Virgin Mobile
Content
Given Virgin Mobile’s target market (14-24 year olds), how should it structure its pricing?
We believe Virgin Mobile has two options. The first option is the obvious for their target market and any new product entering a saturated market, the pricing should be low if not the cheapest product out in the market. That is it should follow a penetration strategy. The second pricing structure that would appeal to Virgin Mobile is pricing their product in the middle or average of the industry standard. The pros of the first option include capturing a great portion of the market share for price-sensitive customers, who want good value at lesser price. This pricing also goes well with Virgin’s target market, 14-24 year olds as they are dependent on their parents initially to pay their bills and don’t have that much to spend. However; they are the group who use their cell phones a lot and cannot survive without them. Thus; low cost penetration strategy with ‘bundle offers’ would be advantageous. While this pricing structure strategy would help gain consumers that value pricing when choosing their products, it can also work against Virgin Mobile. This pricing can create the image that the phones do not have as high of a quality if they are priced below the industry low. This structure would accomplish the goal of attaining a sizable amount of the market share, but it would not be as profitable as the second pricing structure strategy. The second pricing strategy looks to gain market share while earning a bigger profit. The pricing structure strategy would be to conduct research to find out what the industry is pricing and pricing their products in the middle of the two extreme pricing strategies offered. This pricing structure strategy would gain a great part of the market share for a couple of reasons. First, it would enhance the perception of quality in the minds of consumers as price does affect quality perceptions. This pricing structure will create the air about the product as being the new hip, cool product to have which the generation wants. It will enhance the brand image. Secondly; it will be more profitable for the company. The negative with this type of pricing is that it won’t gain as big of a portion of the market share as the first pricing strategy, but it would garner more profit. It could also pose the threat of being too expensive, if the industry range is higher. The case lays out three pricing options. Which option would you choose and why? In designing your pricing plan, be as specific as possible with respect to the various elements under considerations (e.g., contracts, the size of subsidies, hidden fees, average per-minute charges, etc.). Each one of the three different options provides a unique way Virgin Mobile USA can enter the market and gain a following. However, one option stands apart from the others and fits with what Virgin Mobile is trying to convey. That option is option three. Option three is titled “A Whole New Plan.” The idea behind it is starting afresh and coming up a different pricing structure that is different from everything out on the market now. This is the most radical and risky of the three options, but if executed correctly can proved to be profitable and the right choice.
Some specifics Dan Schulman discussed that would be incorporated into this option would be: no contracts, prepaid compared to post-paid, no hidden fees, and off-peak hours. Declaring Virgin Mobile would not have contracts is huge, but when considering their target market, it fits. When considering Virgin Mobile’s target market ranges from 14 to 24, it would guarantee the younger teens would be able to purchase their products. If they had contracts Virgin Mobile’s under 18 target market wouldn’t be able to sign the contracts, they would have to get a guardian or parent. Another fault with their younger target market is their bad credit. If Virgin Mobile eliminated contracts then they are creating that setting for more customers. Those customers would be a mixture of those that wouldn’t be credit approved at Virgin Mobile’s competitors. Prepaid vs. post-paid minutes is another important variable when considering option three. This detail takes into mind the different lifestyles of their target market. The consumers might be occasional users and this quality would be ideal for them. It also goes along with the group of consumers who do not have good credit. This group of consumers tends to purchase prepaid plans since they don’t require credit checks. When purchasing any item or service, you do not want to be deceived. This is the idea behind no hidden fees. Most of Virgin Mobile’s competition hits their customers with hidden fees which causes them to be unhappy and distrust the company and brand. Virgin Mobile’s solution is simple, eliminate all hidden fees. This will create the image of “what you see is what you get,” which will help attain more of the youth market and even some unhappy customers of their competitors. While eliminating hidden fees, Virgin Mobile also looked more closely at their off-peak hours. They decided to reexamine them. The company recognized that their target market doesn’t live the same lifestyle as an adult, so Virgin Mobile created the service which made sense to their target market. All these features that Virgin Mobile would incorporate into their “A Whole New Plan” set them apart from the competition. Option three provides Virgin Mobile with the ability to stick with the company’s value proposition of always being innovative and supplying the best products and services to consumers. How confident are you that the plan you have designed will be profitable? Provide evidence. I am very confident the plan I have designed will be profitable. I will not hide the fact it will be very hard at first, but that is expected with a highly saturated market. The evidence is in the stock reports. Virgin Mobile entered the New York Stock Exchange and showed moderate growth. Granted in today’s time, the stock market is a hard place to judge any business, but it provides enough evidence that Virgin Mobile is earning revenue or profit. According to Yahoo.com, Virgin Mobile, or VM (NYSE symbol), has a 25.40% quarterly revenue growth. This figure shows that the company is profitable that grows each quarter. This statistic is also telling due to the industry percentage, 19.20%. What concerns me is what the stock is being traded for. It is slowly declining; however, this is commonplace for many stocks. The real test will be time, whether or not this company can continue to be innovative enough to compete with the industry while continuing to earn a profit.
