Virgin Mobile - WordPress.com · Virgin Values appeal to them ... see that there is no bucket pricing. ... A comparison between the Economics of the Business Model National Carriers

Virgin Mobile Pricing for the very first time

Yeshna Ramessur

06th March 2016

Yeshna Ramessur | 06th March 2016

2

Virgin Mobile should penetrate the youth market aged 15-19 to secure a 2.08% market share by July 2006 resulting in a 3M

subscribers list.

Mobile Penetration for Mobile by Age Group

Segment

(by age)

Current

Possession

Potential for VM to

penetrate

15-19 17% 83%

20-29 45% 55%

30-59 52% 48%

Characteristics of the segment that makes them Virgin Mobile’s primary target

Measurable Size of potential market: 83% out of 129M

Financial capability to purchase service

Potential to increase usage over time

Accessible Virgin Mobile knows their hang-out spots better than the other segments and competitors

Virgin Mobile speaks their language

Highly important, so as to avoid repeating Singapore’s failure

Profitable NPV – 49M in first year – higher than other groups

Market Responsiveness Will be responsive to Virgin Mobile’s offer: exactly what they are looking for. A “Pay-as-you-go” phone service that is honest with

no obligation that they feel trapped.

This segment has unmet needs, and are looking for the phone that can

meet their specific needs, which Virgin Mobile’s plan has.

Barriers to loyalty are the main reasons why they don’t adhere to a

phone.

Virgin Values appeal to them: Fun, Honesty, and Value for Money,

Entertainment, and Breakthrough Innovation.


3

Virgin Mobile should focus on the 15-19 age group to secure growth and improve retention based on its offer.

Demographics

(age in years)

Behavior What do they want Is this the best target for Virgin

Mobile’s goals?

Rationale

15 – 19

(The Young

Texters)

Teenagers

Love Cool and Trendy

things

Adhere to many of Virgin’s

Values

Possess latest technology

apparels

Irregular Calls Usage

High Data Usage

High Text Usage

Random Usage

Mobile phones are more or

less a fashion accessory for

them. They can personalize

it. They want a phone they

can enjoy without any tricky

plans. They can pay for

what they use, but refuse to

have surprises at the end of

the month.

Yes, High priority.

This is a segment that has potential

growth. They represent a potential cash

cow to Virgin Mobile. They are heavy

users and will buy the Virgin Extras.

Virgin Group already targets youngsters,

it knows them. Virgin Mobile and the

youth share the same values. Low

acquisition cost - $90

No other carrier in the market has

products specified for them. This

segment shows growth for the next 5

years. We are looking at those who

will use between 100-200 minutes per

month.

PRIMARY TARGET

NPV = $49M

20- 29

(The

Inbetween)

They are at a stage in their

lives where they are moving

out, getting their first jobs.

Their use of a mobile phone

is random.

Medium Calls Usage

Fluctuating Data Usage

Low Text Usage

Random Usage

Mobile phones are still at an

early stage. This segment

will not be using a mobile

phone to look for a job or

lease a car or buy a house.

Yes, Medium.

They are in an unstable stage of life

where they are busy creating their lives.

They are more likely to be solitary, and

focus on other things. A phone at this

period is only complimentary, not a need.

Virgin Mobile should not concentrate

on gaining them as a target audience.

However, they may well purchase a

Virgin Phone if so they wish.

SECONDARY

NPV = $22M

30-65

(The Callers)

Uses the phones for business

purposes

High Calls Usage

Low Data Usage

Low Text Usage

They are more likely to use

landlines rather than a cell

phone.

No, but they can adhere to it when they

see that there is no bucket pricing.

Much effort will have to be laid to

convert them from their subscribers, if

they have one. High acquisition cost -

$235. Their behaviour is very much

different from Virgin values.

