Richard Branson: How the big boys hate an upstart with fresh ideas

What routinely fools a Goliath is when, instead of going after their market share, someone goes out to create a whole new niche market right under their imperious noses. They are well-practised in defending their turf against unimaginative interlopers. This is usually achieved with such no-brainers as deep discounting, leveraging their distribution clout, or simple bully tactics. But when someone arrives on the scene with a hybrid product that they cannot pigeonhole, it can cause massive confusion in the enemy's ranks.

When all else is equal, then the big guys will usually find a way to out-muscle any pesky upstart, so that is why the newcomer has to make sure that the playing field is anything but level. In fact, you don't even want to step on to their playing field – it confuses them even more when you sprint up and down the sidelines while they get bogged down in the middle. You always know it's working when they cry "Foul!"

So, what do you do with someone who is suddenly pitching value for money and great customer service? Undercutting an intruder's prices alone doesn't work when price is just one of many weapons in their innovative arsenal.

Virgin Atlantic arrived with a product that was every bit as good as, if not better than, our giant competitors' First-Class product, and streets ahead of their distinctly mediocre business classes. The real trick was branding it as "Upper Class", a move that made most fliers assume it to be our First Class.

In terms of service quality it was, but by designating it as Business Class and pricing it accordingly, business fliers whose corporate travel policies permitted Business but not First Class almost saw our Upper Class as cheating the system. We drove the spike in even harder by building in complimentary limos in Upper Class, a feature that the competition didn't even offer to their First-Class passengers.

We learned what customers wanted, and greatly improved the economy experience as well – with a greater choice of meals, electronic headsets, and – the biggest innovation of all – seatback TV screens in every seat on the plane. Our big-dog competitors thought we were insane (and maybe we were!) and, with every added feature, they became even more convinced that we couldn't possibly sustain our market presence.

What the big airlines failed to recognise was that airline passengers at the time were sick of paying through the nose for lacklustre service that had been getting worse for years. The airlines were in that most dangerous of states where they believed that so long as they are no worse than the competition then they were doing just fine. All it takes for this status quo of mediocrity to be shaken up is for one outsider to step into the ring and start punching above its weight.

Sir Richard Branson is the founder of Virgin Group and president of Virgin Atlantic. A version of this column appeared on his blog at virgin.com/richard-branson. His book 'The Virgin Way' is out on Tues (Virgin Books, £20)