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CASE EXAMPLE

The Virgin Group

Aidan McQuade

The Virgin Group is one of the UKs largest

private companies. The group included, in 2006,
63 businesses as diverse as airlines, health clubs,
music stores and trains. The group included
Virgin Galactic, which promised to take paying
passengers into sub-orbital space.
The personal image and personality of the founder,
Richard Branson, were highly bound up with those
of the company. Bransons taste for publicity has led
him to stunts as diverse as appearing as a cockney
street trader in the US comedy Friends, to attempting
a non-stop balloon flight around the world. This
has certainly contributed to the definition and
recognisability of the brand. Research has showed
that the Virgin name was associated with words
such as fun, innovative, daring and successful.
In 2006 Branson announced plans to invest $3bn
(A2.4bn; 1.7bn) in renewable energy. Virgin, through
its partnership with a cable company NTL, also
undertook an expansion into media challenging
publicly the way NewsCorp operated in the UK and
the effects on British democracy. The nature and
scale of both these initiatives suggests that Bransons
taste for his brand of business remains undimmed.

Origins and activities

Virgin was founded in 1970 as a mail order record
business and developed as a private company in
music publishing and retailing. In 1986 the company
was floated on the stock exchange with a turnover of
250m (A362.5m). However, Branson became tired
of the public listing obligations: he resented making
presentations in the City to people whom, he believed,
did not understand the business. The pressure to
create short-term profit, especially as the share price
began to fall, was the final straw: Branson decided to
take the business back into private ownership and the

Photo: Steve Bell/Rex Features

Introduction

shares were bought back at the original offer price.

The name Virgin was chosen to represent the idea
of the company being a virgin in every business it
entered. Branson has said that: The brand is the
single most important asset that we have; our ultimate
objective is to establish it as a major global name.
This does not mean that Virgin underestimates the
importance of understanding the businesses that it is
branding. Referring to his intent to set up a green
energy company producing ethanol and cellulosic
ethanol fuels in competition with the oil industry, he
said, Were a slightly unusual company in that we go
into industries we know nothing about and immerse
ourselves.
Virgins expansion had often been through joint
ventures whereby Virgin provided the brand and its
partner provided the majority of capital. For example,
the Virgin Groups move into clothing and cosmetics
required an initial outlay of only 1,000, whilst its
partner, Victory Corporation, invested 20m. With
Virgin Mobile, Virgin built a business by forming
partnerships with existing wireless operators to sell
services under the Virgin brand name. The carriers
competences lay in network management. Virgin
set out to differentiate itself by offering innovative

This case was updated and revised by Aidan McQuade, University of Strathclyde Graduate School of Business, based upon
work by Urmilla Lawson.

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CHAPTER 7

STRATEGIC DIRECTIONS AND CORPORATE-LEVEL STRATEGY

services. Although it did not operate its own network,

Virgin won an award for the best wireless operator
in the UK.
Virgin Fuels appears to be somewhat different in
that Virgin is putting up the capital and using the
Virgin brand to attract attention to the issues and
possibilities that the technology offers.
In 2005 Virgin announced the establishment of a
quadruple play media company providing television,
broadband, fixed-line and mobile communications
through the merger of Bransons UK mobile interests
with the UKs two cable companies. This Virgin
company would have 9 million direct customers,
1.5 million more than BSkyB, and so have the
financial capacity to compete with BSkyB for premium
content such as sports and movies.1 Virgin tried to
expand this business further by making an offer for
ITV. This was rejected as undervaluing the company
and then undermined further with the purchase of an
18 per cent share of ITV by BSkyB. This prompted
Branson to call on regulators to force BSkyB to
reduce or dispose of its stake citing concerns that
BSkyB would have material influence over the
free-to-air broadcaster.2
Virgin has been described as a keiretsu
organisation a structure of loosely linked,
autonomous units run by self-managed teams
that use a common brand name. Branson argued
that, as he expanded, he would rather sacrifice
short-term profits for long-term growth of the
various businesses.
Some commentators have argued that Virgin had
become an endorsement brand that could not always
offer real expertise to the businesses with which it
was associated. However, Will Whitehorn, Director
of Corporate Affairs for Virgin, stated, At Virgin we
know what the brand means and when we put our
brand name on something we are making
a promise.
Branson saw Virgin adding value in three main
ways, aside from the brand. These were their public
relations and marketing skills; its experience with
greenfield start-ups; and Virgins understanding of
the opportunities presented by institutionalised
markets. Virgin saw an institutionalised market as
one dominated by few competitors, not giving good
value to customers because they had become
either inefficient or preoccupied with each other.
Virgin believed it did well when it identified such
complacency and offered more for less. The entry
into fuel and media industries certainly conforms
to the model of trying to shake up institutionalised
markets.

Corporate rationale
In 2006 Virgin still lacked the trappings of a typical
multinational. Branson described the Virgin Group
as a branded venture capital house.3 There was
no group as such; financial results were not
consolidated either for external examination or,
so Virgin claimed, for internal use. Its website
described Virgin as a family rather than a hierarchy.
Its financial operations were managed from Geneva.
In 2006 Branson explained the basis upon which
he considered opportunities: they have to be global in
scope, enhance the brand, be worth doing and have
an expectation of a reasonable return on investment.4
Each business was ring-fenced, so that lenders to
one company had no rights over the assets of
another. The ring-fencing seems also to relate not
just to provision of financial protection, but also to
a business ethics aspect. In an interview in 2006
Branson cricitised supermarkets for selling cheap
CDs. His criticism centred on the supermarkets use
of loss leading on CDs damaging music retailers
rather than fundamentally challenging the way music
retailers do business. Branson has made it a central
feature of Virgin that it shakes up institutionalised
markets by being innovative. Loss leading is not an
innovative approach.
Virgin has evolved from being almost wholly
comprised of private companies to a group where
some of the companies are publicly listed.

