Virgin

Virgin Mobile USA: Pricing for the Very First Time

Problem Statement.

To define a price strategy that allows Virgin to compete in the USA mobile communications industry. Virgin decided to target a niche (young people from 15 to 29 years old) and consequently the key factor of Virgin Mobile USA success is a price strategy which fulfill their needs and at the same time assure adequate earnings.

Situation Analysis.

пÑ"? Customers.

o The target of major national providers is businessmen. In fact the major national carries common behavior in order to be sure to cover the cost and to have a profit, due the relative high average cost to acquire a new customer (rough $370) and the net profit (rough $22 per month), is to target customers who are presumed to:

• have a high credit quality;

• do a large use of the mobile.

o Customers typically have a contractual agreement (from 1 to 2 years) with the providers; it is due the will of the providers to have a guaranteed annuity stream and to contrast the high churn trend of the market.

o Low usage customers and poor credit customers are hindered by the companies which operate in the market and provide very expensive price for prepaid arrangements.

o The consumers are not satisfied with the services offered in fact pricing plans are difficult to understand and it is a common practice for providers to charge hidden fees. This contributes to determine a high percentage of consumers who leave their providers (the average industry churn rate is of about 2% on a monthly base).

пÑ"? Competition.

In the USA mobile communication industry is constituted by:

o national carriers (Cingular, Verizon, VoiceStream, Alltel, Sprint, U.S. Cellular);

o affiliate providers (AT&T);

o regional providers.

пÑ"? Company.

Virgin Mobile USA owns Virgin Group, which is comprehensive of more than 200 companies. The group had developed a very strong brand which allows the group to be involved into a wide range of industrial sector (entertainment, travel, beverage, and beauty). The core of the Virgin policy is to reinterpret a sector by reducing the cost and raising the care of the customers, acting in a smart and innovating (unusual) way.

пÑ"? Context.

o The USA mobile communications market is mature, with an industry penetration close to 50%.

o The physical infrastructure to operate in the market represents a high cost for the carries.

o Companies usually directly provide a handset to their customers, with a cost ranged from $100 to $210 (this cost is considerate by the companies as part of the cost to acquire a new customer).

o The pricing plans presents in the market are based on:

• “buckets” (a fixed amount of minutes of conversation per month for a fixed monthly cost, plus an additional cost for the exceeding minutes, that are more expensive).

• On-peak/off-peaks period (please note that companies take a monetary advantage because customers cannot perfectly calibrate the periods with their exigencies).

o It is common for the carries in this industry to operate with hidden fees (taxes and services charge for about $6 per months).

o The common channel strategy in the industry is through salespersons who are in charge of:

• explain the different pricing structures (which are quite complicate and various);

• check customers credit quality.

Salespersons represent a high cost for carries.

o The advertising expenses of the companies are quite high, the predict expense for the entire industry in 2002 is of about $1,8 billion.

Alternatives.

пÑ"? To conform to the industry price structure, offering as plus: unique service due to the agreement achieved with MTV networks and a high quality customer’s service.

o Pros.: the partnership with MTV should help Virgin USA Mobile in achieve its target market.

o Cons.: without introducing any new elements in the industry pricing structure Virgin USA Mobile should not be able to enter in an high competitive an saturated market .

пÑ"? To conform to the industry price structure, applying buckets with a lower per minute price.

o Pros.: to charge customers less than competitors