Lenovo Virgin America case studies PDF

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PART 1: Defining Marketing and the Marketing Process (Chapters 1–2) PART 2: Understanding the Marketplace and Consumer Value (Chapters 3–6) PART 3: Designing a Customer Value–Driven Strategy and Mix (Chapters 7–17) PART 4: Extending Marketing (Chapters 18–20)

CHAPTER PREVIEW

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Consumer Markets and Buyer Behavior

You’ve studied how marketers obtain, analyze, and use information to develop customer insights and assess marketing programs. In this chapter, we take a closer look at the most important element of the marketplace—customers. The aim of marketing is to engage customers and affect how they think and act. To affect the whats, whens, and hows of buyer behavior, marketers must first understand the whys. In this chapter, we look at final consumer buying influences and processes. In the next chapter, we’ll study

the buyer behavior of business customers. You’ll see that understanding buyer behavior is an essential but very difficult task. To get a better sense of the importance of understanding consumer behavior, we begin by looking at Lenovo, the world’s largest personal computer vendor by unit sales. Before it acquired IBM’s computer business, you might never have heard of Lenovo. Yet few brands can match the avid enthusiasm and intense loyalty that Lenovo has generated in its customers. Its business model is thus built on customer satisfaction, innovation, and operational efficiency.

LENOVO: Understanding Customers and Building Profitable Relationships

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they feel about the products? What makes them tick? In order enovo was established in Beijing, China, in 1984 by 11 members of the Computer Technology Research to arrive at comprehensive answers to these questions, Lenovo’s Institute. Originally founded as Legend by Liu product design and engineering teams listen to their customers Chunzhi with a group of 10 engineers, the company through their social media channels, forums, blogs, and fan clubs decided to abandon the brand name in 2002 to expand interaround the world. nationally, and so its name was changed to Lenovo. In 2005, The company highly values the input of its customers the company acquired IBM’s personal computer business, and tracks it accordingly. For example, after Lenovo had inincluding the ThinkPad laptop and tablet lines. This acquisitroduced new variants of its Lenovo ThinkPad series in 2012 tion accelerated access to foreign markets and made Lenovo and 2013, customers complained on internet forums that the the third-largest computer maker two physical TrackPoint buttons worldwide by volume. In 2015, had been removed from the touchThe global success of Lenovo is rooted Lenovo was the world’s largest pad at the bottom of the keyboard. personal computer vendor by These buttons correspond to the in its deep and sound understanding unit sales and had operations left and right mouse buttons on a of customers and its ability to build in more than 60 countries, with conventional mouse and work as a profitable relationships. The business products sold in around 160 substitute to an external mouse or model is thus built on customer countries. touchpad. Always with an ear to satisfaction, innovation, and operational The global success of Lenovo the ground, Lenovo soon realized efficiency. is rooted in its deep and sound unthis issue and publically admitted derstanding of customers and its that they had made a big mistake. ability to build profitable relationships. The business model is Soon afterwards, they brought back the TrackPoint buttons. thus built on customer satisfaction, innovation, and operational Lenovo’s product development is always driven by deep efficiency. Lenovo’s marketers spend a great deal of time thinkcustomer understanding from around the globe. The company ing about customers and their buying behavior. They want to emphasizes on its websites that every time customers provide know who their customers are. What do they think? How do feedback in some form, they are actually and personally helping

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to influence the next wave of technology that it puts into the market. By listening and communicating constantly with their customers and taking into consideration their input when it comes to product development and improvement, Lenovo has been successful in building emotional relationships with their customers. They engage more directly with customers when they display traits such as honesty in admitting mistakes, as in case of the ThinkPad redesign. In this respect, Tracey Trachta, vice president of Brand Experience at Lenovo, states that the company aims to not just display its products on shelves, but through engagement to also enable people to understand what it is that makes Lenovo’s products different. Through the years, Lenovo’s emphasis on building emotional relationships with their customers has given them a more personal cast than a mere computer Lenovo listens and communicates constantly with their customers and takes their input manufacturer. into consideration, as for instance when customers complained about the removal of In addition to listening to their custom- the TrackPoint buttons from the ThinkPad. ers, Lenovo also filters and focuses their Elena Elisseeva/Shutterstock analytic efforts on better understanding the online behavior of site visitors. Concentrating on two of their were happening on blogs and third-party discussion forums, they spent a lot of time trying to understand the existing convermain user segments, purchasers and non-purchasers, Lenovo constantly aims to better understand their online buying behav- sations and participating in discussions. Lenovo then decided ior on the homepage and product pages specifically. Learning the that it wanted more ownership, even better customer understanding, and stronger leadership in the discussions about its differences between them enables Lenovo to develop and deliver the right message to the right users, ultimately converting non- products. Accordingly, Lenovo set up its own discussion forums purchasing users into purchasers. In order to achieve this objec- and actively asked customers to share their ideas, user experitive, Lenovo permanently visualizes the in-page behavior of each ence, and tips with Lenovo’s product, design, and development teams. By doing so, Lenovo was able to better connect with its customer segment via so-called heat maps, which provide deep customers and provide even better customer service. insights into users’ digital psychology. In all, Lenovo possesses a unique ability to achieve cusIn a recent study, Lenovo identified an interesting difference tomer satisfaction and engagement. The company has positively between purchasers and non-purchasers. One finding was that shaped and influenced customers’ perceptions of Lenovo’s purchasers were drawn to the main homepage banner and deals, brand personality by trying to listen to and understand them. whereas non-purchasers avoided the banner and were less foConsumers today—conditioned by mobile and powered by the cused on their search, favoring product images and videos over text. As non-purchasers dominate a significant percentage of the Internet—need brands that can interact with them in real time. Lenovo website user base, better understanding their customer Lenovo engages in a consistent, respectful, two-way dialogue with their target audience. As a result, various satisfaction experience was crucial towards improving it and increasing conversion rates. Drawing from the study, the company has used studies consistently place the company well ahead of its comgreater ratios of images and videos to text in order to guide those petitors in various satisfaction studies. Technology Business Research (TBR), for example, has declared Lenovo the best potential customers and engage with them to a greater extent. Understanding what’s most important to the customer is computer brand in its extensive Corporate IT Buying Behavior paramount for Lenovo because the company continuously fo- and Customer Satisfaction studies. Giving top marks in important categories of customer satisfaction and innovation, the cuses on exceeding customer expectations and creating customer delight. For example, when the company noticed that many of analysis found Lenovo’s customer service and cutting-edge features second to none.1 the discussions about PCs, tablets, and other electronic devices

