Marketing and Strategic Analysis of Virgin Active

1. Introduction

The UK has had an overwhelming increase in the leisure industry market involving gymnasiums. This report will include a strategic review of Virgin Active and also evaluate the challenges and opportunities faced by Virgin Active. The topics, included in this report will be: description of the organisation, comprehensive strategic analysis (detailed analysis of internal scan, environmental scan and core competencies), a SWOT analysis of Virgin Active and challenges faced by the organisation. Furthermore, alternative strategic options and managing change will also be discussed.

Strategic management is important for all organisations, with out regards to their size or position in the market. The definition strategic management has not been agreed, however, the outcome of defining strategic management is similar. Armstrong (2002, p. 38) suggests strategic management is, “that managers are looking ahead at what they need to achieve in the middle or relatively distant future”. Also, Constable (1980) suggests strategic management as “the management process and decisions that determine the long-term structure and activities of the organization” (Thompson, 1993, p. 6).

Both definitions focus on the importance of decisions to be taken for the future, by managers, so that the organisation is sustainable. This report will analyse the effectiveness of Virgin Actives strategies and also, strategies they can initiate.

2. Virgin Active

2.1 The Business

Virgin was founded by Sir Richard Branson in 1970 and is one of the most well known brands in Britain. Their portfolio is diverse and ranges across from market to market such as trains, soft drinks, publishing, cosmetics, holidays, mobile phones, extreme sports, music, space tourism and the finance industry. (Appendix 1) The organisation has over 200 companies globally, and has approximately 50,000 employees. The total for Virgin in 2008, exceeded £10 billion (Virgin, 2009)

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Sir Richard Branson (1990) was anxious to “build the best, state-of-the-art club on the market, providing genuine value for it customers, in first class surroundings”. Hence in 1999, Virgin opened their first gymnasium. Customers were attracted to the facilities and high level of customer service, and demand has grown steadily over the years. There is now 167 gyms and, approximately 900,000 members worldwide (Virgin Active, 2009).

Despite Virgin Active’s success, like all other organisations, they have competitors. Virgin Active’s main competitors are Living Well and Fitness First, who are also globally known and placed.

3. Strategic Analysis

3.1 Internal scan

The brand name Virgin, is a very valuable asset for Virgin Actives. Richard Branson (2002) said; ” In our customers’ eyes, Virgin stands for value for money, quality, innovation, fun and a sense of competitive challenge… We often move to areas where the customer has traditionally received a poor deal, and where the competition is complacent… We also look to deliver ‘old’ products and services in new ways”. The brand name Virgin is extremely well known throughout the UK. “A brand name is an indication of what to expect from a product – a quality statement of a value-for-money signal” (Hollensen, 2006). The most successful move Virgin Active have made so far, is the £20 million invested, for a major refurbishment and upgrade programme.

Despite these strengths, these can become weaknesses of the organisation.

Frequently companies can become overly convinced with their brand name, and start putting less attempts in developing the business. Thus, the organisation is under threat of not developing, or being able to sustain gloomy days in the future. The development in staff can also decline. Although £20 million was invested by Virgin, none of it was spent on employees. And so, a opportunity for Virgin is to invest more time and finances on staff training.

“Leaders in the UK often lack dedicated attention from their supervisors to help develop in a planned fashion through continuous learning, both from job experience and more formal training activities” (Addison, 2006, p380). It is important to have up-to-date staff development and training, as technology and the environment is constantly changing. If employees performance is weak, then the main priorities and strategies of the organisation become weak.

3.2 Environmental scan

External environment must be taken in to consideration, when developing a organisations strategies. The environmental analysis determines the organisations opportunities and threats. Thompson (1993, p. 246) said, “managers should always be attentive to changes and their decisions and actions should be both reactive and proactive as appropriate” (Appendix 2). Thompson is defining the significance of managers adapting to different strategies depending on the environmental changes. The social environmental issues in the gymnasium market, is always changing and plays a crucial rule on deciding strategies. Virgin Active have forecasted expectancy growth, so they have a special discount for elderly people (55 years old plus). “These grey consumers are relatively rich. The over-fifties own around three-quarters of the worlds financial assets and control half of the discretionary budget” (Hollenson 2006, p. 48). Yet, there is also many elderly who are financially restricted due to the increase in utility bills, and were unfortunate to have no savings. This is why Virgins strategy of decreasing prices for the elderly has been effective and also, as the elderly have started becoming more fit in this day and age, it has also had a positive outcome.