Could be potential customers, but will

come as a pull strategy, with the

budget available, it is impossible to

make them our primary target –

Maturity in Market reached. With

NPV = $47M


4

Virgin Mobile’s new plan exceeds the national carriers in many sectors in the Economic Business Model

$370

$52 $30

$264 78%

$251.43

18

$90

$50 $23

$330 69%

$314.29

11

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Total

Acquisition

Cost ($)

ARPU ($) Cost to serve

($)

Annual

Margin ($)

Annual

Retention

Rate (%)

CLTV ($) Breakeven

(months)

A comparison between the Economics of the Business Model

National Carriers Virgin Mobile

The new phone plan will result in a CLTV of

$314 which will be recovered in 11 Months,

compared to a CLTV of $252 which will be

recovered in 17 months.

Industry RPM is somewhere between 10c to

70c making customers very unhappy. Virgin

Mobile’s RPM is constant at 20c when it

should be 5c. But this price would be too low

to generate profit in this new market.

The cost to serve at Virgin Mobile is lower,

as it is focused on providing a great customer

service by keeping the sales process simple:

no complicated plan = no need for long

transactions= PAYG = little aftersales

customer support

Current projected churn rate with the same

industry practice but no contract is 6%,

however, with a superior customer focussed

approach especially aiming at filling the gaps

left by national carriers, Virgin Mobile can

achieve a churn rate of 3%


5

Virgin Mobile New Pay-As-You-Go Offer Business Model has aligned all issues that prevented the youth segment from owning a

phone, while making sure its channel are satisfied in terms of exposure and revenue.

Customer Profile

Teenagers

15-18

Young Adults

19-29

One Price/Minute

No Contracts

One Price / Text

One price/ Data

Virgin Extras

Usages Fees

-Calls, Texts, Data

One time subscription

fee- Buying the phone

-Buying the phone

Competitive Pricing

-YES

Are We Making

Money?

-YES

Triggering

Competitive

Reactions?

-NO

No Hidden Charges

No Contracts

No Overage cost

No Confusing Plan

Plan named “Pay As

You Go”

Virgin Mobile

Value

Proposition

What do they want?

-Factors affecting their loyalty

A

l

i

g

n

m

e

n

t

Virgin Mobile

Revenue

Streams

Virgin Mobile

Goals

A

l

i

g

n

m

e

n

t

Virgin Mobile

Infrastructure

Core Competence

-Understanding its

customers

Core Competence

-Breakthrough

Innovation

Partner Network

- Deutsche Telecom

as MVNO

- Sprint’s PC

Network

- Kyocera Phone

Manufacturing

-The Complex, Vibe,

XXL

-Target, Best Buy,

Virgin Megastores

as Distribution

Channel Constant Innovation

Prepaid Costs


6

Having a No-contract Phone plan is the best solution for Virgin Mobile to achieve goal

Option 1:

Current

Industry

Practice

Option 2:

Current

Practice

Discounted

Option 3:

Current

Industry

Practice

without

contracts

Option 4: No

contract -

Prepaid + PAYG

Total Acquisition Cost 235 130 130 90

Annual Margin 264 60 264 240

CLTV $599.54 $489.48 $559.54 $204.32

Breakeven

2 years 3

months 8 years 2 years 1 month 11 months

Contract Yes Yes Yes No

High Phone Subsidy Yes Yes Yes No

Credit Check Yes Yes Yes No

Prepaid Plan No No No Yes

Complex Sales Process Yes Yes Yes No

Hidden Costs Yes Yes Yes No

Peak/Off-Peak Pricing Yes Yes Yes No

Rate Per Minute 5c 10c-70c 35c-50c 20c

Consistent with Delivery Strategy? No No No Yes

Consistent with Virgin Target

Market? No No No Yes

Competitive Yes Yes Yes Not yet

Profitable Yes - limited No No Yes

Provokes price war Yes Yes Yes No

Likely to hit growth targets? No No No Yes

Pay as you go is most consistent

with the target audience. It will

only take 11 months to

breakeven, considering the

advertising budget available.

Virgin Mobile is the only carrier

that can offer this plan.

It will even attract other

segments through word of mouth

about the transparency of

transaction.

The acquisition cost is lower

than following industry practice.

