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Virgin Mobile - Case Study

Virgin Mobile identified their target segment as 15-29 year olds with low disposable income and a desire for trendiness. Their value proposition was to appeal to youth with affordable basic services plus entertainment features. Their pricing strategy was a prepaid whole new plan without contracts to attract low credit customers, subsidized handsets, and eliminating hidden fees. They calculated customer lifetime value and break even point to determine their pricing of $0.13 per minute to successfully enter the market and compete against other providers.

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Purnendu Singh
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8K views

Virgin Mobile - Case Study

Virgin Mobile identified their target segment as 15-29 year olds with low disposable income and a desire for trendiness. Their value proposition was to appeal to youth with affordable basic services plus entertainment features. Their pricing strategy was a prepaid whole new plan without contracts to attract low credit customers, subsidized handsets, and eliminating hidden fees. They calculated customer lifetime value and break even point to determine their pricing of $0.13 per minute to successfully enter the market and compete against other providers.

Uploaded by

Purnendu Singh
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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VIRGIN MOBILE – A CASE

STUDY
-Priyank Sinha
-Purnendu
-Rachna Saini
-Rahul Jain
-Rahul Raj
CORE COMPETENCY
 Making a difference in the eyes of the customer in
terms of :
 Value for Money
 Quality
 Innovation
 Fun
 A sense of ‘Cool-ness’
SEGMENTATION
Identified the age segment where the Industry penetration was
the lowest, that is, between 15 years to 29 years of age.

Mobile Phone penetration

50
40 Mobile Phone
30 penetration
20
10
0
Age 15-19 Age 20-29 Age 30-59
Identified the income segment with a low disposable income
and high aspiration for trendiness.

USA Demography by Income

1 15
32

Upper Class
Upper Middle Class
Lower Middle Class
32 Working Class
Lower Class
VALUE PROPOSITION
 Basic intent to appeal to the youth, market, generate
additional usage, and create loyalty
 virginExtra – Integrate entertainment with basic telephony
 Text Messaging, Online Real-Time Billing, Rescue Ring, Wake-Up
Call, Ring Tones, Fun Clips, The Hit List, Music Messenger,
Movies.
 Packaging – colorful and vibrant, Hassle free sale
 Availability – At places frequented by the youth
VALUE POSITIONING
 Holistic marketing approach takes pricing decision based
on various factors – 3Cs and marketing environment.
 Company – Pricing should conform to the company’s
marketing strategy and its target markets and brand
positioning.
 Customer – Uniform and hassle free pricing which will
enhance Customer’s satisfaction.
 Competition – A pricing strategy which will provide the
company a distinct competitive advantage
PRICING STRATEGY: POSSIBLE OPTIONS
 Option 1: Clone the industry prices
 Pros
 Ease in implementation
 Service and application differentiation

 Competitive Off peak hour rates and lesser hidden fees

 Cons
 No pricing advantage wrt competitors
 Will not work with Low income segment

 Option 2: Price below the competition


 Pros
 Pricing advantage wrt competitors
 Cheaper and hence accessible to Low income segment

 Cons
 Low margin and would need deep pocket
 Option 3: A whole new plan
 Pros
 Do away with the contracts so as to get Low Credit customers
 Prepaid services to help customers decide their own talk plans

 Subsidized handsets to make the deal attractive

 Eliminate all hidden costs

 Cons
 High churn rate of 6%
 Concerns over margins

 Concerns over the recovery of cost of handset

 Afterevaluating the Pros and Cons of the three plans, we


decide to try Option 3 with Optimal Pricing.
PRICE ELASTICITY OF DEMAND
Price
 Characteristics
 Demand is elastic
P1
 Price sensitive
 A decrease in pricing P2

will increase in
corresponding increase D
in quantity of demand
Q1 Q2 Quantity
PRICING
 Assumptions
 Churn Rate= 6% for Prepaid
 Rate of Interest (i)= 5% per annum
 Market price = $ 0.15 for 200 minutes per month
 A customer uses the service for one year as Expected number
of months a customer will stay with Virgin is 1/ Churn rate =
1/ 0.06 = 16.67 months
 Churn rate remains constant for the period
 a= 1
 VirginXtras is not added to revenue
CALCULATING LTV
Average revenue per user per month by market rate = $ 30
Average revenue per user per year by market rate (ARPU)= $ 360

CCPU = 45% of ARPU


= $ 162
Margin (Ma) = ARPU – CCPU
= $ 138
LTV = (Ma) ra-1 / (1+ i)a - AC at N tending to infinity and a = 1
= 138 * 1 / (1+ .05) - AC
= 131.5 - AC
To break even in 12 months, the max price of handset (AC) = $ 131.5
For AC = $ 100, we can reduce the ARPU by $ 31.5
Break even point at ARPU = 360- 31.5 = $ 328.5
Price = $ 328.5/ 200* 12
= $ 0.13 - $14
LEARNING FROM THE CASE
 Proper Segmentation, Targeting and Positioning
 Unique Value Proposition

 Value Positioning
Thank
You !!!

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