Still Virgin?
SOUTH AFRICAN consumers swooned when Virgin founder Richard Branson simultaneously launched Virgin Mobile and Virgin Money, adding the two to his growing portfolio of local businesses. Virgin Active (a chain of health clubs), Virgin Cosmetics (a string of make-up outlets) and Virgin Airlines have enjoyed a hugely successful brand presence in the South African market – thanks in part to Branson's ingenuity. Styling himself as a consumer activist out to free customers from rapacious profiteers, he's succeeded in creating a formidable Virgin brand.
Little wonder that Branson's promises to break SA's high tele-coms tariff structures, end the controversial contract lock-ins and undercut the Big Four banks – Standard Bank, Absa, FNB and Nedbank – on service fees struck a chord among the vast majority of disgruntled local consumers.
Yet two years after launching in SA, industry observers say the introduction of both Virgin Mobile, a joint venture with cellular group Cell C, and Virgin Money, launched in partnership with banking group Absa, has failed to make a significant impact on SA's telecoms and banking cost structures.
However, it's in telecoms that Virgin has particularly disappointed. Rudolph Muller, consumer activist and telecoms commentator, says: "One would have expected Virgin Mobile's launch to spark a price war that could have perhaps induced drastic tariff cuts. But that's not been the case. In fact, both Vodacom and MTN hardly ever respond to Virgin's promotions."
Yet Virgin Mobile's failure in the SA market is in stark contrast to its success in Britain, a market in which it's successfully replicated the mobile virtual network model with resounding success. In Britain it piggy backs on T-Mobile's network and has close to 6m subscribers. In a similar deal in the US, it uses Sprint Nextel's infrastructure and has managed to attract around 5m subscribers.
Thebe Ikalafeng, CE of brand leadership, says of Virgin Mobile's perceived failure to replicate its overseas successes in the SA market: "Make no mistake, Virgin is an irreverent brand that's successfully been positioned to fight the establishment. And that's worked to maximum effect in many parts of the world."
However, in the SA context Ikalafeng says its consumer activist role has been hijacked by Cell C, a development that in the main has only served to relegate Virgin Mobile to near obscurity.
Says Ikalafeng: "Cell C's positioning is that of an alternative service provider to Vodacom and MTN. An important point is that the distribution networks are so ingrained in favour of monopolists Vodacom and MTN. The market has equally been sewn up by incumbent operators."
To which Virgin Mobile CE Peter Boyd replies: "On the mobile side of the business, we're meeting our set internal growth targets."
Comparing Virgin's other successful businesses worldwide to its operations in SA is grossly unfair, says Boyd. "One wonders how our critics have reached the conclusion that we've failed to make inroads in the SA market because our parameter for success isn't the huge subscriber numbers bandied about by the competition but the quality of subscribers on our network."
Ikalafeng adds that the factor most critical to the failure of the Virgin brand in SA is its reluctance to deploy its own distribution infrastructure.
"You can't effectively challenge Vodacom when your partner (Cell C) uses a portion of Vodacom's network for distribution purposes. The same applies to Virgin Money, which uses Absa's distribution channel."
According to Ikalafeng, Virgin Cosmetics is an obscure brand with minimal market presence compared to ingrained brands in the retail apparel sector.
However Andy Rice, CE of Yellow Wood Brand Architects, says judging the Virgin brand as a complete flop in SA would be a tad harsh, as Virgin Mobile had barely clocked two years in the local cellular market. Says Rice: "Considering that the incumbent operators have been in the industry for more than 10 years, it would be premature to make a call on the company failing.
"As for Virgin Money, information at our disposal suggests the market's response has been fairly good. But whether other banks have responded to Virgin's offering by slashing their rates is a different argument altogether."
Although Rice says Virgin Active has been a resounding success, it could well be argued that the fitness health chain owes much of its success to little opposition.
Although confident that Virgin's cellular business would withstand the challenges, Jeremy Sampson, CE of Interbrand Sampson, says the launch of Virgin Money was ill timed.
"With the successive rise in interest rates you can't be lending out money in such volatile conditions. Consumers have overextended themselves to debt in unimaginable proportions."
To increase its brand visibility, Sampson says Virgin would have to substantially increase its advertising budget.
Perhaps Virgin would do well to rate its brand presence in the market against how much its competition spends on enhancing their brand reputations.
Finweek
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