If we had followed industry

practice, RPM should have been

5c which would have left money

on the table.

It is consistent with what the

target market is looking for.


7

By naming the new plan as “Pay As You Go”, Virgin Mobile can eliminate the perception normally accompanied with prepaid

plans.

Price Level

Customer comes in touch with the Virgin Mobile across the various touchpoints

He has to buy a phone, from 2 models

o Party Animal worth $60

o Super Model worth $100

This fits both the light and heavy users

After that, the only thing they have to pay, the monthly fee

They can do so via Virgin Mobile’s Website, or visit their local retail spots – 3000 where Virgin

Mobile’s product will be available

They already go there to consume their music entertainment.

Demand for the Young Texter is elastic, and their lifestyle is radically different compared to other

people, they need a phone plan that matches their phone usage at a complete and clear price.

Price Structure

Pay As You Go Rates

Recharge- Monthly $25 or $50 (or any

value online)

How to ensure renewal Soft-commitment

Standard Calls to other

carriers

20c/min

Interstate Calls 25c/min

International Calls 30c/min

Standard text 7c

Voicemail Free

Data 15c/MB

Rechargeable Instore/Online

NPV before Investment cost $49,646,330

Investment Cost $3,497,857.20

Sprint 50% Investment $24,823,165

NPV After Investment Cost $21,325,307.80


8

Virgin Mobile New Pay-As-You-Go Offer Service Model shows alignment with target market touchpoints.

The Young texter comes in touch with the Virgin Mobile

through

MTV heavy exposure or Popular Magazine

- Expressing all reasons why they need a phone

Virgin Mobile is the Best Solution

Searches for information

- Stays tuned to MTV

- Visits Virgin Mobile’s

website

- Reads advertorial

- Discusses with friends

Goes directly to Target, Sam Goody, Virgin

Megastores, etc

- Picks up a brochure

- Or simply talks to any sales associate at

those points of purchases –plan is really

easy to understand therefore no need for

lengthy or high touch sales person.

Assess alternatives to owning a phone

Other carriers:

- No lengthy contracts

- No credit checks

- No parental control

- Budget

- Easy purchase

Decides to try

And realises the ease of owning a phone with Virgin Mobile without

any hassles – stays with VM for fulfilment

Recommends others- Segment 2 and 3 alike


9

Virgin Mobile should adopt a customer focussed approach towards creating a rewarding fulfilment for the customer where other

have failed at doing so.

Factors Importance to

Target

Audience

How will Virgin Deliver that?

Purchase Process Important Having a powerful message on the first touchpoint that is MTV programmes, Virgin should direct prospects

to their local Best Buy or other store. So they can purchase the clamshelled-packaged phone

Billing Process Important No billing. Customers have to buy scratch cards at retail spots or bill online through the website. Although,

at this point, online billing is not yet popularised.

Account Management Not Yet. Virgin Mobile will start keeping a database of Customer Information.

Customer Support Important Virgin Mobile will provide customer support at its Megastore, Target and Best Buy.

Value for Money Very. The new plan is based on “what you see is what you get”. They pay for their usage at a constant rate, which

satisfies both the company and the customers.

Handset Subsidy Indifferent. Compared to competitors, Kyocera phone proposal are much cheaper and can be bought at one go. Giving a

subsidy on such a low-cost phone will just increase the acquisition cost.

Price Plan options Very important Virgin Mobile’s offer doesn’t include any additional fees that they will have to discover “as a surprise”. The

new design is truly a transparent honest plan.

Contracts Not important Eliminating contracts will not affect Virgin Mobile’s success but instead it is a customer-focussed approach

that suits them. More customers can become members.

Communication Limited Youngsters do not like to be bothered every time with communications from companies. They just want a

phone that they can use when and where they want at their expense.

Loyalty Rewards Not yet. Virgin Mobile is a relatively new product that has the potential of increasing its offer to suit customer’s

need and reward them, but this will happen at a later stage when information is available for purchase.

