Caldwell_Virgin Mobile Case Discussion
Content
Virgin Mobile USA
Amit Naik DeeJay Nelson Jong Oh Kim Randall Piatkowski Tim Caldwell
Virgin Mobile
• U.K. based company- led by Sir Richard Bronson
History of brand extension- 200 different corporate entities • Virgin Valuesfun, and a sense of competitive challenge.
Virgin stands for value for money, quality, innovation,
• Successful cellular operations in U.K.-
2.5 million customers in 3 years • Unsuccessful operations in Singapore (2001)-
Virgin hip and trendy positioning failed
Identifying A Niche
Virgin Mobile to target youth between ages 15-19. “They have specific needs that haven’t been met.” VirginXtras A value proposition that would appeal to the youth Includes text messaging, rescue ring, wake-up call, music messenger, etc. Handsets offered at retailers (Target and Best Buy). Kyocera phones include interchangeable faceplates with eye catching color nestled inside bright red clamshell-style Starter Packs. Starter Packs easily visible on large point-of-sale displays on retailer’s sales floor. Advertising A limited budget Advertising campaign to be quirky, offbeat, and completely different. “We need to stand out from the rest of the crowd”
Problem: The Pricing Decision
• Customers resent cell phone carriers because of hidden
fees • High charges for going over contracted minutes • Customers pick cheaper plan, but forget about going over on their minutes • Carriers do not info customer of hidden taxes, universal fees, etc. • Virgin’s target segment is savvy to these types of charges. • Pricing teams came up with three possible pricing strategies.
Problem: The Pricing Decision
Option 1: Clone the Industry Prices • Much of industry pricing went into sales commissions and performing credit checks. • Problems with this option • Could not differentiate between competition • 30% of targeted segment could not pass credit check Option 2: Price Below Competition • Adopt similar pricing structure as competition but priced slightly below. • Problems with this option: • Could not offer off peak hours • Could not eliminate hidden fees Option 3: “A Whole New Plan” • Contracts shortened or eliminated • Prepay rather than post-pay • Increase or decrease handset subsidies • Eliminate hidden fees and off peak hours • Problems with this option: • Prepaying customers have no loyalty • Contracts provide annuity stream • Make the handset cheaper vs. loyalty • Rolling all of hidden costs into pricing structure while maintaining competitive.
Possible Courses of Action
Option 1 “Clone the industry Prices”
Advantages
Easy to promote Differentiated applications (MTV) Superior customer service Better off-peak hours and fewer hidden fees The price is same with major competitors 30% of targeted segment could not pass credit check
Disadvantages
Option 2 “Price below the Competition”
Advantages
Actual prices slightly below those of the competition Would maintain the buckets and volume discounts Can tell consumers who use between 100 and 300 minutes per month that Virgin mobile is cheaper, plain and simple Kills the margin tremendously as we are leasing a line from other provider. Still may have problems with youth passing credit checks.
Disadvantage
Possible Courses of Action (cont)
Option 3 “ A Whole New Plan”
Advantages
Helps to lure target market as no contract so customer under the age of 18 can buy. Gives us chance to get more margin on VirginXtras service. Allows us to serve the most under served consumer base. Can lure temporary visitors to the country and those without valid SSN. Youths can maintain their privacy. Prepaid service gives them chance to adjust their usage as per their minatory conditions every month. Leverages positive lifetime value (LTV)
Disadvantages Add a risk of sky rocketing churn rate. Acquisition cost may not be recovered.
Recommendation
• Option 3 - A Plan Designed for Youth
• A radical idea is more likely to appeal to youth. • Long-term benefit of positive lifetime value (LTV)
may outweigh short-term cost of increased churn rate. • Product is introduced to new users.
Introductory Growth Stage Stage Maturity Stage Decline Stage
Dollars
Cell Phone s for youth
Time
Profit Maximization Strategy
• Targeting youth will allow Virgin Mobile to take advantage of positive
lifetime value (LTV) over time and increase volume as a means to increase profitability.