Additionally, the smoking ban in Britain, showed signs of a healthier Britain. Also, due to many campaigns and advertisements issuing obesity and illnesses, the majority of the public have become self aware of health issues. Due to Hollywood/Bollywood and the general media, people are also becoming self conscious about their appearance. The stereotypical students have also changed they’re appearance, from the well known drinking, junk food eating, smoking danger zones – to a more healthy-living lifestyle, recent surveys show. “About one in four students is now teetotal, says National Union of Student Services – and among the rest of the student population there is a growing appetite for exercise facilities and healthy eating” (Coughlan, 2006). Technology is ever changing, hence why Virgin Active spent £20 million to update their systems and keep up-to-date with modern technology. Taking these aspects into consideration is vital whiles planning strategies. According to the environment, changes in strategies should also be taken into consideration.

3.3 Purpose, objectives and strategy

When developing an organisations purpose, it should take into consideration why do they exist, whom will they serve and how its value will be increased. It is vital to consider the organisations future challenges and opportunities.

According to Lynch (2006,p. 340), there is three sections that help build the purpose of the organisation and should be examined at an early stage.

The purpose of a organisation: shaped by vision, leadership and ethics

Virgin Actives vision is to “promote wellness by bringing positive change in you’re life” (Virgin Active, 2008). This vision shows that it is going beyond its current climate, which is achieving sufficient revenue.

Leadership in an organisation is crucial as the directors choices and the social responsibilities policies influence the purpose they define. Virgin Active is run by an independent board and is mostly shareholder owned. The Executive Director, Mathew Bucknall, has combined industry experience and who also developed Virgin Active by overtaking Holmes Place, an established, popular gymnasium in the UK (Murray, 2006). This shows that the business is run by specialists who have great expertise in their field. Meaning, taking these elements in to account the objectives of the organisation is to expand their gyms by promoting health and wellness.

Virgin Actives mission statement (Appendix 3) , shows that their goal is to be known around the world as a “fun” unique gym, available to everyone, who is offered, regardless of age or body size. Also, their goal is to expand their business in Europe within in the next three years (Virgin Active, 2008) .

Also, without a capable strategy, Virgin would not have been able to become globally known (e.g. South Afica). Strategies used by Virgin Active in order to expand and also become available to all ages where:

By offering different memberships to customers with various needs, E.g. offering 2 month old babies to 15 year olds a class called Club-V.

Virgin Active recently invested £20 million throughout their clubs to up-date workout machines and for refurbishment.

They also took over Holmes Place, gaining all their current locations throughout Britain, tremendously helping their goals for expansion.

3.4 Core competencies

A core competency makes the company different from others. Hamel and Prahalad (1990) said, core competency has three issues; “it provides customer benefit, it is hard for competitors to imitate and it can be leveraged widely to many products and markets”. Virgin Actives core competency would be their brand name. As mentioned before, their brand name is what makes them stand out from other gymnasiums and is generally what customers would pay extra for. Virgin Actives competitors can not take away the well known reputation that the name Virgin holds, for example, respected and trustworthy. However, the smaller gym’s such as LA Fitness also have a selling unique selling point (core competency). LA Fitness are very well known for their as their personal trainers are highly qualified and highly skilled in getting the results the customer wants. This shows that all organisations have their unique selling point, which should be sustained by effective strategies.

4 SWOT Analysis

4.1 Strengths

Virgin Actives most crucial strength is there successful brand name and also their strong management skills. Every venture Virgin has taken part in, it prioritises its consumers needs and wants.

Virgin is an organisation that is market-driven. Market-driven organisations focus on the consumer’s concern throughout the company. “All departments recognize the importance of the customer to the success of the business” (Jobber 2004, pp. 8-8).

Virgin has an exceptional reputation throughout Britain. “A brand name is an indication of what to expect from a product – a quality statement of a value-for-money signal” (Hollensen Svend, 2006).

The managing director, Mathew Bucknall invested the £20 million for refurbishment and upgrades. This was a powerful strategy for Virgin’s present and future.

Virgin Active accommodate all ages by providing different memberships; with special classes for the elderly to special classes for children ‘Club V’ (Special child care fitness for children and entertainment) Allowing parents work out freely. Other gymnasiums do not offer this, including Fitness First’.

Due to the acquisition of Holmes Place, Virgin Active has gained central locations for its gyms, increasing the reputation and accessibility to the consumers.

4.2 Weaknesses

Virgin Active do not reduce their price and also sale volumes are limited as the gymnasiums can become overcrowded.

Virgin Active depend on the brand name, too much.

Fitness First and Living Well are two large competitors

The club has increased their fee, for a normal member, from £45 in 2005 to £61 in 2007. This is due to the refurbishment, however, no member was given a news letter. Members were given a small letter

Members are not informed in the correct method about changes, as fees increased from £45 to £61 from 2005 to 2007 (due to refurbishment) and members were given a small letter, not a sincere letter or a newsletter.

4.3 Opportunities

Although Virgin Active give discounts to the elderly, can take more advantage of the increasing “grey” population by having special classes, helping the elderly and making things easy for them.