Innovation Important Virgin Group is great at creating innovation that appeals to the youth. With this new plan, it differentiates

them from everyone else. Youngsters in the target age bracket like breakthrough innovation that sets them

apart.


10

For Virgin Mobile to maintain a high retention rate of 70%, it should spread out its offering in a manner to stay relevant to the

youth and not make them feel overwhelmed right at the beginning

Virgin Extras Weighting Activation Period Rationale

Virgin Mobile Community 0.0 2005 Community is what youngsters enjoy, but it should come at a later stage, since

Virgin Mobile is relatively new. It needs to create a brand equity first.

Total Request Live 0.5 2009 Requires much investment in improving phone infrastructure

Text Messaging 0.5 July 2002 Youth are heavy texters.

Online Real-Time Billing

0.3 January 2004

Needs improvement in website for real-time billing for such big number of

consumers. VM should use a part of its revenue to improve its e-commerce

website

Rescue Ring

0.2 February 2003

Perfect time to activate “the escape plan” reminding them they are not locked

with Virgin Mobile as well. They are free to choose the best – the one that

fulfills their needs –ie Virgin Mobile

Games 0.5 July 2002 Easy to implement on current infrastructure

Wake-up Call 0.4 July 2002 Not difficult to implement on current infrastructure

Ring Tones 0.5 July 2002 Easy to implement on current infrastructure

Fun-Clips 0.4 Dec 2002

Gifs, animated emoticons, small videos can be mounted on current

infrastructure – can be leveraged to high quality video in the future.

The Hit List 0.2 2005

Need a better phone for that. However, because of MTV’s collaboration,

Virgin Mobile will have to work on that.

Music Messenger 0.2 June 2004 Will drive sales for partners

Movies 0.0 2010 Not anytime soon. This requires much advanced development.

* With 0.0 being moderately important, and 0.5 very important


11

By partnering with the correct collaborators, Virgin Mobile has improved its visibility to its target audience without a huge

advertising budget.

MTV

91 M viewers – strong and growing

Age: 12-34

Rated “World’s Most Valuable Media

Brand” four years in a row

MTV speaks their language

They spend $21.6Bn in technology

No other channel can deliver to young

adults like MTV Source: Nielsen Fall 98

The Vibe

200,000 circulation quarterly-Focused

on youth culture

Age: 18-29

Price : $2.50/mag

$459 – full page ad.

Virgin Mobile can easily capture 650,000 youngsters in the first year, with an advertising budget of 60M and resulting in a

revenue of $49M. The Youth are known to influence purchase decision to others. A satisfied youth will recommend up to 5

other people to purchase the same product. Alignment is most important in driving sales.

XXL

140,000, Focused on youth music

culture

Age: 18-29

67% monthly page views

$35CPM– full page wallpaper.

Target, Best Buy and Other Retails

Virgin Megastores

Aligns with the Youth top

purchasing spots

Frequent purchases of electronic

good denotes ability of buying

power

The Complex

Men – median age 27

300,0000 Circulation

Monthly

$ 26,000 full page


12

Virgin Mobile Communications Plan

Virgin Mobile needs to reach 650,000 in the first year through 3000 retail stores

available

Virgin Mobile will have to leverage its relationship with MTV so as to exploit the

maximum exposure. It is a win-win venture. They will both benefit from the

engagement of the youth.

They both speak the youth language.

Positioning Strategy

For the teenagers aged between 15 and 19, Virgin Mobile proposes a zero-contract phone that you can use anytime, anywhere without parental supervision,

promising to constantly innovate to high value proposition, better than any other carrier on the market.

