Virgin Mobile - Case Study
Problem Statement
Virgin Mobil is venturing into the US market and their launch date is July 2002. The company’s goal is to have one million total subscribers by the end of the first year and three million by year four. In order to achieve their goals, the company has to come up with a competitive pricing strategy to attract and retain customers in an already mature market.
Recommended course of action
Despite a mature US market, the cellular service industry has a market penetration of only about 15% in the segment comprising of users aged between 15 and 19 years. This segment is characterized by inconsistent cell phone usage, low credit ratings and usage pattern different from the typical businessperson. Hence, Virgin Mobile USA is looking to penetrate this segment and create brand loyalty through attractive pricing and additional feature in mobile entertainment. Based on our analysis, we recommend the following:
1. Aim for the non-contractual prepaid segment with a new pricing structure: Virgin Mobile USA should look to price at 20-30 cents per minute.
2. Increase the off peak hours: The company could extend the off-peak hours by 2 hours, starting at 7pm instead of 9pm.
3. Lowering of Acquisition Cost (AC): Virgin Mobile USA should keep its AC around $130 by passing on a part of the handset cost to the customers.
Rationale for Recommendation We can see from Exhibits 1 & 2 that if Virgin Mobile opted for a contractual service plan with rates at par with industry average the Customer Life Time Value (LTV) will be considerably high. However, the pricing will act as a big deterrent in attracting new customers. The national players might be quick in introducing features similar to the ‘Virgin Extras,’ further diluting the differentiating factor. This leads us to a second option where Virgin brings down the price slight below the industry standards especially in the bucket of 100-300 minutes. However, this still being a contractual service
Virgin Mobil is venturing into the US market and their launch date is July 2002. The company’s goal is to have one million total subscribers by the end of the first year and three million by year four. In order to achieve their goals, the company has to come up with a competitive pricing strategy to attract and retain customers in an already mature market.
Recommended course of action
Despite a mature US market, the cellular service industry has a market penetration of only about 15% in the segment comprising of users aged between 15 and 19 years. This segment is characterized by inconsistent cell phone usage, low credit ratings and usage pattern different from the typical businessperson. Hence, Virgin Mobile USA is looking to penetrate this segment and create brand loyalty through attractive pricing and additional feature in mobile entertainment. Based on our analysis, we recommend the following:
1. Aim for the non-contractual prepaid segment with a new pricing structure: Virgin Mobile USA should look to price at 20-30 cents per minute.
2. Increase the off peak hours: The company could extend the off-peak hours by 2 hours, starting at 7pm instead of 9pm.
3. Lowering of Acquisition Cost (AC): Virgin Mobile USA should keep its AC around $130 by passing on a part of the handset cost to the customers.
Rationale for Recommendation We can see from Exhibits 1 & 2 that if Virgin Mobile opted for a contractual service plan with rates at par with industry average the Customer Life Time Value (LTV) will be considerably high. However, the pricing will act as a big deterrent in attracting new customers. The national players might be quick in introducing features similar to the ‘Virgin Extras,’ further diluting the differentiating factor. This leads us to a second option where Virgin brings down the price slight below the industry standards especially in the bucket of 100-300 minutes. However, this still being a contractual service