Case Analysis for Virgin Mobile Essay

September 14, 2017 Music

VIRGIN MOBILE USA – ‘FIRST PRICE’ STRATEGY ( An analysis of the Pricing Decision options that Virgin has to set about to make an alternate client section and monetise their purchasing power ) VIRGIN XTRAS – OVERVIEWThe Virgin Mobile USA service involved content. characteristics and amusement. called “Virgin Xtras” . Collaboration with MTV webs as it was the most recognized young person trade names in the state and alone range forthe under-30 market section: Exclusive. multiyear content and selling understanding. MTV web to present music. games and other MTV- . VH1- . and Nickelodeon based content to Virgin Mobile endorsers. Subscribers would hold entree to MTV- branded accoutrements and phones. artworks. pealing tones. text qui vives and voice mails. Promotional airtime on MTV’s channels and web site. Virgin nomadic endorsers to vote for their favourite pictures on a few MTV shows. Other Virgin Mobile services that aimed to appeal to the young person market. bring forth extra use and create loyaltywere: Text Messaging Online Real- Time Billing Rescue Ring Wake- Up Call Ring Tones Fun Clips The Hit List Music Messenger MoviesTraditional Channel Virgin’s ChannelServices sold at ain proprietary retail mercantile establishments. booths in Servicess sold where young person store particularly consumermalls. high-end electronic shops. forte shops etc. electronic goods in shops like Target. Sam Goody music shops. Best Bargain.

High-touch gross revenues people who were paid high gross revenues Merchandises packaged in consumer electronics packaging. placedcommission to guarantee hands-on service. on a bright ruddy clamshell. which gave it visibleness and no sales representative was required. Cost per French telephone from Nokia. Motorola. Samsung etc. – Cost per French telephone from Kyocera- $ 60- $ 100. Lesser subsidy $ 150- $ 300. Entailed significant subsidy from the entailed by the company. French telephone shapers. a constituent of acquisition cost. Distributors’ industry avg. Commission- $ 100/phone Distributors commission- $ 30/phone. The handiness of the phones were non as section Phones available at 3000 retail mercantile establishments in USA. and availabilityspecific as Virgin targeted included at retail merchants such as Sam Goody. Circuit City. Media Play. Virgin MegastoreBilling is monthly Billing is to be real-time and with on-line avenues Pricing Decision: -CUSTOMER PERSPECTIVESThe company tried to separate itself from the rivals point of view by playing on the fact that the targeted segment‘did non swear the prevalent pricing points’ in the industry that hinged on the recognition worthiness.

The chief practicesprevalent were: – 90 % of all endorsers had contractual understandings for a period of 1 year-2 old ages Required strict recognition cheque Plans established “buckets” of proceedingss. on excess use users penalized to a great extent. Charged less for off-peak than on-peak proceedingss. but the off-peak period had shrunk. An extra fee was charged to add to the monthly measure. which included revenue enhancements. service charges. Per minute Charge ( Y-axis. in cents ) for the pail of proceedingss contracted ( X-axis ) 180 160 140 120 100 80 Per minute Charge for the pail of proceedingss andcontracted ( X-axis ) 60 40 20 0 0 20 40 60 80 100 120 140The bold line represents the cost per minute charged for a valid contract ( which is shown by the pointers ) . The higher costin the blowhole of under-utilization of the contract is due to the high fixed cost ( like the subsidisation of manus sets. . contractcharges etc. ) The higher bound in the blowhole of transcending the contract is due to punishing. Pricing DECISIONS – COMPANY PERSPECTIVESVirgin Mobile USA had to repair all these jobs prevalent in the industry while taking a pricing determination.

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The mainconstraints it faced was that the monetary values should be competitory and profitable without triping of competitory reactions. There were 3 options available: OPTION 1- ‘Clone the Industry Prices’ The message would travel to clients that they were priced competitively with few advantages like differentiated applications [ MTV ] and superior client service. Better off-peak hours and fewer hidden fees would be the merchandising point but the entire pricing construction would still depend on off-peak and peak classification every bit good as contacted proceedingss. Easy to advance as this scheme of “buckets” was already prevailing in industry. But risks estranging the mark base as they already did non do the needed cut for the recognition worthiness. OPTION 2- ‘Price below the Competition’ Similar pricing construction as remainder of industry. with existent monetary values somewhat below those of competition merely within the highest frequence scope. Better off-peak hours and fewer hidden fees could besides be given. OPTION 3- ‘A Whole New Plan’ Wholly different pricing construction. Eliminate contracts and traveling for postpaid pricing construction.

