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Marketing Management

Case Study
Virgin Mobile
Team: Amit Choudhary, Anand
Narayanan,
Anshul Saxena, Apurva
Sandilya, Archith Goverdhan

Objectives
Facts of Virgin mobile, USA

Vision and Mission

Niche marketing

Pricing Strategy

Learnings from Virgin Mobile

Facts Virgin Mobile(USA)


Virgin, a U.K based company - one of the top three

most recognized brands in Britain.


Tremendous history of brand extensions, portfolios
spanning across various industries
Many of the companys ventures, such as Virgin
Music Group, had proven to be phenomenal.
Major success stories:
Virgin Mobiles(U.K) -Signed up 2.5 million
customers in just three years.
Unique in being the first mobile virtual network
operator (MVNO).

Vision and Values


Vision:
To achieve a run rate through which Virgin Mobile
would have 1 million total subscribers by the end
of the first year, and 3 million by year four.
Values:

Virgin stands for value for money, quality,


innovation, fun and a sense of competitive
challenge.

Focus on understanding and meeting customer


needs

Niche marketing and Targeting

Targeting the segment of audience aged 15-29


Poorly served market segment due to poor credit ratings & low
profitability assumptions

More than just a phone Fashion accessory and


personal statement
Focus on youth through VirginXtras
Text Messaging, Online Real-Time Billing, Rescue Ring, Wake-Up
Call, Ring Tones, Fun Clips, The Hit List, Music Messenger, Movies

Quirky, Offbeat print, electronic & street


advertising.
Promotional tie-ups with MTV, VH1 & Retail chains

Pricing Strategy Virgin Mobile


Pricing Objectives

Offering best price plans to target segment


minimizing hidden costs and optimizing offpeak hour sets.

Costs/Overhead considerations Optimizing


profit margins while ensuring low customer
churn and consumer acquisition costs.

Pricing Strategy Virgin Mobile


Pricing options1)Going Rate Pricing(Cloning)
Priced competitively with everyone else,
with key
advantages like differentiated applications
[MTV] and superior customer service.
Differentiation by offering better off-peak
hours and fewer hidden fees.
Easy to Promote.

Pricing Strategy Virgin Mobile


Pricing options2)Pricing Below Competition(CustomerSegment Pricing)

Price per minute below industry average for


target segments(100-300 minutes/month).
Cheaper, plain and simple pricing plans.

Pricing Strategy Virgin Mobile


3) Radical price plans

Role of contracts-Offering flexibility at the


risk of high churn.

Prepaid vs Postpaid
Risk considerations-Recovering customer

acquisition costs. Costs would have to be at or


below $100 per new gross add for prepaid to be
viable.
A prepaid pricing structure mechanism via the
Web or through physical phone cards for recharge.

Pricing Strategy Virgin Mobile


3) Radical price plans(contd)

Handset Subsidies-Lowering subsidy as a


way of getting consumers to feel more
invested and loyal.

Doing away with hidden fees and


taxes-What you see is what you get.

Off peak hours suitable to young target


segments lifestyle.

Pricing Calculations
Industry average customers acquisition cost:

$370
Industry average monthly cell phone bill: $52
Industry average monthly hidden fees (plan
price markup): 21%
Industry average monthly cost: $30
Retention rate at 2% churn: 1- (0.02 * 12) =
0.76
Average minutes used by the 15-29 age
group: 100-300 minutes
Interest rate: 5%

Pricing Calculations
Break-even Analysis for Contract Plan
Average monthly bill average monthly cost =

$52 - $30 = $22


Plan price markup(hidden prices) = 21%
Margin without hidden prices $22/1.21 = $18.18
Breakeven: $370/$18.18 per month = 20.35

months
Virgin Mobiles CCPU would be constant at 45% of

revenues during its first year of operations

Pricing Calculations
Break-even Analysis(Continued)
Revenue CCPU=Margin

=>Revenue -0.45Revenue=18.18
=>0.55Revenue=18.18
Revenue=18.18/0.55=$33.05 per month
Assuming target segment average usage =

200 minutes
Pricing per minute=$33.05*100/200
=16.52 cents per minute

Pricing Calculations
Customer Lifetime Value
Regular plan at 2% churn
CLV = (Ma) ra-1 / (1+ i)a - A.C

at N tending to infinity and a = 1


Where : N = no. of years of relationship, M =
margin per year for year a, r = retention rate, r a1 = survival rate for year a, I = interest rate, A C
= Acquisition cost.
Solving the same
CLV = M /(1-r+i) - AC
Therefore
CLV=[($18.18 *12)/(1 0.76 + 0.05)] - 370=$382

Learnings
1)Market Penetration by catering to the needs and
demands of a specific niche segment(value
proposition).
2)Effective Pricing strategy offering the best to the
target segment as well as recovering costs while
minimizing consumer churn.
3)Effective promotional strategies via tie-ups and
attractive packaging styling.
4)Effective Blue Ocean Strategy targeting
neglected segments and providing augmented
offerings.

THANK YOU