Case Analysis Virgin Mobile

Case Analysis: Virgin Mobile USA: Pricing for the Very First TimeApril 14, 2012

HistoryAs part of the Sprint prepaid brands, Virgin Mobile USA is a mobile phone service that offers Android-powered smartphones and pre-paid web access phone service. Virgin Mobile-branded phones are widelyavailable in over 40,000 stores nationwide, including Target, Walmart, Best Buy and Radioshack. VirginMobile USAs service is based on a non-contract basis, offering a freedom of service to their customerscompared to other major-brand mobile phone service (Business Wire, 2012).Virgin Mobile USA is the leader of no-contract mobile service since its debut in the U.S. market in 2001. Their leading promotional feature includes their Unlimited Web, Data, Messaging, and email starting at $35per month. Their value brand, called payLo, is a pay-as-you-go plan, with the options of talk and texting plansor just a talk plan (Virginmobileusa.com).Music is also a large makeup of Virgin Mobiles service, including sponsorships with major televisionnetworks and events, including Lady Gagas Monster Ball Tour and the FreeFest Music festival. In addition,Virgin Mobile Live is a service that offers continuous music streams of songs of any genre to its customers(Virginmobileusa.com). Virgin Mobile USAs no-contract and no-credit checks directives opens up to their targeted youth marketbecause their no obligation approach opens up to a customer base that traditional mobile phone companies donot offer.

Issues Facing Virgin MobileVirgin Mobile USAs need to differentiate from the current mobile service market has to look at the availableoptions in getting their pricing strategy a priority to determine which works best for the niche market they aretargeting. Solely looking at the pricing analysis does not guarantee brand loyalty, satisfaction nor meet thecustomers needs.Virgin Mobile USA contains a combination of both a good and service, where the good is their selection ofmobile devices and their service, which includes customer service and the telecommunication phone andtexting service. Virgin Mobile USAs phone service is highly competitive within their market and is the firstexpectation of customers to receive phone service anywhere they go.

EvaluationProvider GAP 1The first Provider Gap, The Listening Gap, is the gap between what customers expectations are of theservice versus the companys understanding of these expectations (Zeithaml, Bitner, & Gremler, 2009). Asmentioned, Virgin Mobile USA had determined a niche market in the youth and college-aged demographicgroup, aged 15-29, who had a desire to find a service that suited their day-to-day habits. This included textmessaging, phone service and music features that can be purchased without the qualifying factor of credit andbackground checks.Virgin Mobile USA conducted research on this niche group and saw that none of the major contracted mobileservice providers offered any calling or texting plans that were for these users. The belief is that thecompanys investment would not have high worth per individual customer. However, Virgin Mobile USAobserved their customers, identifying and offering the same quality service and affordability in mobile service.Solution. In order to meet the expectations of the customers, Virgin Mobile USA had to build a relationshipof reliability and trust for its service through different offering, or packaging, of services. This would gobeyond just the voice and text plans, into music and using the popularity of the internet as a method forviewing billing and accessing additional features of their mobile services. Course of Action. Virgin Mobile USA looked into this market niche and created non-contracted reasonablephone plans that included text messaging option for their customers. They made the service and the mobilephones available at stores where the desired demographic would shop, including major retail stores including

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Virgin Music, Target, Wal-Mart and at major mobile phone outlets. The packaging for each of the phoneswas attractive to these young consumers and offered them a freedom of purchasing the phone with a flatone-time fee. The expectation was met through the offering of the mobile service at an affordable pricerange without an obligation.

Provider GAP 2The second Provider Gap, The Service Design and Standards Gap, is finding the middle ground, orunderstanding, of the customers expectations and meeting that with service quality specifications thatemployees can execute (Zeithaml et al, 2009). Virgin Mobile USA had to be able to provide uninterruptedphone service and tangible items that provided recognition of their brand to customers. Their phone serviceshould be reviewed and compared with competitors services to ensure relevancy of their services to potentialcustomers.The physical evidence includes their selection of phones and objects that represent the Virgin Mobile brand. Virgin Mobile USA would need to keep up with the available mobile technologies, including service speed andthe geography of service. Contracts with appropriate phone devices that would support these technologieswould maintain the brands presence. In addition, the offering of customer service should be promoted andprovided as customer-driven service.Solution. Virgin Mobile USA needs to evaluate their suppliers of the mobile phones to ensure these devicesare both physically appealing and have the capacity for the services that would be used on them. Theevaluation of its phone service coverage across most metropolitan and rural areas in the U.S. and Canada willalso need to be examined for as much coverage as possible for their consumers.Course of action. Virgin Mobile USA looked at purchasing their phones from Nokia, Motorola, Samsung andLucky Goldstar. There was also a contract with Kyocera (Zeithaml et al, 2009). The strategy of selectingthese phones is to build a contract with these manufacturers in order to set a fixed price for Virgin MobileUSA. These phones would include various face plates that can be used to customize the look of the phone. The selection of the devices would also have an impact on the network coverage for the phone. VirginMobile USA would need to work with network services to ensure adequate coverage for users who are inmost parts of the country. This means identifying the top cities and states and purchasing the networkaccessibility for those regions.