However the nature of the American cellular market with operator dedicated French telephones ad prohibitory pricing followed by the rivals due to high churn rates Cost of Acquisition Subsidization of Advertisement Gross saless French telephones. Break even analysis and Life clip Value for cellular endorsers: – As already. stated in the current scenario. most nomadic companies amass working capital by traveling for long term contracts. Compared to a US $ 100 acquisition cost for a postpaid connexion. the tantamount historical cost of acquisition for a station paid consumer is US $ 370. Assuming that we stay with the station paid program due to industry jussive moods. we find that the mean naming rate is around 10-30 cents per minute for a mean pail use of 100-300 proceedingss ( this is the mark usage scope that Virgin is taking to aim in the 2nd option ) Hence. norm cost incurred by the company for a client = US $ ( 0. 1 ten 300 ) =US $ 60 ( The most promising facet in the relevant scope ) Acquisition cost = French telephone subsidy given to manus set makers ( US $ 60 -100 ) + advertisement costs ( US $ 60 million budget spread over an estimated 1 million endorsers = US $ 60 ) + gross revenues operating expenses ( US $ 100-150 ) = US $ 290-370 per user per month.

Now. Breakeven point in footings of month is calculated as: – Entire fixed cost = US $ 370 ( acquisition cost for a station paid client ) = 28. 46 months Revenue – Variable cost US $ 57 ( avg. gross per month from a user- ARPU ) – US $ 30Hence it takes around 29 months for the client to turn out profitable for the company even in the most promisingscenario of the relevant scope. But we will besides hold to invest the churn rate of around 2 % per month into this optimistic consideration and seek tocalculate the LTV. If the LTV is positive so the company should travel in front. The option that yields the largest LTV shouldbe chosen. LTV = ? ( Ma ) . R ( a-1 ) – Acquisition cost ( 1+i ) a View slide Here. the border remains comparatively fixed across the periods which can be assumed as a modest 12 % . R is the retentionrate which comes to around 72 % ( churn rate of 2 % p. m. compounded monthly over a twelvemonth = 1. 02?1. 02x… . . till 12months ) . one going involvement rate assumed to be about 5 % Margin in a month = ( Average monthly phone measure ? . =US $ 52 ) – ( Cash cost per user =US $ 30 ) = US $ 22Now taking this value of N we have: – LTV = M/ ( 1-r+i ) Now ciphering the LTV for every option available will give us a marker of how the pricing scheme should be used forusing assorted options sing the fact that the involvement rate remains changeless at 5 % : -For option 1: -LTV = US $ { ( 22*12 ) / ( 1-0. 72+0. 05 ) } – 360= US $ 421For option 2: – Here the keeping rate can be assumed to hold been bettered by differential pricing in the 100-300minutes usage class. so we can presume a modest addition to 80 % .

But this is more or less offset by the addition incash cost to user which can be assumes to lift by 5 % if the differential pricing is 5 % below the mean industrystandard. So the border can be assumed to drop to US $ 19. Here. LTV = US $ { ( 19*12 ) / ( 1-0. 8+0. 05 ) } – 360= US $ 489Hence we can see that even with modest premises. the LTV is maximized for Option 2. henca the company shouldventure into differential pricing if at all it wants to divert. But sing the high acquisition turnover clip andrecovery clip of about 29 months. it is a hazardous scheme because of really high mobility in the targeted section. Hence Virgin should concentrate on non monetary value factors such as: – If the contracts are done off with. this will guarantee more trueness of the mark section as the bulk of them are non recognition worthy.

The placement of Virgin Mobile USA and its coactions with spouses like MTV will pull more clients which are loyal. The cost of acquisition of a client comprises of advertizement. gross revenues cost and subsidy given. Since these costs are much lower than the other rivals. they can monetary value themselves lower than rivals. They can besides be transparent in their cost construction. extinguishing concealed costs. Hence. ab initio it should give non-price advantage to its clients and over a period of clip can cut down costs to sustaingrowth and drive off competition virgin nomadic Presentation Transcript

We Answer To A Higher Calling Prepared By – Team 4 Pooja Gupta ( P122033 ) Rohit Singh ( P122038 ) Saurabh Singh ( P122041 ) Varun Anand ( P122049 Virgin Group“Virgin believes in doing a difference. We stand for value for money. quality. invention. merriment and a sense of competitory challenge. We strive to accomplish this by authorising our employees to continually present an unbeatable client experience. ” Virgin Mobile USA• Commenced operations in June. 2002• Led by establishing CEO Dan Schulman• Entered USA as a 50-50 joint venture between Virgin Group and Sprint Corporation. Virgin Mobile USA’s service would be hosted on Sprint’s PCS network• Sprint was in procedure of updating its web and increasing its capacity. View slide Virgin Mobile USA• Schulamn- “The nice thing about this theoretical account is that we don’t have to worry approximately immense fixed costs or the physical substructure.