We believe Virgin Mobile has two options. The first option is the obvious for their target market and any new product entering a saturated market, the pricing should be low if not the cheapest product out in the market. That is it should follow a penetration strategy. The second pricing structure that would appeal to Virgin Mobile is pricing their product in the middle or average of the industry standard. The pros of the first option include capturing a great portion of the market share for price-sensitive customers, who want good value at lesser price. This pricing also goes well with Virgin’s target market, 14-24 year olds as they are dependent on their parents initially to pay their bills and don’t have that much to spend. However; they are the group who use their cell phones a lot and cannot survive without them. Thus; low cost penetration strategy with ‘bundle offers’ would be advantageous. While this pricing structure strategy would help gain consumers that value pricing when choosing their products, it can also work against Virgin Mobile. This pricing can create the image that the phones do not have as high of a quality if they are priced below the industry low. This structure would accomplish the goal of attaining a sizable amount of the market share, but it would not be as profitable as the second pricing structure strategy. The second pricing strategy looks to gain market share while earning a bigger profit. The pricing structure strategy would be to conduct research to find out what the industry is pricing and pricing their products in the middle of the two extreme pricing strategies offered. This pricing structure strategy would gain a great part of the market share for a couple of reasons. First, it would enhance the perception of quality in the minds of consumers as price does affect quality perceptions. This pricing structure will create the air about the product as being the new hip, cool product to have which the generation wants. It will enhance the brand image. Secondly; it will be more profitable for the company. The negative with this type of pricing is that it won’t gain as big of a portion of the market share as the first pricing strategy, but it would garner more profit. It could also pose the threat of being too expensive, if the industry range is higher. The case lays out three pricing options. Which option would you choose and why? In designing your pricing plan, be as specific as possible with respect to the various elements under considerations (e.g., contracts, the size of subsidies, hidden fees, average per-minute charges, etc.). Each one of the three different options provides a unique way Virgin Mobile USA can enter the market and gain a following. However, one option stands apart from the others and fits with what Virgin Mobile is trying to convey. That option is option three. Option three is titled “A Whole New Plan.” The idea behind it is starting afresh and coming up a different pricing structure that is different from everything out on the market now. This is the most radical and risky of the three options, but if executed correctly can proved to be profitable and the right choice.
Some specifics Dan Schulman discussed that would be incorporated into this option would be: no contracts, prepaid compared to post-paid, no hidden fees, and off-peak hours. Declaring Virgin Mobile would not have contracts is huge, but when considering their target market, it fits. When considering Virgin Mobile’s target market ranges from 14 to 24, it would guarantee the younger teens would be able to purchase their products. If they had contracts Virgin Mobile’s under 18 target market wouldn’t be able to sign the contracts, they would have to get a guardian or parent. Another fault with their younger target market is their bad credit. If Virgin Mobile eliminated contracts then they are creating that setting for more customers. Those customers would be a mixture of those that wouldn’t be credit approved at Virgin Mobile’s competitors. Prepaid vs. post-paid minutes is another important variable when considering option three. This detail takes into mind the different lifestyles of their target market. The consumers might be occasional users and this quality would be ideal for them. It also goes along with the group of consumers who do not have good credit. This group of consumers tends to purchase prepaid plans since they don’t require credit checks. When purchasing any item or service, you do not want to be deceived. This is the idea behind no hidden fees. Most of Virgin Mobile’s competition hits their customers with hidden fees which causes them to be unhappy and distrust the company and brand. Virgin Mobile’s solution is simple, eliminate all hidden fees. This will create the image of “what you see is what you get,” which will help attain more of the youth market and even some unhappy customers of their competitors. While eliminating hidden fees, Virgin Mobile also looked more closely at their off-peak hours. They decided to reexamine them. The company recognized that their target market doesn’t live the same lifestyle as an adult, so Virgin Mobile created the service which made sense to their target market. All these features that Virgin Mobile would incorporate into their “A Whole New Plan” set them apart from the competition. Option three provides Virgin Mobile with the ability to stick with the company’s value proposition of always being innovative and supplying the best products and services to consumers. How confident are you that the plan you have designed will be profitable? Provide evidence. I am very confident the plan I have designed will be profitable. I will not hide the fact it will be very hard at first, but that is expected with a highly saturated market. The evidence is in the stock reports. Virgin Mobile entered the New York Stock Exchange and showed moderate growth. Granted in today’s time, the stock market is a hard place to judge any business, but it provides enough evidence that Virgin Mobile is earning revenue or profit. According to Yahoo.com, Virgin Mobile, or VM (NYSE symbol), has a 25.40% quarterly revenue growth. This figure shows that the company is profitable that grows each quarter. This statistic is also telling due to the industry percentage, 19.20%. What concerns me is what the stock is being traded for. It is slowly declining; however, this is commonplace for many stocks. The real test will be time, whether or not this company can continue to be innovative enough to compete with the industry while continuing to earn a profit.
