JOHANNA FINKELSTEIN

JACQUES LI

PAULNGUYEN

STEPHANIE PUI-TSE

OVERVIEWS I T U A T I O N A N A L Y S I S

S T R E N G T H SW E A K N E S S E S

O P P O R T U N I T I E ST H R E A T SE V A L U A T I O N O F A L T E R N A T I V E S

O P T I O N 1 - “CLONE INDUSTRY PRICES”O P T I O N 2 - “PRICE BELOW THE COMPETITION”O P T I O N 3 - “A WHOLE NEW PLAN”

R EC O M M E N DAT I O N & P L A N O F AC T I O N

P R O B L E M S TAT E M E N T

STRENGTHS

WEAKNESSES

VS

Poor brand name and recognition

Target market limited to "young consumers”

Young positioning

60$ million advertising budget

Indecisiveness for pricing strategy

Good Margins with Retailers

Strong positioning in the 15 to 29 year old target

market

One of the most recognized brands in Britain

Use of MVNO

Experienced in Brand Extension

STRENGTHSGood Margins with Retailers

Strong positioning in the 15 to 29 target market

One of the most recognized brands in Britain

Use of MVNO

Experience in Brand Extension

WEAKNESSES

Poor brand name and recognition

Target market limited to "young consumers”

Young positioning not appealing to every markets

60$ million advertising budget

Indecisiveness for pricing strategy

OPPORTUNITIES

THREATS

VS

Mature and capital-intensive market

Saturated market

National carriers' advertising budget

Consumers don't trust pricing plan of the industry

Target market has low credit quality

Low penetration rate in the US

Growing Market

Mobile Entertainment

Increase in sales and customer loyalty

Problems in the Industry

OPPORTUNITIES

Low penetration rate in the US

Growing Market

Mobile Entertainment

Increase in sales and customer loyalty

Problems in the Industry

US UK0

10203040506070

Future Growth Rate Prediction for the 15-29 Target Market

Series1

Country

Perc

enta

ge (%

)

19992000

20012002

20032004

20052006

0

20

40

60

Revenue from Mobile En-tertainment Services

Series1Linear (Series1)

Year

Reve

nue

(In $

billi

ons)

THREATSMature, saturated and capital-intensive market

Strong National competitors

National carriers have huge advertising budget

Consumers don't trust pricing plan of the industry

Target market has low credit quality

EVALUATION OF ALTERNATIVES

O P T I O N 1

O P T I O N 2

O P T I O N 3

“CLONE INDUSTRY PRICES”

“PRICE BELOW THE COMPETITION”

“A WHOLE NEW PLAN”

OPTION 1: “CLONE INDUSTRY PRICES”

Pros:- Easy to promote & implement - A few differentiations from their competitors but at the same price (VirginXtras)- Less risk related to market penetration -Advertising through packaging cut costs through sales

Cons:- Lower competitive advantage

- Lower profit margin- High commission to sales persons

- Difficulty in entering a saturated market with the same offers as competitors

OPTION 2: “PRICE BELOW THE COMPETITION”

Pros:Lower pricesLarger competitive advantageConsidering the needs of the targeted segment

Cons:Lower margins and possibility of a lower bottom-line

Inconsistent with the company’s long-term goal of profitability

OPTION 3: “A WHOLE NEW PLAN”

Pros: Cons:

Different from the competition

Offers flexibility and it caters to the needs of our target market

Great Marketing opportunity

Opportunity to fix the endemics of the industry

Entirely new model, not previously tested

Higher Churn rate (Prepaid)

Lower Customer Life-time Value

Have to implement new mechanism/system to add

minutes to their device

R E C O M M E N D AT I O N S

CALCULATIONS FOR 4 SCENARIOSIndustry Average

Option 1 – “Clone the Industry Prices”Option 2 – “Price Below the Competition”

Option 3 – “A Whole New Plan”

MAIN FACTORS TO ANALYZE:Acquisition Cost

Break-EvenCustomer Lifetime Value

1) ACQUISITION COSTAdvertising per gross add: $75-$105Sales commission paid per subscriber: $100Handset subsidy: $100-$200Total: $275-$405 Mean acquisition cost: $370