CHAPTER 7 However, in 1996, eligibility was extended to enlisted personnel and is now extended to anyone who served and was honorably discharged from the military and their immediate family members.

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Discuss the factors used to evaluate the usefulness of the military segment. (AACSB: Communication; Reflective Thinking)

| Customer Value–Driven Marketing Strategy

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Using the chain ratio method described in Appendix 2: Marketing by the Numbers, estimate the market potential 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 relative newcomer. Owned by NBCUniversal, Sprout airs PBS Kids programming as well as additional acquired material. A true multiplatform network, Sprout can be accessed as regular cable programming, 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 preschool-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:

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Why does Sprout target preschool families rather than focusing solely on children? Give examples.

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Which target marketing strategy best describes Sprout’s efforts? Support your choice.

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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 out to unwind in one of her favorite third places. The mood lighting immediately brought her blood pressure down as she walked in and took a deep, relaxing breath. She was happy that her favorite spot was available—a comfy leather chair in the back corner of the room, where she used the touchscreen at the table in front of her to order her favorite drink. Then, putting on a set of noise-canceling headphones, Jessica began catching up on her favorite TV show with her own personal entertainment portal. If this sounds like a local Starbucks or trendy nightclub, think again. Jessica had just boarded a flight on Virgin America, one of the youngest airlines in the United States. It’s also the hottest airline, besting all competition in various industry and customer surveys. And after just six years in business, Virgin America also reached profitability faster than any other airline in all of airdom. How does a startup airline break into one of the most competitive 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.

Targeting the Right Customers Virgin America first took to the skies in 2007. This wouldn’t be the first shot at starting an airline for Richard Branson—founder of parent company Virgin Group. Virgin’s international airline, Virgin Atlantic, had been crossing the pond between the United States and Europe since 1984. But Virgin America would be an entirely independent enterprise. And while Branson and other Virgin Group executives make no day-to-day decisions at Virgin America, the unorthodox Virgin culture—fun, creative, even whacky—is unmistakable. One of Branson’s core values that permeates Virgin America is this: Take care of your people first and profits will follow. In

an industry characterized by customer complaints about service, it would seem that a customer-centric approach would be enough to gain a foothold in the market. But when Virgin started air service in the United States, at least a few other airlines had already established themselves based on a “customer first” mantra, including industry leader Southwest Airlines. And Virgin America knew that it could not expect to succeed by playing the low-price game. Not only was Southwest the reigning champion on value, but the bulk of airline competitors were already beating each other up for low-price dominance. Virgin America found a different competitive hook. It targeted a segment of frequent fliers who were young, savvy, influential, and willing to pay just a little bit more for an airline that would take care of them—the Silicon Valley faction. By providing exceptional service and amenities that appeal to this particular slice of airline customers, Virgin America has been able to charge slightly higher fares and still establish a growing base of fiercely loyal patrons.

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 experience was designed with its target customer in mind. Its fleet consists of 61 Airbus A300 series planes, each brand new when it went into service, minimizing the unexpected delays due to maintenance and repairs. Custom-designed leather seats are roomier and more comfortable than average coach seating. And that mood lighting? Not only does it bathe the aircraft cabin in an appealing purplish glow, it automatically adjusts to one of 12 different shades based on outside light. To appeal to tech gurus, Virgin America focused on equipping its planes with the latest hardware and software. From day one, Virgin was the only domestic carrier to offer fleetwide in-flight 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 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 order food and drinks for themselves or anyone else on board. It’s a system designed to give passengers a feeling of control during an experience that is otherwise mostly out of their control. Many of these ideas came by way of Virgin America’s techy clientele. It’s no accident that the company’s headquarters are located in Burlingame, California, just a few short miles from the San Francisco airport. In fact, Virgin America is the only airline based in Silicon Valley. Not only is the company constantly experimenting with every aspect of the business, it has made strong efforts to involve Silicon Valley entrepreneurs and executives in the process, helping Virgin to think like its disruptive clientele. “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 fliers 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 interactive promotional campaign. At the center of the campaign is a slick cinematic site that provides viewers with a virtual tour of a Virgin America flight. Demonstrating the airline’s 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 contributions 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 instrumental 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 image 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.

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 ratings that count. Virgin America is coming through with flying colors

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 highest score achieved by any U.S. airline in many years. Despite all of 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 its high rankings will be a challenge, 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 will also increase, 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 airline will provide much stronger competition on the West Coast, even with the largest airlines. This should be a boon for customers of each airline who have been frustrated by limited route options in the past. But with such a strong and unique positioning targeted toward 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 describes 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...