Virgin Mobile Case Study

Virgin Mobile USA
Pricing for the Very First Time

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TEAM [pic 2]RAVO
Mona Abdalla, Michael Hanke, Anton Kaliapin, Elisabeth Kanzi, Ron Sachs

Problem Statement

Virgin mobile is about to enter the US mobile market as a mobile virtual network operator (MVNO). Due to the very mature market, Virgin wants to target consumers aged between 15 and 29 - a niche that hasn’t been targeted by other competitors. The pivotal question for Virgin: Which pricing model is the most appropriate for a sustainable mobile product in the US for a consumer-segment consisting of young consumers aged between 15 and 29? Should Virgin go with the 1) typical market prices with additional fancy features 2) start a price war or 3) invent a completely new package for their target segment?

Situation Analysis

Customers:  90% of mobile users in the US have a 1-2 year contract with their cellular provider. The rates system is rather confusing with peak and off-peak prices, bucket-minutes and penalty rates when the minutes are used up. A user-friendly and transparent price model is missing in the market.

Competition: The US mobile market is very crowded, so it’s not easy to find a profitable niche. Industry penetration is close to 50% with about 130 million subscribers; the market is considered to have reached maturity. The big three operators - Verizon, Cingular, and AT&T - provide a full mobile service using their own network infrastructure. The consumer segments targeted by these companies cover all ages, but there is no specific focus on young people aged between 15 and 29. 

Company: Virgin is a huge, diversified UK-company operating in transport, cosmetics, music and many more. With 200 different entities, Richard Branson’s powerful brand manages to attract consumers by innovative, customer-oriented products. Virgin mobile, which is about to enter the US market was very successful in the UK with 2.5 million customers in 3 years, but was a failure in Singapore as the modern approach wasn’t accepted.

Context: Strengths: A huge company, strong brand, many resources, first mover in MVNO. Opportunities: 1) high margins/revenue opportunity due to MVNO 2) customers know Virgin and rely on the brand. Weaknesses: 1) the target group’s poor credit quality 2) dependency on operators. Threats: 1) The segment doesn’t accept the offer 2) Virgin earns too little money, operators stop partnership with Virgin.

Alternatives
Option 1 “Clone the Industry Prices”: The first option is to apply almost the same pricing structure as the competitors^[1], in addition to including better off-peak hours, reduced hidden fees, differentiated MTV applications, and efficient customer service.