3) CUSTOMER LIFETIME VALUELTV = M/ (1-r+I) – ACM=margin= $22*12= $264r1= Annual retention rate= 1-(0.02*12) = 0.76 (With Contract and churn rate of 2%)r2= Annual retention rate = 1-(0.06*12) = 0.28 (No Contract and churn rate of 6%)I= interest rate = 0.05AC=Acquisition Cost= $370 LTV With Contract: $264/ (1-0.76+0.05) - $370 = $540.34LTV Without Contract: $264/ (1-0.28+0.05) - $370 = -$27.14

R e c o m m e n d a ti o n – C a l c u l a ti o n sI n d u s t r y A v e r a g e

Option 1 “Clone the Industry Prices”

1) ACQUISITION COST

2) BREAK-EVEN

3) CUSTOMER LIFETIME VALUELTV = M/ (1-r+I) – ACMargin decreases because of added features Assuming other variables remain constant, LTV decreases

Same acquisition

cost

Added Features

Hidden Fees

Smaller contribution

margin

Longer Break-Even

Option 2 “Price Below the Competition”

1) ACQUISITION COST

2) BREAK-EVEN

3) CUSTOMER LIFETIME VALUELTV = M/ (1-r+I) – AC

Margin decreases because of sales revenue Assuming other variables remain constant, LTV decreases

Same acquisition

cost

Less sales

Revenue

Lower Prices

Longer Break-Even

“A Whole NEW Plan”

Without Contract- Prepaid – lower subsidies – no hidden fees – no peak/off – peak hours 1 ) A C Q U I S I T I O N C O S T Advertising per gross add: $60 Million/1 million = $60Sales commission paid per subscriber: $30Handset subsidy: $10 Total: $100 More than 3x lower than industry average acquisition cost

OPTION 3

2 ) B R E A K - E V E N

Monthly ARPU (average revenue per unit): 100-300 min/month = 200 min on averageMonthly Cost-to-Serve: 45% of revenues = 0.45*(200*price per minute) = 90p

Monthly Margin: 200p-90p= 110p

Break Even point = 100/110p

“A Whole NEW Plan”OPTION 3

3 ) C U S T O M E R L I F E T I M E V A L U E

LTV = M/ (1-r+I) – ACM=margin= (1-0.45)*(200*12*p)

r= Annual retention rate = 1-(0.06*12) = 0.28 (No Contract and churn rate of 6%)

I= interest rate = 0.05AC=Acquisition Cost= $100

LTV formula for price: (1-

0.45)*(200*12*p)/1-.0.28+0.05 > 0P> 0.06

Price Life-time Value ($) Break-Even

0.06 3 15

0.10 71 9

0.25 329 4

RECOMMENDATION - Based on calculations and analysis of alternatives: Option 3 – New Plan

Low Acquisition

Cost

Low Break-

Even time

Lower Life-time

Value

Differentiation: New plan

Lower revenue per

customer but more sales.

Long-term Profitability

Factors Option 1 Option 2 Option 3

Acquisition Cost - - +

Break-Even - - +

Life-time Value + - +

Differentiation - - +

Total 1 0 4

Month 1 2 3 4 5 6 7 to 24Set Strategic ObjectivesDesign ProgramGain Internal Support Benchmark competition's levelConduct value AnalysisAssess legal & organizational issuesEstablish success levelsEstablish research centerIdentify specific targetsPrepare Budget for projectslaunch pilot ProjectsAnalysis through success metricsEvaluate pilot projectsRevise and enhance programsIdentify new targetsEvaluate and repeat growth

Plan of implementation

P L A N O F I M P L E M E N TAT I O N

1st Mont

h

• Set Strategic Objectives

1st to 2nd

Month

• Design Program

1st to 3rd

Month

• Gain Internal Support from Virgin

3rd to 4th

Month

• Identify Specific Targets

P L A N O F I M P L E M E N TAT I O N – M A I N O B J EC T I V E S

Prepare budget for

project

Organize marketing

event

Launch the project

Analyze the event

through success metrics

Review and enhance programs P L A N O F

I M P L E M E N TAT I O N “ P R O C E S S C Y C L E ”

JOHANNAFINKELSTEINJACQUES LI

PAULNGUYEN STEPHANIE PUI-TSE

Thank you for your attention and time!Do you have any questions?