Creative Objective:

1. To communicate that Virgin Mobile is launching its new phone plan in USA after successful penetration in UK

2. To communicate that the phone is for the youth usage pattern

3. To communicate that Virgin Mobile’s plan is a clear transparent phone plan with no hidden or extra charges

Creative Execution:

1. Spots on MTV channels and Virgin Broadcast media showing cool trendy teens enjoying sending picture messages while communicating in their

jargon

2. Every time a Virgin Extra is activated, the same spot will be modified to communicate the new application.

Creative Strategy:

Tone: Fun, eccentric, provocative

Style: Lifestyle – hip and trendy

Appeal Technique: Positive, humorous

Budget Available for Advertising $ 60,000,000

The Complex Cost – 12 months $ 2,631,804

The Vibe - Quarterly $ 4,131

XXL - Monthly $48,000

Target/Best Buy etc Borchure on POD $1,012,500

MTV - daily $12,000,000

Experiential Marketing – once in New

York City’s Time Square $500,000


13

Appendix – Choosing the RPM

Industry RPM lies between 10c – 70c

Calculating the RPM based on the time to breakeven

no. of minutes used 200

Declaring unknown price P

Monthly ARPU 200P

Virgin Mobile Acquisition Cost 90

Industry breakeven in month 17

Cost to serve (45%of R) 0.45*200P

Monthly Margin 200P-90P=110P

RPM 90/110P=17

+ 0.05

5c

Deciding on the price - solely based on the number and length calls made by the target market

p = 5c p=10c p=15c p=20c

Market Size 1 1 1 1

Retention Rate 69% 69% 69% 69%

Effective no. of customers 0.69 0.69 0.69 0.69

Service Revenue 120 240 360 480

Cost 54 108 162 216

Margin 66 132 198 264

Profit 66 132 198 264

Expected Profit 45.54 91.08 136.62 182.16

CLTV before Acquisition

Cost $43.37 $86.74 $130.11 $173.49

Acquisition Cost 90 90 90 90

CLTV After Acquisition

Cost -$46.63 -$3.26 $40.11 $83.49


14

Appendix- NPV per segment

NPV for July 2002-July

2003

Segment 1 -

The Young

Texters

Segment 2 -

The

Inbetween

Segment 3 - The

Callers

Mobile Penetration

128,384,784

128,384,784

128,384,784

Market Share 0.51% 0.51%

Market Share

654,762

861,213

375,802

Market Size

1

1 1

Retention Rate 72% 69% 0.69

Effective no. of customers 0.72 0.69 0.69

Revenue/Customers 458.2 320.74 1000.8

Service Cost/Customers 30 30 30

Service Revenue 458.2 320.74 1000.8

Cost 206.19 144.333 450.36

Margin 252.01 176.407 550.44

Fixed Cost 0 0 0

Profit 252.01 176.407 550.44

Expected Profit 181.45 121.72 379.8036

CLTV before Acquisition

Cost $172.81 $115.92

361.7177143

Acquisition Cost 90 90 235

CLTV After Acquisition Cost $82.81 $25.92 126.7177143

NPV $49,144,271 22,326,602.54 47,620,770.46

NPV for year 2002-2003

Segment 1 ( 15-19 ) 49M

Segment 2 (20-29) 22M

Segment 3 (30-55) 47M


15

Appendix – Teen Usage Pattern over a year period

Rationale Usage Calls Cost Text Cost Data Cost

School starts January 80 1200 95 665 50 750

V-day February 100 1500 120 840 75 1125

March Break March 100 1500 110 770 50 750

Exams April 70 1050 90 630 60 900

May 85 1275 100 700 40 600

Holidays June 250 3750 250 1750 75 1125

July 250 3750 250 1750 75 1125

School starts August 100 1500 110 770 50 750

September 100 1500 100 700 30 450

Halloween October 150 2250 120 840 50 750

School November 100 1500 70 490 30 450

Exams & Break December 300 4500 125 875 70 1050

Total 1685 25275 1540 10780 655 9825

Total Usage Cost / year 45880 $ 458.80


16

Appendix for CLTV of Virgin Mobile – Pay As You Go

Option 1 :

Current Industry

Practice

Option 2:

