Virgin Mobiles Usa - How Major Carrier Make Money in This Industry? Is Their Any Financial Logic Underlying the Pricing Approach?

Q1. How major carrier make money in this industry? Is their any financial logic underlying the pricing approach?


Answer- Major carriers made money by contractual agreements which were signed by over 90% of their subscribers. The contracts of one or two years of time period had plans with established buckets of minutes. Example customers could sign up for a bucket of 300 minutes, In case the usage is above that no. they were penalized with even higher rates. On the other hand if they had used fewer than 300 minutes they were still charged a monthly fee.

Charging less for Off peak than on peak minutes.


Financial logic

Price buckets set according to the usage of subscribers helped them in generating  revenue from different customer segments having various usage patterns. This also helped them in earning extra revenue as they could penalise the customers having excess usage from their usage bracket.


Discounting call rates at the off peak minutes  was a prime source of generating revenue when the usage is low hence, discounting at off peak minutes helped them in earning money at the time of low usage as well.

Q.2 Do you agree with Virgin mobile’s target market selection? What are the risks associated with targeting this segment? Why have been the major carriers been slow to target this segment?

Answer - Yes, we agree with Virgin mobile’s target market selection of the youth between 15 to 29 years old. This is so as the penetration into this segment of customers is very less and a robust growth was projected in the next 5 years.

Risks Associated – The customer acquisition cost as per market standards is very high, about $370, and many consumers might not use their phone to a level where in it became viable for the company to acquire the customer. Their usage would be inconsistent. Further, these young customers did not pass the credit check, which would be another risk to the company. Further, the plans of the current carrier are confusing for the customer, and hence they are unable to choose a correct plan according to their requirements, and hence end up getting huge bills which they might not be able to pay, hence becoming a threat to the companies.

The major carriers have been slow to target this segment as

• Poor credit quality of this target segment
• High customer acquisition cost
• Inconsistent returns from this target customer segment
• This segment focuses more on the value-added services rather than the calling  

Q3. Given virgin mobile’s target market (14-24 years old), how should it structure its pricing? The case lays out three pricing options. Which option would you chose and why? In designing your pricing plan, be as specific as possible with respect to various elements under consideration (e.g., contracts, size of the subsidies, hidden fees, average per minute charges etc.)

Answer- Virgin has mainly focused on 14-24 years of age portion.

Three evaluating system has been depicted for the situation.