Virgin Active’s current opening times are 6:00 am to 10:30 pm, Monday to Friday, but as many people find it hard to go to the gym in these times e.g. taxi drivers, bus drivers, restaurant workers, bar staff etc, the gym should have a couple of late night openings available for consumers that cant attend before 10:30pm.

4.4 Threats

The gymnasium may have to invest in new services, as with a rising life expectancy, the elderly that are members me not stay satisfied with the current service. A decrease in an active population is also a threat.

Fitness first, one of Virgin Actives competitors has given women a specialised section for weight training, this could become a threat in the long term as women may enjoy the privacy. “small percentage would pluck up the courage to enter the male dominated free-weights area” (Kiernainder, 2006).

5 Strategic Challenges

One weakness from the SWAT analysis affecting the way Virgin Active operates is its two main competitors, Fitness First and Living Well. These competitors can have a direct impact on Virgin Active, in many ways, such as both competitors have branches world wide. A issue that is confronting Virgin Active, is that of Fitness First. Fitness First has recognised that 54% of customers going to the gym are women, thus giving them more priority. The organisation have decided to give a free-weights section, dedicated just to woman. “small percentage would pluck up the courage to enter the male dominated free-weights area” (Kiernainder, 2006). Also, they have “health clubs run by women, for women” (Fitness First, 2008). This has proved to be a success, and Virgin Active should consider to implement afew changes, to make sure they are reaching their goal, of a business that evolves around the consumer. It is important that a organisation is doing the best it can, so that customers truly believe they have made a good choice by joining. Living Well is also a globally known gymnasium, but, they do not offer anything special except from one day free passes which Virgin Active and Fitness First do not offer. Fitness First offer a free day pass, but afterwards, the customer must pay for their memberships. Virgin Active does not offer neither. The membership for Fitness First and Living well are relatively cheaper than Virgin Active. Virgin Active do not invest in training staff, hence customers could leave, due to bad customer service.

See Appendix 4

6. Strategic options and choice

Virgin is a global brand. Meaning, Virgin Actives strategy should be based upon expanding the business and developing the numbers of members. This form of strategy option is defined as ‘the expansion option’. The model (See Appendix 5) identifies the essential characteristics of this strategy option. Strategies must remain sustainable, for Virgin to continue with its expansion. As mentioned before, their goal is to open more clubs in Europe, they are already globally operated and have also recently acquired Holmes Place. Yet, there is more strategies that Virgin can consider without major costs included. As the “grey” population is rising, the organisation can take advantage of this and provide special classes, made for the elder. This would make it less complicated, easier, and user friendly for the elderly. In addition, Virgin Active could start opening later hours a couple of days a week, as this would differentiate them from there competitors and increase customers as the very few gyms that are open till late, are reasonably busy. This would be a good strategy option for customers who currently cant make it to the gym, due to work. Another, relatively low cost strategy, would be to cater for woman. As Fitness First have already started a exclusive section for woman only, this would be a good choice to make Virgin Active diverse and would give them a unique selling point over most competitors. These are fairly low cost strategies that would bring more customers, meaning expanding the company.

7. Management of implications and uncertainty

Every business should implement their strategies, in other words put them into practise “The prime aim in implementing strategy is to deliver the mission and objectives of the organisation” (Lynch, 2006, p. 610). Taking uncertainty into account is important when undertaking strategies. Driskill and Goldstein (1986) defines uncertainty “as the perceived lack of information, knowledge, beliefs and feelings necessary for accomplishing organizational tasks” (Palenchar and Robert, 2007, p. 126). The uncertainty table (Appendix 6) defines the two types of uncertainty as fuzziness and ambiguity. Fuzziness is present when “definitive, sharp, clear or crisp distinctions are not made” ( Emblemsvag and Endre, 2002, p. 844). Ambiguity is present when there is a inconsistency in deciding among different alternatives or a couple or more alternatives have been left unspecified. Virgin Active has ambiguity uncertainty, because there is uncertain issues the might deal with, such as customers may want to start exercising outdoors rather than indoors or the more elderly may want to join the gym. Another threat could be, people becoming more ‘green’ or because of nowadays easy lifestyle people may become lazy or obese, having a knock on affect on memberships.

Managers maybe making the correct decisions, but staff who execute these strategies might not be doing it in the correct way. This could lead to deficiency. Managers must be ready and aware for changes that could take place, and should try utmost to apply correct strategies depending on the current issue taking place. An example of this could be, that there is no certainty that people will feel the same, as they could go towards being ‘green’. There are already fifty “Green Gyms operating in the UK” (Valle, 2007). Green Gyms are allowing people to exercise in the outdoors, without destroying the environment. Green Gyms are targeting people who want to make new friends, loose weight, and improve the environment. “Research shows that, because the activities they undertake are not repetitive and aimless like other types of physical training, Green Gym participants tend to become more active in their daily life” (ibid). To tackle this uncertainty, Virgin Active could have some outdoor classes, instead of indoor. The outdoor classes could be yoga or jogs in a remote park. And if it becomes popular, Virgin Active could advance more outdoor activities.

