Virgin Mobile Usa: Pricing For The Very First Time Harvard Case Solution & Analysis

Virgin Mobile Usa: Pricing For The Very First Time Case Solution

Marketing strategies

Clone the industry prices

This strategy requires competitive pricing, along with MTV applications superior customer service.

Pros

• It is easy in implementing.
• Differentiation in service and application.
• Economic off peak hour’s rate and hidden fees is lesser.

Cons

• No benefit of pricing with respect to its competitors.
• Incompatible with low income segment.
• With low market prices it difficult to penetrate in market.

Price below the competition

Price per minute for certain buckets is supposed to be lower than industry.

Pros

• The advantage of pricing with respect to its customers.
• Fulfil the requirement of target market i.e. lower price.
• Will help in better penetration.

Cons

• The margin would be low and need deep pocket.
• Price war might be started.

A whole new plan

It includes shorten or eliminate contract, prepaid service, handset subsides, eliminate all hidden fees.

Pros

• Contracts will help to get low credit customers.
• Customers can decide their own talk plan with pre-paid services.
• Specially customized for the target market.
• Sponsored handsets to make deal attractive.
• All hidden case will be eliminated.

Cons

• Churn rate is high of 6%.
• Having concerns of margin.
• Concerns over the recovery of cost of handsets.

Decision criteria and rationale

The decision criteria for selecting the strategy is calculation of LTV (Lifetime value of customers) for each strategy and then evaluate the profitability of each strategy. The pros and cons of each strategy should also be considered while making recommendation. The logic for calculating LTV is it will help in determining the value of customers in terms of how much service or product he will purchase in his/her lifetime. It also helps in determining the efforts to increase the number of loyal customers. Secondly, pros and cons of each strategy helps to understand the strength and possible consequences of each strategy. For example, if someone adopts the strategy which is powerful in terms of generating revenue like price less than competitors which will help in better penetration but its consequences are worst as well in terms of price war might get started. Then it will badly affect the company’s operating activities and Chaos would prevail. Therefore, the strategy adopted should have strong positive outcomes and less cons. Both the decision criteria will help the company to cop up with the current situation and problem i.e. targeting the market segment of 14-29 years teenagers.

Recommended strategy

After analyzing the pros and cons, and LTV of each strategy a whole new plan with an optimal pricing would be the better option than other two strategies (Exhibit 1). This option is risky but can be profitable for the company is implemented properly. This strategy will help to attract the customers who can afford low credits and it allows 18 years or younger to purchase the product. Through pre-paid services, customer can choose their own talk plans according to their budgets. Based on these benefits, this strategy will help the Virgin mobile to penetrate into its target market segment.

Recommendation

Virgin Mobile's target demographic is between the ages of 14 and 29, thus there should be no contract. Given that certain teenagers are under the age of 18, it's clear that they won't be forced to acquire contract items until they have guardianship. When it comes to prepaid vs. post-paid, voting for the third choice is more beneficial since the market segment is generally likely to be occasional users, and this sort of customer is more inclined to choose prepaid plans because they don't have to conduct credit checks.Due to other rivals' high client acquisition costs, decreasing the subsidy to less than $100 is a fantastic way to get more customer satisfaction and make them feel more price valuable. The majority of Virgin Mobile's rivals charge their customers hidden costs, which makes customers feel cheated and has a bad impact on the brands.Virgin Mobile would undoubtedly attract to their market segment or even more if all hidden costs are removed. Because the adolescent market has a different kind of life than adults, most 14 to 29 year old teens use mobile phones till 1 a.m. the next day during off-peak hours. The firm should think about when the off-peak period is for teenagers. In certain ways, the average per minute costs are also influenced by it.

The only disadvantage of this strategy is LTV is negative if eliminating contract. Therefore, the company should reduce acquiring costs such as sales commission, advertising cost and handsets subsides which will help in developing positioning strategy.

Implementation plan

There should be proper monitoring of the contract by the operating team on daily basis, so that target market ranges from 14-29 would get complete benefit from it. In order to attract occasional users, the company should introduce friendly offering on weekly which motivates them to mobile phone more frequently. As the subsidy price is 100$ which is equal to competitor’s price, therefore operating team must lower its price to gain more loyalty of customers. Research team should research and identify the peak hours of teens, and provide special offers in these peak hours. Marketing teams should advertise the offering in such a way that teenagers get attracted like entertaining ads, colorful packaging etc.

Financial calculation

According to the current cost and ARPU, LTV with contract is positive. Additionally, LTV without contract is negative and it will take 3 years to become positive. In that case, the strategy of whole new plan with contract will be beneficial for the company. Additionally, growth rate of 5% monthly was assumed for the projection of three years.........................

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