Virgin mobile case analysis

Considering the youth that Virgin Mobile is targeting, we conclude that the best strategic decision will be to establish a new plan that offers no contract requirements, lower than industry average minute prices, fixed minute rates with no additional or hidden fees, prepaid plans internet and text messaging included and subsidies of around 40 dollars per cellphone. This new plan is necessary to differentiate Virgin Mobile from its competitors and retain market share. By having the new venture with Kyocera where cellphones range between $60-$100, our subsidy will be $40. IPhones and other higher price phones will be available, but at a more expensive price than competitors. By designing a income statement pro-forma (see appendix for more detail), we are confident that the pricing strategy designed will be profitable for the company from the first year, as long as the 1 million subscribers is achieved.
This new marketing strategy is designed to appeal to the youth market while increasing their usage and creating brand loyalty with their customers. The key to this value proposition is the VirginExtras, namely the availability of text messaging, online real time billing, and their connection to the MTV networks. These features are important to attracting and retaining the youth market because it gives them the sense that the product is designed specifically for them with their needs and wants in mind. The customers will be able to control and customize their content so that the phone is not only useful but reflects their individual personalities. Text messaging and online billing will also give them the privacy from their parents that young consumers crave. Selling their products at stores that young shoppers frequent will add to this value proposition and make the ease of purchase an intriguing selling point. We would, however, suggest that Virgin Mobile not only offer the Kyocera phones as options, but would expand the availability to other phone models that are popular at the time. This will help to alleviate the stigma associated with prepaid phones by giving them the same options and appearance of more traditional subscriber plans.
This youth market, specifically ages 15 – 29, is the best option for Virgin mobile to target. This market is not fully tapped under the current marketing structure of the longstanding cell phone companies. According to P2 of the text and Exhibit 2, penetration of young generations are significantly lower than that of other countries and this penetration is predicted to continue growing for the next five years. This fact shows that we can have enough breadth of target population and can continue aiming at the same target for the future. Virgin Mobile strategy differs a lot from other larger cell phone carriers Their segmentation strategies involve targeting people with good credit that will use their phones often and consistently, deeming customers aged 15-29 as low-value subscribers. Carriers do this because they favor giving contracts only to people with good credit and since they make more money when customers overdraft their accounts, they also need people that will use their phones consistently. Cell phone carriers are vary similar in their pricing and service strategies so it is very difficult for a company to enter and gain customers by using the same approach. By targeting those that are “low-value” customers to other carriers and being transparent with eliminating hidden fees, Virgin Mobile has a strategy that can separate them from the rest and carve out a sizeable piece of market share.

In order to estimate the revenue, we are considering that each customer will purchase an average of 200 minutes per month per year at a minute price of 17.5 cents. The variable costs per phone include the customer-care cost (45% of revenues), the distributors commission of $30 and the mentioned subsidy of $40. Fixed costs include the advertisement cost of $60M and the initial sale commission paid per subscriber of $370 dollars per cellphone sale.