CHapter 7 | Customer Value–Driven Marketing Strategy 239
However, in 1996, eligibility was extended to enlisted personnel 7-15 Using the chain ratio method described in Appendix 2:
and is now extended to anyone who served and was honorably Marketing by the Numbers, estimate the market po-
discharged from the military and their immediate family members. tential in the military (active duty and veterans) market.
7-14 Discuss the factors used to evaluate the usefulness Be sure to state any assumptions you make. (AACSB:
of the military segment. (AACSB: Communication; Communication; Use of IT; Analytical Reasoning)
Reflective Thinking)
Video Case Sprout
In the world of children’s television programming, Sprout is a rela- promotional efforts are geared toward parents as well as
tive newcomer. Owned by NBCUniversal, Sprout airs PBS Kids children.
programming as well as additional acquired material. A true multi- After viewing the video featuring Sprout, answer the following
platform network, Sprout can be accessed as regular cable pro- questions:
gramming, as on-demand programming through Comcast, and 7-16 Why does Sprout target preschool families rather than
online through Sproutonline.com. focusing solely on children? Give examples.
Sprout does not target only kids, however. It targets
preschool families—households that have one or more pre- 7-17 Which target marketing strategy best describes
school-age children. Parents need to be involved with their Sprout’s efforts? Support your choice.
children’s viewing of interactive content, multiple access 7-18 How does Sprout use differentiation and positioning to
points, and 24-hour programming. For this reason, Sprout’s 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
lighting 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
her favorite spot was available—a comfy leather chair in 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 knew 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 Southwest 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. each 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 fliers who were young, savvy, influential,
one of the youngest airlines in the United States. It’s also the and willing 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 profitability faster than any other airline slice of airline customers, Virgin America has been able to charge
in all of airdom. slightly higher fares and still establish a growing base of fiercely
How does a startup airline break into one of the most com- 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 fleet consists of 61 Airbus A300 series planes, each brand new
the first shot at starting an 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 America 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 make no day-to-day decisions at Virgin ferent shades based on outside light.
America, the unorthodox Virgin culture—fun, 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,
One of Branson’s core values that permeates Virgin America Virgin was the only domestic carrier to offer fleetwide in-flight
is this: Take care of your people first and profits will follow. In Wi-Fi—a distinction that it maintains to this day, even as it has
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part 3 Designing a Customer Value–Driven Strategy and Mix
stayed ahead of the competition by upgrading the network to there as well. In fact, Virgin America has been number one in the
ensure the fastest in-flight speeds available. Every seat has its annual Airline Quality Report—a survey that ranks airlines based
own power outlet, USB port, and 9-inch video touchscreen with on mishandled baggage, customer complaints, denied boardings,
a QWERTY keyboard/remote control. and on-time percent—for the past three years in a row. In a recent
That touchscreen provides access to the most advanced Consumer Reports survey for customer satisfaction in the airline,
entertainment and information system in U.S. skies. Virgin not only did Virgin America take top honors, it came away with the
America’s proprietary Red system allows each guest to choose highest score achieved by any U.S. airline in many years.
on-demand movies, TV programs, music, or video games. Red Despite all of Virgin America’s success, the airline industry
also allows patrons to track their flight on interactive Google is a tough place to survive and thrive. In the United States, just
Maps, engage in seat-to-seat chat with other customers, and or- four airlines control more than 80 percent of the market. Virgin
der food and drinks for themselves or anyone else on board. It’s America knows that maintaining its high rankings will be a chal-
a system designed to give passengers a feeling of control during lenge, especially as it expands into new markets—particularly
an experience that is otherwise mostly out of their control. markets with cold climates, a factor that increases the likelihood
Many of these ideas came by way of Virgin America’s techy of canceled or delayed flights. As the number of passengers
clientele. It’s no accident that the company’s headquarters are on flights increases, boarding and deplaning times will also in-
located in Burlingame, California, just a few short miles from crease, affecting multiple customer service metrics. And with
the San Francisco airport. In fact, Virgin America is the only air- Virgin’s techy and connected clientele, any slip-up is likely to be
line based in Silicon Valley. Not only is the company constantly texted, tweeted, or otherwise broadcast for all the world to see.
experimenting with every aspect of the business, it has made Playing the features and amenities game is also problematic.
strong efforts to involve Silicon Valley entrepreneurs and execu- Things that delight customers today become ho-hum tomorrow,
tives in the process, helping Virgin to think like its disruptive cli- especially when competitors are constantly trying to improve
entele. “We see ourselves as more of an incubator,” says Luanne their offerings as well.
