Alan Mitchell: Is Branson about to burst the Virgin brand bubble?

Is the rot setting in at Virgin? Never mind Virgin trains, here’s a quiz for you. Which of the following brands are owned by Virgin? Virgin Music, Virgin Radio, Virgin Megastores, Virgin Express, Virgin Mobile, Virgin.net, Virgin One, Virgin Direct and Virgin Energy?

Not quite sure? You’d be forgiven because keeping track of which Virgin sub-brand is still a part of the Virgin empire is a full-time job nowadays. Just last week, for example, Royal Bank of Scotland took complete control of Virgin One (the current account/mortgage offering), while Lagardère Media acquired Virgin’s Megastores in France. A deal, by the way, which also gives Lagardère the right to put the Virgin brand name on its existing Extrapole stores, and on new stores it opens in France and other parts of Europe.

Returning to the list, Virgin Music is owned by EMI, Virgin Radio by Scottish Media Group (SMG) (in the UK), and Virgin Express by Virgin. Virgin Mobile is a 50/50 joint venture with Deutsche Telekom’s One 2 One; Virgin.net is jointly owned with NTL (and NTL tried to sell up last year); Virgin Direct (now Virgin Money) is half-owned by AMP; and Virgin Energy is 25 per cent owned by Virgin and 75 per cent owned by London Electricity.

Does it matter that, when buying something from Virgin, it’s not clear whether you’re buying it from Virgin itself, from a joint venture between Virgin and some other player, or from a different company altogether which pays Virgin a fee for using the brand as a veneer for its own operations?

Branson is betting the future of his brand on the answer to that question. He has decided that not only can the Virgin brand stretch across many different industries, it can also stretch across many different companies. In fact, he’s so confident in this belief that he’s enshrined it in a redefinition of Virgin’s business model. Virgin, he says, is now a “branded venture capital organisation which lends its brand to many different businesses.” Rather like McDonald’s, it is moving into the franchising business.

Of course, franchisees have to keep to core Virgin brand values such as quality, value for money, innovation, fun and “something that challenges the norm”. And like all franchising deals, if they fail to do so, Branson can revoke the licence.

But is Branson about to flout, once again, conventional marketing wisdom by stretching his brand further than any brand has been stretched before? Or has Branson misjudged the power and role of the Virgin brand?

There are three good reasons for scepticism.

The first is managerial. Companies find it hard enough to manage their own brands. How on earth will a collection of brand managers from companies as disparate as Lagardère Media, Royal Bank of Scotland, EMI and SMG collaborate to keep the Virgin brand in tune with changing consumer preferences, and in a coherent way?

Values such as innovation, fun and “norm challenging” are fine. But what happens if consumers start looking for other qualities from the Virgin brand, such as transparency? Is Virgin really in a position to corral its partners to adopt such a value? Having the “negative” right to withdraw a licence in the case of brand damage is not the same as having a “positive” ability to influence, or cajole, other companies to tow a common brand line.

That’s not the sort of problem that is likely to loom large today, but it could pack a huge punch tomorrow. Likewise the second problem. According to Branson, Virgin’s strong brand values mean that “the public just knows [the Virgin brand] represents more than airlines, megastores or financial services”. But as joint ventures and franchising deals proliferate, how soon before the public “just knows” something else: that actually, Virgin represents a lot less than airlines, megastores or financial services; that it is often little more than a slap-on mask to package other companies’ offerings?

But compared with problem number three, the first two are trivial. Branson likes to say that Virgin is seen by the public as “an idea, a philosophy, a way of doing things”. Yet, by adopting this new strategy, he’s signalling a fundamental change in philosophy.

The official line is that Virgin is creating new types of virtual business where companies sell competing brands even as they share the same distribution networks and production infrastructures.

By selling Virgin-branded services as well as their own, for example, Deutsche Telekom, Royal Bank of Scotland and London Electricity can grab a bigger share of the market than they could alone. “Two good brands together will invariably attract more custom than one good brand on its own,” argues Branson.

At the same time, the Virgin brand grows much further, much faster than it could alone. If you take Interbrand figures seriously, Virgin is now one of the top 50 global brands, even though, as far as turnover is concerned, it is a minnow compared with most in the top 50. “We’re punching well above our weight,” says Virgin director Will Whitehorn.

That is all very fine. But what about Virgin’s heritage as an upstart David challenging conservative industry Goliaths? How does touting its brand to these self-same Goliaths as a customer acquisition tool fit with that?

As long as Virgin’s ventures with such players shakes markets up in consumers’ favour – as, arguably, Virgin One has – then the Virgin magic may continue to stick. But some of these deals are beginning to smack of something else.

Consider Branson’s comment on the sale of Virgin’s French Megastores. “Music-retailing has not been flavour of the month around the world. We believe we can make more money out of putting [the cash] into mobile phones and one or two other industries.”

That doesn’t sound like shaking things up. It sounds like treating the Virgin brand – its relationship with consumers – as though it were like any asset: there to be traded. Perhaps even milked. And should a milking mind-set take root, the rot will be very hard to stop.