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1. What are key challenges for Virgin Mobile in the launch of Virgin mobile in the US?
Competitive Landscape: The telecom market in US is dominated by 6 players who among
themselves have around 100 million subscribers which forms 76.5% of the total market. Mobile
penetration in the lucrative 30-59 age segment is above 50% and it is considered to have reached
saturation. Hence to break a ground in such a competitive landscape would be challenge for
Virgin Mobiles.
High Customer Acquisition cost: Due to the highly competitive landscape and mature market,
firms spend huge amount on customer acquisition. The average cost of acquisition was estimated
to be around $370 which makes acquisition of customers with lower usage unaatractive. In such
a landscape, Virgin Mobile plans to enter the market with only $60 million advertisement budget
creating a challenge of finding the right customer to target and to do so through the right
channels.
Predominantly Post Paid Market: 92% of the customers in the US have post paid connections.
There is a stigma associated with prepaid customers that they cant afford a post paid connection
due to poor credit rating. If Virgin is to target the young population with pre paid services, it has
to mitigate this stigma.
Subsidized Handsets & Contracts: Cellular carriers usually subsidized the cost of cell phone in
the US. This cost is later recouped from the contract over a period of time. For Virgin this would
mean that it would have to shell out additional money in the beginning.
High Sales Commission: The retail channels take high fees for selling phones (averaging around
$100). Creating a separate cheaper sales channel would be a challenge for Virgin Mobiles.
Complex price structure: The current buckets offered by cellular carrier were complex with
many hidden cost. This does not go in line with the Virgin value of providing simple innovation.
Educating the customers about a new simple plan would be difficult and would also come with a
cost.
The working age group of 30-59 which has high mobile penetration. They are the
ii)
primary target segment for the existing players as they have high usage.
The age group from 20-29 includes students and first time workers who dont have
iii)
Positioning: Virgin provides young individuals aged between 15 and 29, with value for money
cellular services with exciting Mobile Entertainment services as it has no hidden costs. Virgin
understands your needs and values them.
Disadvantages
customer.
Can offer slight differentiation by providing off-
Disadvantages
customer.
Lower margins
Disadvantages
Higher churn rate in case of prepaid customers
values of Virgin
Would create market differentiation.
Based on the above discussion, it is advised that Virgin Mobiles come up with a new pricing plan
for its cellular services in the US.
Calculations for Price Point
$ 30.00
$ 60.00
$ 16.00
$ 106.00
p
200.00 min
200p
90p
110p
6%
2%
5%
$
$
0.080
0.083
Recommendations
1) Virgin mobile should enter US with no contract. Virgin should provide a small subsidy
(around 20%) on its already low cost phones. Also, the prices of Virgin should have no
hidden cost so as to get the attention and trust of the customers.
2) The break up point for Virgin is $ 0.08/min. However, since the national average is $0.12
(Exhibit 1), Virgin should charge $0.12 so as to get all the low and moderate users who
currently pay high amount for the buckets.
$
$
$
$
52.00
30.00
417
0.12
0.07
min
1000000
$ 60.00 million
$ 60.00
$80
$16.0