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’

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

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.

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

After evaluating the Pros and Cons of the three plans, we decide to try Option 3 with Optimal Pricing.

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

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 !!!