Can Virgin’s Reputation See off Higher Bidders?

08/12/2011 5:00 pm

Richard Branson has come out fighting in the battle for the West Coast Rail Franchise, backing Virgin’s corporate reputation for targeted investment and customer service against the deeper-pockets of his big spending rivals.

His approach shows the potential power of managing a positive reputation. Virgin clearly believes its goodwill can win the franchise at a lower price than that likely to be offered by other potential suitors such a Keolis,  (backed by France’s SNCF) Abelio (part of the Dutch national rail group), First Group and Stagecoach.

By putting the debate on the media agenda early, he clearly hopes to pile on the political pressure to accept a lower, but possibly more popular bid.

His case is helped by the previous failure of National Express, who outbid Virgin for the East Coast franchise only to hand it back two years later admitting it could no longer afford the payments agreed in the contract.

In contrast Virgin is perceived to have turned around the west coast service, which at the time Virgin took over was cursed with engineering problems.

The West Coast franchise debate follows hot on the heels of Virgin purchasing part of Northern Rock from the Government, another tarnished brand that it is clearly hoped will prosper from the Virgin touch.

The claimed saving on that deal was £400 million (the minimum loss to the taxpayer on the purchase).  The potential dividend to be earned from the West Coast franchise is £250 million (based on last year’s return of £17.8 million).

All of which begs the question, just how much is a reputation worth when managed as well as Virgin’s?