Value-Based Pricing
Elastic
Increase Volume
S
P D $
Q
Q
• This strategy is designed specifically to penetrate youth market. • Creates value by taking into consideration the needs of this market. • No contracts, prepaid, easy to understand
Amit Naik DeeJay Nelson Jong Oh Kim Randall Piatkowski Tim Caldwell
Virgin Mobile
• U.K. based company- led by Sir Richard Bronson
History of brand extension- 200 different corporate entities • Virgin Valuesfun, and a sense of competitive challenge.
Virgin stands for value for money, quality, innovation,
• Successful cellular operations in U.K.-
2.5 million customers in 3 years • Unsuccessful operations in Singapore (2001)-
Virgin hip and trendy positioning failed
Identifying A Niche
Virgin Mobile to target youth between ages 15-19. “They have specific needs that haven’t been met.” VirginXtras A value proposition that would appeal to the youth Includes text messaging, rescue ring, wake-up call, music messenger, etc. Handsets offered at retailers (Target and Best Buy). Kyocera phones include interchangeable faceplates with eye catching color nestled inside bright red clamshell-style Starter Packs. Starter Packs easily visible on large point-of-sale displays on retailer’s sales floor. Advertising A limited budget Advertising campaign to be quirky, offbeat, and completely different. “We need to stand out from the rest of the crowd”
Problem: The Pricing Decision
• Customers resent cell phone carriers because of hidden
fees • High charges for going over contracted minutes • Customers pick cheaper plan, but forget about going over on their minutes • Carriers do not info customer of hidden taxes, universal fees, etc. • Virgin’s target segment is savvy to these types of charges. • Pricing teams came up with three possible pricing strategies.
Problem: The Pricing Decision
Option 1: Clone the Industry Prices • Much of industry pricing went into sales commissions and performing credit checks. • Problems with this option • Could not differentiate between competition • 30% of targeted segment could not pass credit check Option 2: Price Below Competition • Adopt similar pricing structure as competition but priced slightly below. • Problems with this option: • Could not offer off peak hours • Could not eliminate hidden fees Option 3: “A Whole New Plan” • Contracts shortened or eliminated • Prepay rather than post-pay • Increase or decrease handset subsidies • Eliminate hidden fees and off peak hours • Problems with this option: • Prepaying customers have no loyalty • Contracts provide annuity stream • Make the handset cheaper vs. loyalty • Rolling all of hidden costs into pricing structure while maintaining competitive.
Possible Courses of Action
Option 1 “Clone the industry Prices”
Advantages
Easy to promote Differentiated applications (MTV) Superior customer service Better off-peak hours and fewer hidden fees The price is same with major competitors 30% of targeted segment could not pass credit check
Disadvantages
Option 2 “Price below the Competition”
Advantages
Actual prices slightly below those of the competition Would maintain the buckets and volume discounts Can tell consumers who use between 100 and 300 minutes per month that Virgin mobile is cheaper, plain and simple Kills the margin tremendously as we are leasing a line from other provider. Still may have problems with youth passing credit checks.
Disadvantage
Possible Courses of Action (cont)
Option 3 “ A Whole New Plan”
Advantages
Helps to lure target market as no contract so customer under the age of 18 can buy. Gives us chance to get more margin on VirginXtras service. Allows us to serve the most under served consumer base. Can lure temporary visitors to the country and those without valid SSN. Youths can maintain their privacy. Prepaid service gives them chance to adjust their usage as per their minatory conditions every month. Leverages positive lifetime value (LTV)
Disadvantages Add a risk of sky rocketing churn rate. Acquisition cost may not be recovered.
Recommendation
• Option 3 - A Plan Designed for Youth
• A radical idea is more likely to appeal to youth. • Long-term benefit of positive lifetime value (LTV)
may outweigh short-term cost of increased churn rate. • Product is introduced to new users.
Introductory Growth Stage Stage Maturity Stage Decline Stage
Dollars
Cell Phone s for youth
Time
Profit Maximization Strategy
• Targeting youth will allow Virgin Mobile to take advantage of positive
lifetime value (LTV) over time and increase volume as a means to increase profitability.
Value-Based Pricing
Elastic
Increase Volume
S
P D $
Q
Q
• This strategy is designed specifically to penetrate youth market. • Creates value by taking into consideration the needs of this market. • No contracts, prepaid, easy to understand