Virgin and Branson

Historically, the Virgin Group had been controlled
mainly by Branson and his trusted lieutenants, many
of whom had stayed with him for more than 20 years.
The increasing conformity between personal interest
and business initiatives could be discerned in the
establishment of Virgin Fuels. In discussing his efforts
to establish a green fuel company in competition
with the oil industry Branson made the geopolitical
observation that non-oil-based fuels could avoid
another Middle East war one day; Bransons
opposition to the Second Gulf War is well publicised.5
In some instances the relationship between personal
conviction and business interests is less clear
cut. Bransons comments on the threat to British
democracy posed by NewsCorps ownership of
such a large percentage of the British media could
be depicted as either genuine concern from a public
figure or sour grapes from a business rival just been
beaten out of purchasing ITV.
More recently Branson has been reported as
talking about withdrawing from the business which

THE VIRGIN GROUP

more or less ran itself now,6 and hoping that his son
Sam might become more of a Virgin figurehead.7
However, while he was publicly contemplating
this withdrawal from business, Branson was also
launching his initiatives in media and fuel. Perhaps
Bransons idea of early retirement is somewhat
more active than most.

Corporate performance
By 2006 Virgin had, with mixed results, taken on one
established industry after another in an effort to shake
up fat and complacent business sectors. It had
further set its sights on the British media sector and
the global oil industry.
Airlines clearly were an enthusiasm of Bransons.
According to Branson, Virgin Atlantic, which was
49 per cent owned by Singapore Airways, was a
company that he would not sell outright: There are
some businesses you preserve, which wouldnt ever
be sold, and thats one. Despite some analysts
worries that airline success could not be sustained
given the cyclical nature of the business, Branson
maintained a strong interest in the industry, and
included airline businesses such as Virgin Express
(European), Virgin Blue (Australia) and Virgin Nigeria in
the group. Bransons engagement with the search for
greener fuels and reducing global warming had not
led him to ground his fleets. but rather to prompt a
debate on measures to reduce carbon emissions
from aeroplanes.
At the beginning of the twenty-first century the
most public problem faced by Branson was Virgin
Trains, whose Cross Country and West Coast lines
were ranked 23rd and 24th out of 25 train-operating
franchises according to the Strategic Rail Authoritys
Review in 2000. By 2002 Virgin Trains was reporting
profits and paid its first premium to the British
government.

experience with any one of the product lines may

shun all the others. However, Virgin argues that its
brand research indicates that people who have had
a bad experience will blame that particular Virgin
company or product but will be willing to use other
Virgin products or services, due to the very diversity
of the brand. Such brand confidence helps explain
why Virgin should even contemplate such risky and
protracted turnaround challenges as its rail company.
Sarah Sands recounts that Bransons mother once
proudly boasted that her son would become Prime
Minster. Sands futher commented that she thought
his mother underestimated his ambition.10 With
Virgins entry into fuel and media and Bransons
declarations that he is taking on the oil corporations
and NewsCorp, Sands may ultimately prove to have
been precient in her comment.
Notes
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.

Sunday Telegraph, 4 December (2005).

Independent, 22 November (2006).
Hawkins (2001a, b).
PR Newswire Europe, 16 October (2006).
Fortune, 6 February (2006).
Independent on Sunday, 26 November (2006).
Ibid.
The Times 1998, quoted in Vignali (2001).
Wells (2000).
Independent on Sunday, 26 November (2006).

Sources: The Economist, Cross his heart, 5 October (2002); Virgin

on the ridiculous, 29 May (2003); Virgin Rail: tilting too far, 12 July
(2001). P. McCosker, Stretching the brand: a review of the Virgin
Group, European Case Clearing House, 2000. The Times, Virgin
push to open up US aviation market, 5 June (2002); Branson plans
$1bn US expansion, 30 April (2002). Observer, Branson eyes 31bn
float for Virgin Mobile, 18 January (2004). Strategic Direction, Virgin
Flies High with Brand Extensions, vol. 18, no. 10, (October 2002).
R. Hawkins, Executive of Virgin Group outlines corporate strategy
Knight Ridder/Tribune Business News, July 29 (2001a). R. Hawkins,
Branson in new dash for cash, Sunday Business, 29 July (2001b);
South China Morning Post, Virgin shapes kangaroo strategy aid
liberalisation talks between Hong Kong and Australia will determine
carriers game-plan, 28 June (2002). C. Vignali, Virgin Cola, British
Food Journal, vol. 103, no. 2 (2001), pp. 131139. M. Wells, Red
Baron, Forbes Magazine, vol. 166, no. 1, 7 March (2000).

The future
The beginning of the twenty-first century also saw
further expansion by Virgin, from airlines, spa finance
and mobile telecoms in Africa, into telecoms in
Europe, and into the USA. The public flotation of
individual businesses rather than the group as a
whole has become an intrinsic part of the juggling
of finances that underpins Virgins expansion.
Some commentators have identified a risk with
Virgins approach: The greatest threat [is] that . . .
Virgin brand . . . may become associated with failure.8
This point was emphasised by a commentator9 who
noted that a customer who has a bad enough

Questions
1 What is the corporate rationale of Virgin as a
group of companies?
2 Are there any relationships of a strategic nature
between businesses within the Virgin portfolio?
3 How does the Virgin Group, as a corporate
parent, add value to its businesses?
4 What were the main issues facing the Virgin
Group at the end of the case and how should
they be tackled?

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