Virgin Mobile Case Analysis
The company has concerns about entering into he over saturated and competitive US cellular market but has decided to pursue entry anyways. In the US, Virgin Mobile has entered into a joint venture with Sprint and has agreed to pay them on an as-used basis. In order to be successful Virgin Mobile has decided to target the younger consumer market from age 15 to 29, which has not been penetrated by any other cellular provider and Is expected to have positive growth In the future.
1. Problem Virgin Mobile is facing a problem with the structure they are going to use for pricing, which is the most crucial part in successfully launching their brand within the mobile arrest. Through consumer research, Virgin has found that their young target audience Is extremely price sensitive, bitter toward hidden charges and fees, their usage varies greatly per month and they desire mobile entertainment. The only thing now is that Virgin must differentiate itself by its pricing strategy in order to obtain consumers and loyalty from younger customers.
Virgin Mobile is considering three different pricing strategies: cloning the industry prices, pricing below the competition, or creating an entirely new plan. 1. 4 Alternative Solutions We are presented with three possible pricing options. Option one (Exalt B) consist of completely cloning the mobile industry as it currently exists. With an advertising budget at $60 million, it can be assumed that the target one million consumers are at out of reach In comparison to the industry spending on advertisements.
Therefore, with a cloned pricing strategy, It Is assumed the Virgin will only acquire only half of its annual target. The life time value at a cost of $. 22 a minute is the highest of the three options with sticking with the target audience’s usage of approximately 200 a month. However, Virgin does not have great brand recognition or differentiation to et themselves apart from the competition using this option. The second option Is where Vulgar would set pricing slightly below competition.
This option Is slightly more attractive than option one and thus might result in approximately 700,000 consumers in the first year. Using this option would also result in a high life time value (Exhibit C), however, Virgin would also face the same challenges as with option one. In addition, competition might react to the lower pricing causing increasing difficulty for Virgin to enter the market. 2. Findings 2. 1 Recommendation My recommendation Is Tort Vulgar Module to pursue Upton tender (Context D) slung a pre-paid plan with its cellular services.
This pricing strategy is specifically attractive to the younger segment that they are trying to target, because they don’t have to enter into a long-term contract, they can buy minutes as they need them and there are no hidden fees. In addition, they will also get all the Virginity’s. Even though the Lifetime Value per customer is significantly lower using the pre-paid option, break even analysis shows that using the pre-paid option Virgin will begin to see profit in he seventh month of operations (Exhibit E). In order to target young customers it doesn’t make since to use contractual cellular plans.
The amount of young people that will purchase the pre-paid phones will be a lot higher than if they sold the phones with a contract, this will outweigh the higher LTV of contracts and generate more profit for Virgin Mobile. 2. 2 Action Plan In order for Virgin Mobile to successfully penetrate the cellular industry, it is crucial that they choose the right pricing strategy to attract the younger segment of 1 5 to 29 year olds. The two phones offered will be priced at $10 and $50 and sold at Target, Best Buy, Sam Goody, Circuit City, Media Play and Virgin Megastars.
The best strategy is using a pre-paid plan. Virgin Mobile should use the $60 million to advertise its prepaid phones on TV commercials on MAT and VHF, as well as, magazines that target the young market. It is extremely important that in the advertising message they clearly communicate that there are no hidden charges or fees, better off-peak hours, minutes can be purchased based on usage, there are several applications that will appeal to them sponsored by MAT. In order to differentiate themselves Virgin should also compare their much lower cost to other re-paid plans in the advertisements.