But

it could mean weakening the brand.



Mitchell sums up the problem of building on the airline’s success: ’New

ventures need brand fit. They need to fit with the existing perceptions

and the future orientation of the airline business. If they move into

secondary areas which are not true to the brand values, they will start

to dilute the brand. They have to ask what a new product can do for the

brand. It’s no good having something which is just riding on the back of

the Virgin name.’



If this analysis is correct, and the brand has been misapplied, Branson

needs to start rationalising his empire.



Tom Blackett, deputy group chairman of Interbrand Newell and Sorrell,

says it is needed urgently. ’It is a sign of a creaking brand when

products fail to deliver, such as the trains, cola and vodka. Come the

millennium they have got to have products and services which are

delivering 100%. Otherwise the brand identity will start to slip,’ he

says.



He has little doubt about where to start. ’They should get out of

consumer products. They add nothing to the brand.’



Blackett also worries about the central presence of Branson to Virgin

the brand.



’At some point he has got to step back. There may well have been

attempts to get him to step back, but he’s irrepressible.’



There is no indication yet that Branson is becoming publicity shy but

maybe he should. In our survey, the majority of respondents says it

makes ’no difference’ to them if a Virgin product is personally endorsed

by Branson. Those that are influenced by him slightly outnumber those

that aren’t, but the main impression is one of indifference. McCallum

stresses Branson has continuing importance to the brand: ’If you ask the

man or woman on the street about Virgin, the recall of Richard Branson

is very high. I see him as an ambassador for the group.’



But there are signs of change, and of attempts to deal with the key

issues about the brand sprawl.



McCallum himself is evidence of this. To those who feel that Virgin is

not a group in the normal sense and has nothing which would be

recognised elsewhere as a strategy, his title of group strategy director

might come as a shock. It indicates a formalisation of this essentially

informal empire.



He used to work for the management consultancy McKinsey, and joined

Virgin’s staff at the start of the year after a spell managing the

launch of Virgin Direct banking service. His job, ultimately, is to

manage the Virgin brand, something which was previously the

responsibility of Branson. He acknowledges that his appointment reflects

a mood change, to bring greater discipline to Virgin’s services.



’It reflects a desire to be more systematic as to which businesses we

establish under the brand. We regard ourselves as a branded venture

capital house and venture capital means risk. You can’t take risks

without expecting some things not to work, but if you’re going to take

risks you need to make sure you have asked what the risks are and that

you are prepared to run them.’ He rejects any suggestion that the brand

has been stretched too far. But he does acknowledge the damage from

poorly-performing brands such as Virgin Trains.



’The brand is the single most important asset we have,’ he says. ’Our

ultimate objective is to establish it as a major global name. That means

we need to have a number of core businesses with global potential.’



Some observers in the City believe this means Branson will eventually

sell Virgin Trains to his new partner, Brian Souter of Stagecoach, but

as for the rest of the group McCallum sticks to the Virgin formula that

it will be all right on the night. In the long run, it seems inevitable

that there will be fewer Virgin businesses and a switch to the kind of

tight brand management not usually associated with a private empire.



Roger Cowe is a financial journalist with The Guardian



FINANCIAL TROUBLES AHEAD



As with many private groups, the true state of the Virgin businesses is

hard to divine. What is clear, however, is that there are only three

significant profit-earners in the empire, that there are serious risks

to each of them, and that other businesses require major investment over

the next few years.



The biggest financial success is Virgin Atlantic, with profits probably

exceeding pounds 50m a year at the moment. Virgin Our Price, the music

retailing network, under Branson’s control after WH Smith sold back its

75% share, made pounds 16m in its latest year. The much-maligned

railways generated pounds 12m.



But not all of this profit is converted into cash because of the

investment needs of these businesses. The rest of the empire is

cash-hungry, especially the new record company, V2, the prospective

health-club chain and the cinema network. The three profitable areas

need to keep churning out the cash. However, in a recession, airlines

are often the first to feel the squeeze.



There is a different problem in the railways. Recession or not, it will

be an uphill climb to keep the cash flowing, and the hill turns into a

mountain when the government’s subsidy runs out in 2002. Then Virgin

Trains has to start paying the government and the sums rise steeply,

adding up to more than pounds 1bn by the time the franchise period ends

in 2012. When Railtrack upgrades the track to enable the new fast

service to operate, it will also charge higher access fees.



These are the current financial threats. They could grow over the next

few years as financial needs expand - including the need to refinance,

float or buy out partners in several businesses.



McCallum is relaxed about these threats. He says the use of partners,

including venture capitalists, provides great flexibility, and adds that

Branson is no longer opposed to flotation if that makes sense for a

business.



He also stresses that each business is financially ’ring-fenced’ - that

lenders to one company have no rights over another even if that company

goes bust.



That is fine in theory, but in practice a collapse of one Virgin

business would raise the risk perception for the whole group so far as

financiers are concerned.



WOULD YOU BUY VIRGIN? EXCLUSIVE RESEARCH

Do you think there are too many products carrying the Virgin name?

              Yes           No   Don’t Know

Male          21%          71%           8%

Female        20%          68%          12%

15-24         15%          82%           2%

35-44         20%          76%           3%

Are you more or less likely to buy a product if it carries the Virgin name?

             More         Less           No

           Likely       Likely   Difference

Male          19%          11%          70%

Female        17%          10%          73%

15-24         20%          14%          66%

35-44         15%          11%          74%

Are you more or less likely to buy a product if it has been personally

endorsed by Richard Branson?

             More         Less           No

           Likely       Likely   Difference

Male          19%          13%          68%

Female        13%          12%          75%

15-24         13%          17%          75%

35-44         15%           9%          76%

Would you definitely buy or not buy Virgin clothing?

       Definitely   Definitely        Don’t

              Buy          Not         Know

Male          26%          55%          19%

Female        28%          49%          23%

15-24         25%          60%          15%

35-44         29%          46%          25%

Would you definitely buy or definitely not buy Virgin cosmetics?

       Definitely   Definitely        Don’t

              Buy          Not         Know

Male          10%          76%          14%

Female        26%          53%          22%

15-24         26%          58%          16%

35-44         15%          67%          18%

Would you definitely buy or not buy Virgin Atlantic airline tickets?

       Definitely   Definitely        Don’t

              Buy          Not         Know

Male          71%          18%          11%

Female        64%          22%          14%

15-24         75%          15%          10%

35-44         74%          13%          13%

Source: Audience Selection Phonebus. Respondents: 1010. Representative

sample.



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