Current Practice

Discounted

Option 3: Current

Industry Practice

without contracts

Option 4: No

contracts + Prepaid

Option 4 : With a 70%

Retention Rate –

DESIRED POSITION

Acquisition Cost

Advertising 60 60 60 60 60

Sales Commission 30 30 30 0 0

Subsidy

(phone+Distribution) 30 40 40 30 30

Total 120 130 130 90 90

Margin

ARPU (Avg. revenue per

unit) 52 35 52 50 50

Cost to serve 30 30 30 30 30

Monthly Margin 22 5 22 20 20

Annual Margin 264 60 264 240 240

Factors

Churn Rate 2% 2% 6% 6% 3%

Retention Rate 78% 78% 78% 51% 70%

Discount Rate 5% 5% 5% 5% 5%

CLTV $599.54 $489.48 $559.54 $204.32 204.32

Breakeven 2 years 3 months 8 years 2 years 1 month 11 months


17

Appendix: CLTV comparison between National Carriers and Virgin Mobile

Competitive Comparison -

CLTV

National

Carriers

Virgin

Mobile

Acquisition Cost

Advertising 105 60

Sales Commission 100 0

Subsidy (Phone + Channel) 130 30

Total 335 90

Margin

ARPU 52 50

Cost to serve 30 23

Monthly Margin 22 28

Annual Margin 264 330

Factors

Churn Rate 2% 6%

Annual Retention Rate 78% 51%

Discount Rate 5% 5%

CLTV $251.43 $314.29

Breakeven 16.82 11.43

17 Months 11 Months


18

Appendix: Projected Revenue Model for Virgin Mobile

2002 2003 2004 2005 2006

Mobile Penetration 128,384,784 141,637,575 160,313,644 184,412,290 203,372,159

Market Share 0.51% 0.87% 1.19% 1.17% 2.08%

Market Share 650,000 1,235,000 1,914,250 2,163,102.50 4,230,141

Market Size 1 1 1 1 1

Retention Rate 69% 69% 69% 69% 69%

Effective no. of customers 0.69 0.69 0.69 0.69 0.69

Service Cost/Customers $30.00 $30.00 $30.00 $30.00 $30.00

Service Revenue $458.20 $458.20 $458.20 $458.20 $458.20

Cost $206.19 $206.19 $206.19 $206.19 $206.19

Margin $252.01 $252.01 $252.01 $252.01 $252.01

Fixed Cost $ - $ - $ - $ - $ -

Profit $252.01 $ 252.01 $ 252.01 $252.01 $252.01

Expected Profit $173.89 $173.89 $173.89 $173.89 $173.89

CLTV before Acquisition Cost $165.61 $165.61 $165.61 $165.61 $165.61

Acquisition Cost $90.00 $90.00 $90.00 $90.00 $90.00

CLTV After Acquisition Cost $75.61 $75.61 $75.61 $75.61 $75.61

n 650,000 1,235,000 1,914,250 2,163,103 4,230,141

NPV $49,144,271 $93,374,116 $144,729,879 $163,544,764 $319,826,451

* Potential no. of subscribers calculated based on what UK achieved- UK subscribers are more homogeneous to USA subscribers than Singapore

* Growth Rate was calculated based on projected growth rate of mobile Entertainment Services revenue from 2002 throughout 2005

*Mobile penetration Size Source: ©


19

Appendix: Cost of Investment for Prepaid Plan

Unit cost no. of units Total Cost

Cost of Sim card 1.25 1000000

$

1,250,000

no. of cards to manufacture 0.05

15,714,288

$

392,857

Additional margin to retailers $5.00 3000 $15,000.00

Cost of Website $ 250,000 1

$

250,000

Cost of Maintaining website

twice a year $ 45,000 2

$

90,000

Replenishment by Virgin Mobile 500 3000

$

1,500,000

Total Investment Cost

$

3,497,857.20

NPV before Investment cost $49,646,330

Investment Cost $ 3,497,857.20

Sprint 50% Investment $24,823,165

NPV After Investment Cost $21,325,307.80

Documents

Virgin Mobile - WordPress.com · Virgin Values appeal to them ... see that there is no bucket pricing. ... A comparison between the Economics of the Business Model National Carriers