Case Study-Virgin Mobile USA

Contents

• Introduction• Entering US Market• Core needs of Target Market• Value Adds• Advertising and Promotions• Pricing Options

Introduction

• Portfolio of more than 200 corporate entities - History of Brand extensions

• First to adopt the MVNO model in the UK • Focus on understanding and meeting

customer needs

Entering the US Market

• Virgin mobile identified the underserved target market based on demographic segmentation (ppl with age group 15 to 29)

• Marketing strategy – to mainly attack the niche market segment – the teens

• Used MVNO model again and entered into 50-50 joint venture with Sprint

• Industry Penetration was 50% with 130 million subscribers

Analysed the core needs of the identified segment—

• Variation of usage pattern, mobile is used mainly for downloading ringtones, images, text messaging etc.

• Mobile used as a fashion accessory and personal identity

• Prime needs— delivery of content, features, entertainment for the target segment

Value Adds

• Different channel strategy was adopted to reach the target customer

• Mobile displayed in attractive packages in electronic outlet shops mostly visited by youths

• Easy availability— people could pick up the phone and purchase it like any other electronic good

• Incorporation of Virgin Xtras like wake up call, rescue ring, hitlist, etc.

Advertising and Promotions

• Miniscule budget of 60 million• Advertising in youth magazines • Publishing of advertorials in opinion leading

magazines like The Complex, Vibe XXL• High profile street marketing events• Quirky, off-beat ad treatments

Pricing Options

• Clone the Industry Prices

• Price Below the Competition

• A Whole New Plan

Option 1 – analysis

Advantages:o Easy to promoteo Better of peak hours and fewer hidden

feesDis advantages:o Hard to attract the target market o Limited value adds

Option 1 – Pricing Structure

Option 2 - Analysis

Advantageso Cheaper, plan and simpleo Better off-peak hours and fewer hidden feesDis advantageso Less profit per customer

Option 2 – pricing structure

Option 3 - Analysis

Advantages:o Attracts the target market because of

elimination of contracts for prepaid customerso Cheaper handset subsidieso Reduced hidden cost and off peak hours

Option 3 - Analysis

Disadvantages:o Risk of Increase in customer churn rate from

2% to 6%o Difficult to recoup customer acquisition costo Prepaid customers would require new

mechanism to add minutes.

LTV for option 3

o LTV = ∑ (Ma ra-1)/(1+i)a – AC

(from a=1 to N)

Where

Ma = Margin per year for year a

r = retention rateI = interest rateAC = Acquisition costN = no. of years of relationship

Contd..

Assuming infinite economic lifeLTV = M/(1-r+i) – ACM = ARPU – CCPUARPU = average revenue per minute per

monthCCPU = cash cost per server

Contd..

o Churn rate 2% :r = 1- churn rate = 1-(0.02*12) = 0.76i = 0.05AC = $370CCPU = $13.5ARPU = $30M = ARPU - CCPU

Contd..

LTV = [(16.5*12)/(1-0.76+0.05)] – 370 = $312

o Churn rate 6%r = 1-0.06 = 0.94CCPU = 45% of ARPUM = ARPU – CCPU

Contd..

Contd

Estimated total revenue = $30 billionNo. of. Subscribers = 130 millionMarket share of target segment = 45%ARPU = 30b /(130*0.45*12) = $43M = $23AC = $100LTV = 23/(1+0.05-0.94) – 100 = $113.6

conclusion

o Prepaid service plan with pricing based on option 3 provides positive LTV

o Virgin would be able to create customer loyalty with the youth market.

Thank You