Virgin Mobile

Introduction

Virgin Mobile USA is the brand name that the Virgin Group chose to enter the American cellular market as. The Virgin Group is a British branded venture capital conglomerate founded by Richard Branson and has its core businesses in the industries of travel, entertainment, and lifestyle. The philosophy of the Virgin brand is to challenge the status quo in every market it enters. In the successful Virgin Mobile ventures in other countries, the Virgin Mobile brandhas the reputation of a company that exploresinnovative methods of providing customers with quality service. Remaining true to its values of bringing change, Virgin Mobile is now preparing to enter the American cellular market. The goal is to succeed in thisnewmarket and the Virgin Mobile USA management team needs to devise a strategy that will make that happen.

Problem Identification

There are numerous variables to consider when launching a service in a new industry and market. In Virgin Mobile USA's case, however, the main variable and issue they must deal with ismaking a decision about their pricing strategy. In an American cellular market that is already saturated at 50% and considered mature, Virgin Mobile USA needs to identify their USP or competitive edge that can separate them from the competition. Virgin Mobile USA has already identified their target segment of consumers aged 15-29 and has made the decision to offer new and innovative youth oriented features and services. The challenge for Virgin Mobile USA is to find the right pricing structure that can attract and retain as many customers as possible and build brand equity in a saturated American cellular market.

Situation Analysis

The reputation of the Virgin brand in the marketplace is the major strength as it seen as a brand that is fun, makes a difference, innovative, has great customer service, and provides a great value for the money. Another strength that Virgin Mobile USA has is the fact that they, along with being one of the first companies in the United States to offer prepaid cellular service, are the first prepaid-only provider. Lastly, by offering innovative services unseen amongst their competitors is advantage that they can use to separate themselves from the rest of the pack.

On the flip side, Virgin Mobile USA's major weakness, when compared to their competitors, is their extremely small marketing budget. For example, Verizon Wireless spent $650 million in advertising in 2002 while Virgin Mobile USA's 2002 marketing budget was $60 million. Another major weakness is the fact that the US cellular market, at 50% penetration, is seen as mature, which could only mean an uphill struggle towards capturing a piece of the market.

Despite the weakness in Virgin Mobile USA's marketing budget and having to enter a market considered mature, they have a major opportunity among the segment they are targeting. The segment of consumers aged 15 to 29 has significantly less penetration and projections show that there is opportunity for high growth in this segment in the next five years. Virgin Mobile USA has the opportunity to create value and loyalty within their customer segment by offering imaginative and new services that appeal to their youth target market such as VirginXtrasthat the major carriers have either failed to or refused to acknowledge. Also, by entering the marketplace via retail channels that their segment are already shopping in such as Target, Best Buy, and music stores provides them with an opportunity to directly reach their segment without having to compete within the same channels as the major carriers.

A threat to Virgin Mobile USA's opportunity at success is the major carriers deciding to also target the same segment of consumers aged 15 to 29. If the major carriers were to begin operating even at a minor level to capture this segment, they would have a major advantage over Virgin Mobile USA because of their name brand recognition as well as their much larger budgets. Also, because they are a MVNO, they do not have their own network infrastructure and purchase minutes from Sprint on an as-used basis. If Sprint's network were to be clogged up with too many users (Sprint and/or Virgin Mobile USA) Sprint's customer would be given priority use on the network resulting in Virgin Mobile USA's services suffering and leading to a damaged relationship with their customers.

Alternative Courses of Action

There are a number of options that Virgin Mobile USA can take when approaching their pricing strategy and structure and they all have their own distinct advantages and disadvantages. The first would be to clone the industry prices. This provides the advantage of being easy to promote to consumers because they are already used to and educated about the pricing plans. A way that Virgin Mobile USA could differentiate themselves from their competitors would be to tell consumers that even though they are priced competitively with everyone else, they provide distinct advantages like youth focused applications and superior customer service. Also, they could offer better off peak hours and less hidden fees that would increase their value among consumers. The disadvantages, however, would be that Virgin Mobile USA would have to pay high commissions to sales people to explain their pricing, the pricing structure is complicated and hard for consumers to understand, and they would have to perform credit checks knowing that thirty percent of consumers will fail them.

A second option would be to price below the competition. Essentially, this is similar to the first option as far as advantages and disadvantages, but Virgin Mobile USA's prices would be slightly lower than the competitions. This basically would tell consumers that they simply have cheaper plans. Also, because the target market's usage is generally between one hundred and three hundred minutes per month, those users who fall within that range would get the best price because that is where Virgin Mobile USA could set their prices below the industry average.

A third option would be to offer a whole new plan. This would mean that Virgin Mobile USA would offer a completely different pricing structure and variables unseen among the competitors in the American cellular market. They would also eliminate contracts and exclusively offer prepaid plans that where consumers can "pay as you go." Additionally, Virgin Mobile USA would eliminate hidden fees such as taxes and service charges and present their prices as the only amounts that the customer should always expect to pay. There are risks, however, such as low usage customers, high churn rates, and low customer