Calvert, Virgin America’s chief marketing officer. To remain competitive as it moves into the future, Virgin
Take VX Next, for example—a group of 30 or so frequent fli- America recently announced that it has agreed to be acquired
ers who act as a brain trust for Virgin America, generating ideas by Alaska Airlines—another small West Coast–based airline
for the company at no charge. Among other winning ideas, this known for its high level of service and customer loyalty. With
group was instrumental in developing the company’s recent in- more than 1,200 daily flights and 280 aircraft, the combined air-
teractive promotional campaign. At the center of the campaign is line will provide much stronger competition on the West Coast,
a slick cinematic site that provides viewers with a virtual tour of even with the largest airlines. This should be a boon for custom-
a Virgin America flight. Demonstrating the airline’s in-flight perks ers of each airline who have been frustrated by limited route
are founders and CEOs of companies such as Pandora, Gilt, and options in the past.
Pitchfork. As part of the tour, visitors to the site discover that But with such a strong and unique positioning targeted to-
several of the passengers onboard are Virgin America frequent ward a specific segment of the industry, many are wondering
fliers and Silicon Valley celebrities who have made creative con- what effect the union of these two airlines will have on Virgin
tributions to the airline’s services with things such as curating America’s style and quality of service. After all, if “hip” best de-
in-flight music and menu items. scribes Virgin America’s style, Alaska Airlines is best described
Virgin America’s home-brewed tech panel was also instru- as “practical.” “My hope is that Alaska goes in with an open
mental in creating the company’s latest safety video. When the mind and that they learn some things,” says one travel industry
company started operations, it delighted customers with a safety analyst. “It’s not hip, it’s not sexy, but Alaska has a lot going
video like none other—an animated short featuring a techie nun for it.”
and a matador with his bull. Posted online as well, the video The deal is still subject to approval by regulators, and airline
racked up millions of views and cemented Virgin America’s im- mergers can take years to complete. But one thing is for sure.
age as a company that could find creative alternatives to just Alaska Airlines is not only acquiring an airline with a strong ser-
about anything, even a federally mandated reminder to wear vice record, it’s taking on an unusually profitable airline. Virgin
seatbelts. That image has carried over to Virgin America’s new America achieved an annual profit after just six years. Flying in
safety video—one created by a top Hollywood director and the face of skeptics, the brash young airline continued on its
world-class choreographers that features 10 So You Think You upward trajectory by posting strong increases in profits in each
Can Dance alums, two former Olympians, and one American Idol of the two years since. For the most recent year, Virgin America
finalist. Debuting in Times Square and getting plenty of coverage achieved $201 million in profit on $1.5 billion in revenues—139
from the press, the new safety video racked up 6 million views in percent higher profits than the year before and the highest ever
less than two weeks. for a young airline. 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
Above the Clouds past—wow every customer with exceptional service while giving
Although there is plenty of anecdotal evidence that Virgin America’s the tech community a little something extra? Or will that special
customers are thrilled with its service, it’s the industry quality rat- Virgin America brand personality slowly disappear in the shadow
ings that count. Virgin America is coming through with flying colors of older, more established Alaska Airlines brand?
CHapter 7 | Customer Value–Driven Marketing Strategy 241
Questions for Discussion Sources: Matt Krupnick, “Virgin America Fans Ask If Alaska Airlines
Takeover Will Mean Loss of Cool,” New York Times, April 11, 2016, www.
7-19 Using the full spectrum of segmentation variables, de- nytimes.com/2016/04/12/business/virgin-america-fansaskif-alaska -
scribe how Virgin America segments and targets the airlines-takeover-will-mean-loss-ofcool.html; Melanie Hanns, “Airline
market for airline services. Quality Rating: 2015,” Embry-Riddle Newsroom, April 4, 2016, www.news.
erau.edu/top-news/airline-quality-rating-report-reveal-top -carriers-
7-20 Which market targeting strategy is Virgin America fol-
2015; Lauren Schwartzberg, “Most Innovative Companies: 2015, Virgin
lowing? Justify your answer.
America,” Fast Company, March, 2015, pp. 135–137; Matt Richtel,
7-21 Write a positioning statement for Virgin America. “At Virgin America, a Fine Line between Pizazz and Profit,” New York
Times, September 8, 2013, p. BU1; Charisse Jones, “Virgin America
7-22 What are the potential issues for Virgin America follow-
Posts Record Profit for 2014,” USA Today, February 18, 2015, www.
ing the Alaska Airlines acquisition? Will Virgin America usatoday.com/story/money/2015/02/18/virgin-america-posts-record -
continue to appeal to the same types of customers? profit/23608205/; and information from www.virginamerica.com/cms/
Why or why not? about-our-airline/corporate-facts.html and www.virginamerica.com/cms/
news/virgin-america-merger-with-alaska-airlines, accessed June 2016.
MyLab Marketing
Go to mymktlab.com for the following Assisted-graded writing questions:
7-23 Describe how marketers segment international markets. What is intermarket
segmentation?
7-24 Describe how marketers manage service differentiation, other than through
pricing, and describe an example of a service provider that has successfully
differentiated its offering from competitors.
