Hall_VIRGIN MOBILE Case Discussion
Content
VIRGIN MOBILE USA:
A Pricing Decision
Target Solutions Marketing Group
John Kimwele Shawn Correia Taiya Brandon Kelvin Brown Dale Hall
4/22/08
Issue
Pricing decision:
Entering a highly saturated cell phone service industry, while targeting an unsaturated market segment Attempting to earn a profit from a limited income market Target market is:
Young (15-29) Trendy Different than traditional cell phone users
Different spending habits Different usage Different needs Limited purchasing power ³According to marketing research, target market does not trust industry pricing plans.´ -Dan Schulman, CEO, Virgin Mobile USA
Objectives
Create value and profitability in cell phone service industry Target market ages 15-29, opportunity for growth with this market segment 1 million subscribers by year 1, 3 million by year 4 ³By focusing on the youth market from the ground up, we¶re putting ourselves in a position to serve these customers in a way they have never been served before´
-Dan Schulman, CEO, Virgin Mobile USA
U.S. M obile Phone M arket Penetration
US Market enetration
Agees 30-59
Ages 20-29
Ages 15-19
0
10
20
30 Percent (%) of Market
The market group consisting of people ages 15-19 is not a highly saturated market. To reach this age group, consumer needs must be understood.
40
50
60
Strengths
History of brand extensions, this is what Virgin does best Brand name that consumers perceive as value for money, quality, innovation and an aspiring degree of fun and competitive challenges. Current (MVNO) Business model reduces fixed costs and physical infrastructure, giving them more leverage to do what they are best at µUnderstanding and meeting customer needs¶ The identification of a niche segment by marketing research and observation of patterns in this segment are key developments for the company. Partnership with Kyocera is profitable in terms of the margins of the hand sets.
Reduces a channel in their distribution system
Options
Clone Industry Prices: contracts Set prices below competition: contracts A whole new plan: prepaid pricing
Clone Industry Prices
Pros
Cons
Give customers more features for the same price Easy to promote, use current models Limited spending power on promotion may be a justifiable factor Viable with Virgin Mobile¶s limited advertising budget
May drive margins down if additional features are costly Reduces competitive advantage Difficult to penetrate saturated market with similar offer as competitors Competitive with other cell phone providers and packages; does not support strong market differentiation
Price Below Competition
Pros
Cons
Drive sales and market share Accounts for limited spending power of target market
Margins and profitability will be driven down Inconsistent with company goal of profitability Cannot compete in price wars Not a long term solution
A Whole New Plan: Prepaid Pricing
Pros
Cons
Differentiate from competition Cater to the needs of target market Flexibility is attractive to target market Profitability is key Eliminates risk of missed payments
Risk of limited returns and loyalty Churn rate may increase
Recommendations: Prepaid Pricing
Cater to customer needs by understanding the spending power of target market and giving this market an opportunity Partnerships with MTV and Virgin Xtras are an excellent idea Profit-oriented pricing based on price per minute Can charge a premium price because freedom and flexibility will attract customers Maintain loyalty: Offer larger discount bundles and options for traditional long term contracts Rewards programs and gift cards will encourage more spending
Recommendations: Prepaid Pricing
Offer upgrades based on minutes purchased rather than contract length Go ahead with planned distribution in stores frequented by youth (Target, Best Buy) rather than company stores or exclusive electronics stores
Adoption of a different channel of distribution strategy is closely aligned to target market selection
A Pricing Decision
Target Solutions Marketing Group
John Kimwele Shawn Correia Taiya Brandon Kelvin Brown Dale Hall
4/22/08
Issue
Pricing decision:
Entering a highly saturated cell phone service industry, while targeting an unsaturated market segment Attempting to earn a profit from a limited income market Target market is:
Young (15-29) Trendy Different than traditional cell phone users
Different spending habits Different usage Different needs Limited purchasing power ³According to marketing research, target market does not trust industry pricing plans.´ -Dan Schulman, CEO, Virgin Mobile USA
Objectives
Create value and profitability in cell phone service industry Target market ages 15-29, opportunity for growth with this market segment 1 million subscribers by year 1, 3 million by year 4 ³By focusing on the youth market from the ground up, we¶re putting ourselves in a position to serve these customers in a way they have never been served before´
-Dan Schulman, CEO, Virgin Mobile USA
U.S. M obile Phone M arket Penetration
US Market enetration
Agees 30-59
Ages 20-29
Ages 15-19
0
10
20
30 Percent (%) of Market
The market group consisting of people ages 15-19 is not a highly saturated market. To reach this age group, consumer needs must be understood.
40
50
60
Strengths
History of brand extensions, this is what Virgin does best Brand name that consumers perceive as value for money, quality, innovation and an aspiring degree of fun and competitive challenges. Current (MVNO) Business model reduces fixed costs and physical infrastructure, giving them more leverage to do what they are best at µUnderstanding and meeting customer needs¶ The identification of a niche segment by marketing research and observation of patterns in this segment are key developments for the company. Partnership with Kyocera is profitable in terms of the margins of the hand sets.
Reduces a channel in their distribution system
Options
Clone Industry Prices: contracts Set prices below competition: contracts A whole new plan: prepaid pricing
Clone Industry Prices
Pros
Cons
Give customers more features for the same price Easy to promote, use current models Limited spending power on promotion may be a justifiable factor Viable with Virgin Mobile¶s limited advertising budget
May drive margins down if additional features are costly Reduces competitive advantage Difficult to penetrate saturated market with similar offer as competitors Competitive with other cell phone providers and packages; does not support strong market differentiation
Price Below Competition
Pros
Cons
Drive sales and market share Accounts for limited spending power of target market
Margins and profitability will be driven down Inconsistent with company goal of profitability Cannot compete in price wars Not a long term solution
A Whole New Plan: Prepaid Pricing
Pros
Cons
Differentiate from competition Cater to the needs of target market Flexibility is attractive to target market Profitability is key Eliminates risk of missed payments
Risk of limited returns and loyalty Churn rate may increase
Recommendations: Prepaid Pricing
Cater to customer needs by understanding the spending power of target market and giving this market an opportunity Partnerships with MTV and Virgin Xtras are an excellent idea Profit-oriented pricing based on price per minute Can charge a premium price because freedom and flexibility will attract customers Maintain loyalty: Offer larger discount bundles and options for traditional long term contracts Rewards programs and gift cards will encourage more spending
Recommendations: Prepaid Pricing
Offer upgrades based on minutes purchased rather than contract length Go ahead with planned distribution in stores frequented by youth (Target, Best Buy) rather than company stores or exclusive electronics stores
Adoption of a different channel of distribution strategy is closely aligned to target market selection
