Download - Virgin Mobile - Case Study
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VIRGIN MOBILE – A CASE STUDY
-Priyank Sinha
-Purnendu
-Rachna Saini
-Rahul Jain
-Rahul Raj
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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’
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Age 15-19 Age 20-29 Age 30-590
10
20
30
40
50
Mobile Phone penetration
Mobile Phone penetration
Identified the age segment where the Industry penetration was the lowest, that is, between 15 years to 29 years of age.
SEGMENTATION
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115
32
32
USA Demography by Income
Upper ClassUpper Middle ClassLower Middle ClassWorking ClassLower Class
Identified the income segment with a low disposable income and high aspiration for trendiness.
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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
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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
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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
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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
After evaluating the Pros and Cons of the three plans, we decide to try Option 3 with Optimal Pricing.
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PRICE ELASTICITY OF DEMAND
Characteristics Demand is elastic Price sensitive A decrease in
pricing will increase in corresponding increase in quantity of demand
P1
P2
Q1 Q2
Price
Quantity
D
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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
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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
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LEARNING FROM THE CASE
Proper Segmentation, Targeting and Positioning
Unique Value Proposition Value Positioning
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Thank You !!!