“The process of implementing a strategic change and doing it in such a way that it lasts, is evidence of the close relationship between an organisations personnel and any external specialists concerned”. (Sadler.1993)

Virgin Actives main purpose was to expand their club by promoting wellness.

Virgin Active have implemented their objective, which is open to everyone, without age or build being a problem. The strategies the club achieved were; The ‘Club-V’ for infants, discounted memberships for the elder, the acquisition of Holmes Place and spending £20 million for improvement to the gymnasiums.

The Virgin brand name, is definitely a asset to Virgin Active. Although the brand name is a strength, it can also become a weakness as some business’s become to proud of the brand name and forget to put effort into the organisation. There is also none indications of staff development. Invested my management, was £20 million but none of the finances were spent on staff.

Uncertainty can also impact on the strategies being planned. That’s why scenario planning were suggested so Virgin has an idea of issues which may occur in the future or impact current strategies. This is very useful as it produces problems and solutions.

For any business to be successful, it is vital that they are ready for change and that correct planning has taken place to ensure the success of which ever strategies are chosen.

8. Appendices

Appendix 1

1968

First issue of student magazine

1970

Start of Virgin Mail Order operation

1971

First Virgin record shop opens in Oxford Street, London

1972

First Virgin Recording Studio opens at ‘The Manor’ near Oxford

1973

Launch of Virgin Record Label. Virgin Music Publishing is established

1977

Virgin Records signs the Sex Pistols

1984

Virgin Atlantic Airways and Virgin Cargo are born

1985

Virgin Holidays is formed

1987

Virgin Records America is founded.

1988

Virgin Megastores opens new stores. Virgin Hotels launches.

1990

Virgin Megastores arrives in Japan

1991

Virgin Publishing (Virgin Books) is formed

1992

Virgin Records is sold to Thorn EMI

1993

Virgin Radio hits the airwaves with Virgin 1215AM

1994

Launch of Virgin Vodka and Virgin Cola

1995

Virgin Direct Personal Financial Services opens for business.

1996

V2 Music is created. Virgin.Net launches. Virgin Trains is launched.

1997

Virgin Radio is acquired by Chris Evans. Virgin Cosmetics launches

1999

Virgin Mobile launches Virgin’s first telecomms venture.

2000

V.shop, Virgin cars, Virgin Wines and Virgin Travelstore all launch

2001

Virgin Money brand is created. Virgin Experience launches

2002

Virgin Money introduces the Virgin Credit card. Virgin Mobile in the USA.

2003

V.Shops merges completely with Virgin Megastores

2004

Virgin announces the launch of Virgin Galactic – developing space tourism for everybody

2005

Virgin Mobile launches in Canada

2006

Two new businesses in South Africa – Mobile and Money

http://www.virgin.com/aboutvirgin/allaboutvirgin/thewholestory/default.asp

Appendix 2

Definition of reactive and proactive outcomes

Reactive outcomes. “The environmental analysis will highlight important strategic changes over which the organisation has no control but to which, if they happen, it will need to be able to react.”

Proactive outcomes. “The environmental analysis will identify positive opportunities or negative threats”. Then, the organisation will have to develop a proactive strategy to deal with the situation.

(Ref: Lynch, 2006, p. 79)

Appendix 3

Virgin Active mission statement:

“To challenge the norm, shake up the fitness industry, and restore average gym offerings with the revolutionary concept of a ‘life centre’.  Our huge all-encompassing facilities deliver innovative solutions for health and wellness, while providing excellent value for money. Accessible to everyone; young, old, big, small, Virgin Active is a place where individuals can uncover their personal potential – and have fun in the process!” (Virgin Active, 2008)

Appendix 4

1

Members who left due to bad customer service.

2

Members who left due to other reasons.

Appendix 5

Expansion method matrix

Company

Inside Outside

Internal development

Exporting

Overseas office

Overseas manufacture

Multinational operation

Global operation

Merger

Acquisition

Joint Venture

Alliances

Franchises

Merger

Acquisition

Joint venture

Alliances

Franchise

Turnkey

Licensing

Home

Country

Internati-onal

(Ref: Lynch, 2006, p. 467)

Appendix 6

Management of implications and uncertainty

Uncertainty

Fuzziness

The lack of definite or sharp distinctions

Vagueness

Cloudiness

Haziness

Unclearness

Indistinctiveness

Ambiguity

One-to-many relationships

Discord

Disagreement in choosing among several alternatives

Dissonance

Incongruity

Haziness

Conflict

No specificity

Two or more alternatives are left unspecified

Variety

Geniality

Diversity

Imprecision

(Ref: Klir and Yuan, 1995)