OPENING CASE CHAPTER 1 (The RISE OF LULULEMON) "In 1998, self-described snowboarder and surfer dude Chip Wilson took his first yoga class. The Vancouver native loved the exercises, but hated doing them in the cotton clothing that was standard yoga wear at the time. For Wilson, who had worked in the sportswear business and had a passion for technical athletic fabrics, wearing cotton clothes to do sweaty, stretchy, power yoga exercises seemed inappropriate. Thus the idea for Lululemon was born.Wilson's vision was to create high-quality, stylishly designed clothing for yoga and related sports activities using the very best technical fab-rics. He built a design team, but outsourced manufacturing to low-cost producers in South East Asia. Rather than selling clothing through existing" retailers, Wilson elected to open his own stores. The idea was to staff the stores with employees who were themselves passionate about exercise, and could act as ambas-sadors for healthy living through yoga and related sports such as running and cycling.The first store, opened in Vancouver, Canada, in 2000, quickly became a runaway success, and other stores followed. In 2007, the company went public, using the capital raised to accelerate its expansion plans. By late 2014, Lululemon had over 290 stores, mostly in North America, and sales in excess of $1.7 billion. Sales per square foot were estimated to be around $1,800more than four times that of an average specialty re-tailer. Lululemon's financial performance was stellar. Between 2007 and 2104, average return on invested capital-an important measure of profitability-was 31%, far outpacing that of other well-known specialty retailers, while earnings per share grew by a stagger-ing 3,183% (see Table 1.1). How did Lululemon achieve this? It started with a focus on an unmet consumer need: the latent desire among yoga enthusiasts for high-quality, stylish, technical athletic wear. Getting the product offering right was a central part of the company's strategy. An equally important part of the strategy was to stock a limited supply of an item. New colors and seasonal items, for example, get a 3- to 12-week lifecycle, which keeps the product offerings feeling fresh. The goal is to sell gear at full price, and to condition customers to buy it when they see it, rather than wait, because if they do it may soon be "out of stock." The company only allows product returns if the clothes have not been worn and still have the price tags attached. The scarcity strategy has worked. Lululemon never holds sales, and its clothing sells for a premium price. For example, its yoga pants are priced from $78 to $128 a pair, whereas low-priced competitors like Gap Inc.'s Athleta sell yoga pants on their websites for $25 to $50.To create the right in-store service, Lululemon hires employees who are passionate about fitness. Part of the hiring process involves taking prospective employees to a yoga or spin class. Some 70% of store managers are internal hires; most started on the sales floor and grew up in the culture. Store managers are given funds to repaint their stores, any color, twice a year. The interior design of each store is largely up to its manager. Each store is also given $2,700 a year for employees to contribute to a charity or local event of their own choosing. One store manager in Washington, D.C., used the funds to create, with regional community leaders, a global yoga event in 2010. The result, Salutation Nation, is now an annual event in which over 70 Lululemon stores host a free, all-level yoga practice at the same time.Employees are trained to eavesdrop on customers, who are called "guests." Clothes-folding tables are placed on the sales floor near the fitting rooms rather than in a back room so that employees can overhear complaints. Nearby, a large chalkboard lets cus-tomers write suggestions or complaints that are sent back to headquarters. This feedback is then incorporated into the product design process."

Opening Case Chapter 5 (Virgin America) "Virgin America is consistently rated as one of the top U.S. airlines. The 7-year-old airline serves 20 destinations out of its main hub in San Francisco. Virgin America is known for its leather seats, cocktail lounge-style lighting, onboard Wi-Fi, in-seat power outlets for electronics devices, full-service meals, and that most scarce of all assets in coach class, legroom! The airline has earned a host of awards since its launch in 2007, including being named the "Best U.S. Airline" in the Cond Nast TravelerReaders' Choice Awards every year from 2008-2014; and "Best Domestic Airline" in the Travel + Leisure World's Best Awards, both for the past 7 years. Furthermore, Consumer Reports named Virgin America the "Best U.S. Airline" in 2013 and 2014. Industry statistics support these accolades. In 2014, Virgin was #1 in on-time arrivals in the United States, with 83.5% of aircraft arriving on time. Virgin America" "also had the lowest level of denied boarding's (0.07 per 1,000 passengers), and mishandled baggage (0.87 per 1,000 passengers), and the fewest customer complaints (1.50 per 1,000 passengers). Virgin America is an offshoot of the Virgin Group, the enterprise started by British billionaire Richard Branson. Branson got his start in the music business with Virgin Records stores (established in 1971) and the Virgin Record record label (established in 1973). In 1984, he leveraged the Virgin brand to enter an entirely new industry, airlines, with Virgin Atlantic. Virgin Atlantic became a major competitor to British Airways on a number of long-haul routes out of London, winning market share through superior customer service, innovative touches for premium travelers, and competitive pricing. Branson has also licensed the right to use the Virgin brand name across a wide array of businesses, including Virgin Media (a major U.K. cable operator), Virgin Money (a U.K. financial services company), and Virgin Mobile (a wireless brand that exists in many countries). This strategy has made Virgin one of the most recognizable brands in the world. Interestingly, Branson makes money from royalty payments irrespective of whether companies licensing the Virgin brand are profitable or not. Branson himself describes the Virgin brand as representing, "innovation, quality, and a sense of fun." For all of its accolades and the power of the Virgin brand, Virgin America has had a hard time making money. One problem is that, as a small airline, Virgin only has a few flights a day on many routes and is unable to offer consumers the choice of multiple departure times, something that many travelers value. For example, on the popular route for tech workers between San Francisco and Austin, Texas, United offers six flights a day and Jet Blue offers two, compared with just one for Virgin America. Another serious problem is that providing all of the extra frills necessary to deliver a high-quality experience costs money. In its first 5 years of operation, Virgin America accumulated $440 million in losses before registering a small profit of $67 million on revenues of $1.4 billion in 2013. In 2014, Virgin America went public and managed to post a respectable $150 million in net profits on revenues of close to $1.5 billion. The company was helped by an improving economy, strong demand, and lower jet fuel costs. The key competitive issue the company faces is that it is a niche player in a much larger industry where low-cost carriers such as Southwest Airlines and Jet Blue are putting constant pressure on prices and crowding out routes with multiple flights daily. Virgin America does charge prices that are 10-20% above those of its no-frills rivals, but it cannot raise prices too far without losing customers and flying with empty seats, which is a recipe for failure in an industry where margins are slim. On the route between New York's Kennedy Airport and Los Angeles during late 2012, for example, Virgin passengers were paying an average of $305 a ticket compared to an industry average of $263. Virgin's passenger-load factor on that route was 96% of the industry average during the same period. Virgin CEO David Cush, however, is adamant that the airline "... won't get into a fare war. Our product is good; we've got good loyalty. People will be willing to pay $20 or $30 more." Is he correct? Only time will tell. History, however, is not on Virgin's side. Since airline deregulation in 1978, all but a handful of the roughly 250 new airlines have failed."

Respond to the following prompts:

1. Using Porter's generic business-level strategiesidentifythe business-level strategy of the following firms:
   1. Lululemon
   2. Virgin America
2. Provide a brief rationale for your choices.
3. Is Virgin America's position sustainable?
4. What specific recommendations would you make to ensure Virgin America's profitability?