We can concentrate on what we do best-understanding and run intoing client demands. ”• “We Answer To A Higher Calling”• Providing extra-ordinary services and experiences at a low monetary value as $ 35 View slide Objective• Create value and profitableness in cell phone service industry• Target market ages 15-29. chance for growing with this market segment• 1 million endorsers by twelvemonth 1. 3 million by twelvemonth 4• “By concentrating on the young person market from the land up. we’re seting ourselves in a place to function these clients in a manner they have ne’er been served before” -Dan Schulman. CEO. Virgin Mobile USA 4P’s of Virgin Mobile USAWhy?

Problem with Current Telecom Services• Low incursion among consumers aged 15-29. Growth rate for this section was projected to be robust for the following 5 years• Target group had been undeserved by bing bearers and specific demands that haven’t been met• Average monthly cell phone measure – $ 52 stand foring 417 proceedingss of usage. Hence. cost to function a client – $ 30• Carriers tended to be wary of geting low- value endorsers Target Group and Behavior• Consumers aged 15-29• Calling form is different from typical concern person• Open to new things: – Text messaging – Downloading information utilizing cell phones – More likely to utilize: ringtones. faceplates and artworks • It’s a manner accoutrement and a personal manner statement Mobile Penetration by Age Group

Gross from Mobile Entertainment Services

Pricing Trend in US before Virgin• Over 90 % of all endorsers had contractual understandings for a period of 1-2 old ages with their cellular providers• Customers would subscribe up for ‘buckets of minutes’• If a user used more than allocated proceedingss. they would be charged with highly high rates ( eg: 40 cents / minute ) • If a user used less than allocated proceedingss. they were still charged the fixed monthly fee. which drove up their monetary value per minute Calling Plans – Industry PricesPrice per minute Contract Commitment – Minutes Calling Plans – Industry PricesPrice per Minute Contract Commitment – Minutes Pricing Trend in US before Virgin• Carriers charged less for off-peak than on-peak minutes• Off-peak clip changed from 6:00 PM to 7:00. 8:00 and so eventually 9:00 PM• Some bearers charged a monthly fee ( appox. $ 7 ) to travel the extremum clip back to one hour• Carriers added extra fees to monthly measure ( revenue enhancement or other extra cost information was non communicated.

So a $ 29 program ended up being a $ 35 program ) What Virgin focused on? • Customers couldn’t predict their use and ended up taking incorrect program pattern• Customers think they use more proceedingss than they really use• Target section really used 100-300 mins/month but mark predicted their use is higher than that• People tried picking up lower pail programs to avoid high monthly fees but they ended up paying a batch more than that due to usage of proceedingss above the bucket• On-peak and off-peak proceedingss weren’t in right mix 4P’s of Virgin Mobile USAWhat?

What to supply them? VirginXtras• Delivery of content. characteristics and entertainment• Signed a sole and multiyear. content & A ; selling understanding with MTV webs to present music. games and other MTV. VH1 and Nickelodeon based content to Virgin Mobile Subscribers• Deal with MTV besides ensured airtime on MTV’s channel and web site VirginXtras• MTV-branded accoutrements and phones and contents ( ringtones. text qui vives and voice mails• To vote for their favourite pictures on MTV’s shows like “Total petition Live”• Text messaging – No. of text monosodium glutamate tends to skyrocket during school hours. Reason: Parents don’t see who they call. private signifier of communicating VirginXtras• Online Real-Time Billing – No call item on monthly measures. Website will enter single calls on a real-time basis• Rescue ring – Mobile endorser will acquire a call at prearranged clip to “escape” in instance a day of the month was non traveling good

. • Wake-up Call – Chance to wake up to original messages from a assortment of brash famous person VirginXtras• Ring Tones – Customized ringtones would be available for endorsers to download• Fun cartridge holders – News. choice morsels. gags. chitchat. athleticss and more• Hit List – Vote top 10 list of hit vocals. Would be able to hear the % age of other endorsers who either “loved it” or “hated it” VirginXtras• Music Messenger – Tap into 10 vocals list & A ; send on it to a friend leting them to look into out a hot new track• Movies – Movie descriptions. show timings. and purchase tickets in progress Handset: First 2 basic theoretical accounts named “Party Animal” and “Super Model” came with interchangeable faceplates decorated with attention-getting colourss and patterns 4P’s of Virgin Mobile USAHow?