Provider GAP 3The third Provider Gap, The Service Performance Gap, represents the discrepancy between the developmentof customer-driven service standards and actual service performance by the company employees (Zeithaml etal, 2009). One approach to make this gap as narrow as possible is for organizations to ensure that theiremployees and intermediaries are motivated and empowered to make decisions that support the servicepromise while maintaining high consumer-centric standards. Solutions. To remove potential service performance issues with intermediaries, while also reducingcommission costs, Virgins approach was to change the distribution process that was currently used in theindustry. Phones at the time were packaged in boxes behind locked cabinets and sold through a highpressured sales force.Course of Action. Virgin Mobile USA sought to develop a completely new product delivery system in theindustry, designed at attracting their target market. They removed intermediary sales staff by placing phonespackaged in clear plastic on highly visible kiosks located in retailers such as Target, Best Buy and Sam Goody. This allowed the youth target market to freely examine the phones without interference from high pressuredsales. On the other hand, this distribution strategy removed the personal contact between product experts and theconsumer which could lead to lost opportunities. To compliment this strategy, Virgin Mobile USA shouldconsider providing a phone at these various sale locations that would connect the consumer to a Virgin Mobilephone expert. This would also provide potential customers with a hands-on experience.

Provider GAP 4


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The last Provider Gap, The Communication Gap, describes the difference between service delivery and theservice providers external communications (Zeithaml et al, 2009). More than the marketing department, allemployees in contact with customers must thoroughly understand the service delivery process so that theyavoid the pitfall of communicating exaggerated promises of the service delivery process. In short, the greaterthe companys promise surrounding their provided service, the greater the consumers expectations will be inregard to the service they receive.Solutions. To avoid the problem of over promising and under delivering, Virgin Mobile USA sought todevelop an advertising campaign and pricing structure that supported their value proposition; which was asimple, low priced mobile phone plan offering innovative product choices for their target market, which hadthe greatest potential for growth.Course of Action. They developed communications to clearly promote their differentiation from othercarriers by highlighting their innovative new services. Although Product was at the forefront of thiscommunication strategy, to differentiate themselves in the market place, Virgin Mobile USA created a servicethat would appeal to the youth market. Referred to as VirginXtras, the phone service included exclusivecontent from MTV and other features such as: text and music messaging, movie information, song hit listsand ring tones to name a few.Pricing for the service was also an important part of their value proposition. In an industry where pricingtypically included credit checks, hidden charges and varying pricing for off-peak and on-peak times, VirginMobile USA introduced an easy to understand plan hailed as a what you see is what you get form ofpricing.Through their innovation, Virgin Mobile USA changed the mobile phone industry by causing competitors todevelop similar features as VirginExtras into their own products, revolutionizing the mobile handset.

ConclusionThrough careful market research, Virgin Mobile USAs value proposition included simple to understand lowpriced mobile phone plans offering product choices tailored for their youth target market. To provide aunique service that captured a share of a market already saturated with competitors, Virgin Mobile USAneeded to ensure that their internal Provider Gaps where as narrow as possible. They needed to fullyunderstand their customers service needs (Listening Gap) while providing a product and service design(Service Design and Standards Gap) that met those needs. This was accomplished with service plans void ofthe existing negative attributes in competitor plans such as surcharges and start-up fees, while offering plansgeared toward texting and entertainment. Throughout the design phase, Virgin Mobile USA was able toensure high quality customer service on an existing reliable network (Service Performance GAP) whileimplementing advertising campaigns (Communication GAP) that successful reached their target market.Virgin Mobile USA launched service in mid-2002 as part of their strategy to capture the 2002 back to schooland upcoming holiday seasons. Their service base quickly grew to over 500,000 users by April of thefollowing year, and in early November of 2003 they had 1 million customers in the US. As of the most recentanalysis of market share of 15 national carriers listed by the CTIA Wireless Association, Virgin Mobile USA isthe nations 8th largest service provider with 5.1 million customers.

References

Boost Mobile and Virgin Mobile USA Recognized as J.D. Power and Associates 2012 Customer ServiceChampions By: Boost Mobile and Virgin Mobile USA, Business Wire (English), 03/15/2012 RegionalBusiness News.

Virgin Mobile. (2012). Retrieved from http://www.virginmobileusa.com/about-virgin-mobile

Zeithaml, V. A., Bitner, M. J. & Gremler, D. D. (2009) Services Marketing (5th ed.).Boston: McGraw-Hill.


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Case Analysis Virgin Mobile