Virgin Mobile Case Study

Problem Statement

After many years of success in the UK, Virgin Mobile has decided to launch their services in the USA. They must face the decision of defining a pricing strategy that will allow them to penetrate the youth segment with a clear value differentiator from the rest of the carriers in the market.

Situation Analysis

Company: Virgin is a UK based company and is one of the firms with the largest brand extensions, with a portfolio of around 200 corporate entities consisting of everything from airlines to mobile carriers. Now Virgin has decided to enter the USA mobile carriers industry with Virgin Mobile, by presenting a different proposal to that which USA customers are used to. Virgin plans to adopt a different channel strategy than most USA carriers by offering a pre-­-packed "Starter Pack" kit that includes a phone terminal with a pre-­-set plan that can be sold as any regular electronics "over the counter" product.

Customers: Virgin Mobile will be targeting the youth segment comprised of 14 to 29 year olds, who most probably can't incur in contract signing or can't undergo the required credit checks typical of the mobile carriers industry.

Competition: The mobile carriers industry in the USA is highly saturated and barriers to enter are high due to rough competition especially in the age segment 20 to 59. Virgin Mobile would be entering as a mobile virtual network operator (MVNO), which had proven to be successful in UK and not very common in the USA, and would be targeting a lower age segment, which has not been exploited in the US. Some competitors mentioned in the case are: Verizon with the largest amount of subscribers, and in decreasing order: Cingular, AT&T and Sprint amongst others.

Collaborators: Virgin Mobile will be levering on retailers who will be distributing the "Starter Pack" mentioned before. These retailers will mostly be electronics and music stores like Best Buy, Sam Goody, Circuit City, Media Play and Virgin Megastores. They have also arranged to sell the kit at Target, reaching with this over 3,000 retail stores.

Context: Virgin Mobile wishes to target a segment who's calling patterns are different from the typical businessperson, which is the habitual consumer for mobile carriers in USA. Therefore Virgin Mobile must come up with a strategy that suits this type of customer. The market is saturated with carriers and so this strategy must have clear differentiators and be of value to new customers.

Alternatives

Dan Schulman has three proposed alternatives for a pricing strategy. They will be analyzed in function of pros and cons, and Lifetime Value (LTV) generated. These will be compared amongst each other, and will be further compared to the market average LTV.

Market Average: The average customer is valued