Virgin’s Goal• To do certain their monetary values are competitive• To do certain they could do profit• Don’t want to trip off competitory reactions Options• Clone the Industry Prices• Price Below Competition• Whole New Plan Clone the Industry Prices• Use same monetary values as other competitors• Communicate -“priced competitively with everyone else but with a few cardinal advantages like differentiated applications ( MTV ) and superior client service” – MTV Applications and characteristics – Superior Customer service• Offering better off-peak hours and fewer hidden fees• Put on packaging so that even without a sales representative. consumers would acquire the message Price per minute Contract Commitment – Minutes

Clone the Industry Monetary values

Price Below the Competition• Maintain pails and volume discounts• Set monetary value per minute below the industry norm for certain cardinal pails – Target immature market 100-300 mins Price per minute Contract Commitment – Minutes

Price Below the Competition

A Whole New Plan• Shorten or Eliminate Contracts – Contracts warrant rente watercourse – Contract allows 18 old ages or below to buy the merchandise – Churn rate was 2 % . new program could increase churn rate to 6 % • Prepaid service – 92 % US endorsers had Post-paid – Pre-paid was used on occasional footing as rates per minute was high and no recognition cheque was required – Has high churn rates. Company would ne’er be able to reimburse its client acquisition costs – New mechanism or substructure was required for prepaid services A Whole New Plan• Handset subsidies – Mobile bearers subsidized the cost of French telephone to stop users to get client cost• Eliminate Hidden Fees and off-peak hours – ‘what you see is what you get’ – Rolling out concealed costs into pricing such that pricing feels competitory – off-peak should profit the mark group. Minute use is really different from concern category Price Below the Competition

What they did? • LTV Model – Life Time Value• In selling. client life-time value ( CLV ) . lifetime client value ( LCV ) . or user life-time value ( LTV ) is a anticipation of the net net income attributed to the full hereafter relationship with a customer• Simplified Model• LTV = ( M/ ( 1-r+i ) ) – AC Factors act uponing LTV• ARPU: Avg Revenue Per User• CCPU: Cash Cost per User = 45 % of ARPU• M: Monthly Margin = ARPU – CCPU• R: Retention rate ( 1 – ( 12*6 % ) ) = 0. 28• AC: Acquisition Cost ( = $ 120 for Virgin ) – Sale committee – Advertising per gross attention deficit disorder – Subsidy cost LTV Calculation• LTV = ( M/ ( 1-r+i ) ) – AC• = & gt ; M = ARPU – CCPU = ( 1 – 45 ) % = 55 % M on annual footing. presuming that a client negotiations for 200mins. M = ( 1-0. 45 ) * 200 * 12 * P p – & gt ; can be 5 – 30 cents/min ( As rivals are bear downing more than 30 cents/min LTV @ Different Price Points• LTV ( at 5 cents ) = ( 1- . 45 ) ( 200*12* . 05 ) / ( 1- . 28 + . 05 ) – 120 = -34. 28• LTV ( at 7 cents ) = ( 1- . 45 ) ( 200*12* . 07 ) / ( 1- . 28 + . 05 ) – Break-even120 = 0 point• LTV ( at 10 cents ) = ( 1- . 45 ) ( 200*12* . 1 ) / ( 1- . 28 + . 05 ) – 120 = 51. 42• LTV ( at 15 cents ) = ( 1- . 45 ) ( 200*12* . 15 ) / ( 1- . 28 + . 05 ) – 120 = 137. 14• At 7 cents. the LTV =0 which tells that lower limit of 7 cents should be charged by the virgin•

Virgin can bear down any sum more than 7 cents LTV @ Different Price Points Price Point LTV5 cents / minute -34. 287 cents / infinitesimal 010 cents / minute 51. 4215 cents / minute 137. 14 Break-even point Current Plans in Market Company Plan ValueAT & A ; T Get downing at $ 40/monthVirgin Mobile USA $ 35T-Mobile $ 34. 99 ( Merely speak + text ) other programs get downing at $ 59. 99 Supplying a program with music and other added characteristics Virgin’s Service Offering• Extra characteristics: Music. Wallpapers. Videos. Live Video Request. Rescue pealing. wake-up call facility• New improved charge form and on-line real-time monthly bills• Prepaid plan• No contracts• No hidden charges• No extremum off extremum hours• Very low French telephone subsidies• No recognition checks• No Monthly bills• Price: 25 cents per minute for the first 10 proceedingss ; 10 cents/minute for the remainder of the day• No exact Numberss. but churn rate lower than 6 % Conclusion• Virgin right identified service spreads in telecom industry and what clients needed. • Virgin identify inflexibleness in naming programs and in other programs. • Provided excess services than current nomadic bearers. • Provided a medium of amusement on spell. • Offered customized services at a comparatively low cost. References• HBR instance survey “Virgin Mobile USA: Pricing for the Very First Time”• Wikipedia. com

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