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By Andy, Jon, Jwala, Bharath, Minh and Diana
Company Background Introduction Case Background Issue of Concern Market Research Analysis All Options Theory Application Calculation Virgin Response Conclusion Recommendations Inviting Questions
• Virgin, a leading branded venture capital organization, is one of the world's most recognized and respected brands. • Conceived in 1970 by Sir Richard Branson, the Virgin Group has gone on to grow very successful business in sectors ranging from mobile telephony, to transportation, travel, financial services, leisure, music, holidays, publishing and retailing. • Virgin has created more than 200 branded companies worldwide, employing approximately 50,000 people, in 29 countries.
Issue of Concern
[Source: company website Available from: http://www.virgin.com/AboutVirgin/WhatWeAreAbout/WhatWeAreAbout.aspx]
Issue of Concern
Issue of Concern
Sir Richard Charles Nicholas Branson (born 18 July 1950), is an English entrepreneur, best known for his Virgin brand, a banner that encompasses a variety of business organizations. The name Virgin was chosen because a female friend involved in setting down the initial record shop commented that there weren't any virgins left amongst them. Today, his net worth is estimated at about £4 billion (US$7.8 billion) according to The Sunday Times Rich List 2006, or US$3.8 billion according to Forbes magazine.
[Source: Mediaman Australia
Available from: http://www.mediaman.com.au/profiles/branson3.html]
Introduction Analysis Conclusion A student magazine. Virgin Broadcasting. Virgin Rail. Virgin Cola. a small mail order record company and a Company Background 1970s recording shop were founded/ opened under the Virgin name.virgin. Virgin Digital. [Source: company website Available from: http://www. Virgin Travel. etc. 1984 Case Background Virgin Atlantic Airways and Virgin Cargo launched. etc. etc. 1988 puo G n g i V r i r Issue of Concern 1990s 2000s Virgin Mobile. Virgin Bikes. Virgin Games. Virgin Megastores.com/AboutVirgin/WhatWeAreAbout/WhatWeAreAbout. Virgin Blue.aspx] 6 . Virgin Hotels.
Introduction Analysis Conclusion Company Background Case Background … Issue of Concern 7 .
Introduction Analysis Conclusion Company Background Case Background Issue of Concern 8 .
com: 86% Hotel & Leisure Virgin Hotel Group: 91% Virgin Active: 36% Virgin Active S.: 27% Drinks Virgin Drinks: 100% Note: % indicates percent ownership 9 : Adapted from Virgin Management Ltd.8% Virgin Blue: 29. from: https://www.A.com/grant/docs/15Virgin.Introduction Analysis Conclusion Company Background Virgin Group Case Background Air Travel Virgin Atlantic: 51% Virgin Express: 59.pdf] .5% Internet Virgin Cars: 25% Virgin Wines: 45% Virgin Net: 51% Virgin Student: 85.blackwellpublishing.1% Mobile Virgin Mobile (UK): 100% Virgin Mobile (Aus):75% Virgin Mobile (USA): 50% Financial Virgin Money: 100% Retail Entertainment: 98.5% Issue of Concern Rail Virgin Retail Group: 51% Thetrainline.5% Victory: 89% Music V2: 52.
com] 10 .Introduction Analysis Conclusion Company Background Case Background We believe in making a difference. ------. fun and a sense of competitive challenge. quality. In our customers' eyes. innovation.Virgin Group Website Issue of Concern [Source: http://www.virgin. Virgin stands for value for money. We deliver a quality service by empowering our employees and we facilitate and monitor customer feedback to continually improve the customer's experience through innovation.
Introduction Analysis Conclusion Company Background • Is this an opportunity for restructuring a market and creating competitive advantage? • What are the competitors doing? • Is the customer confused or badly served? • Is this an opportunity for building the Virgin brand? Can we add value? • Will it interact with our other businesses? • Is there an appropriate trade-off between risk and reward? 11 Case Background Issue of Concern .
Introduction Analysis Conclusion • Rapidly growing industry. where there is confusion and/or where the competition is complacent. Company Background Case Background • Typical market where the customer has been ripped off or under-served. • Big players have not capitalized on this segment • Competitors slow to react to ever-changing customer mindset Issue of Concern 12 . • Market segment ( 15-29 ages group) being ignored.
• The goal of Virgin Mobile USA is: to have 1 million total subscribers by the end of 2002 and 3 million by year 2006. • Under the agreement. Virgin Mobile would purchase minutes from Sprint on an as-used basis. • The company entered into a 50-50 joint venture with Sprint in which Virgin Mobile USA’s services would be hosted on Sprint’s PCS network.Introduction Analysis Conclusion Company Background • Dan Schulman was appointed CEO. Case Background Issue of Concern 13 .
Introduction Analysis Conclusion The first to offer m-commerce services to all customers via VirginXtras. Company Background Case Background Issue of Concern • • • • • • • • • • Access to MTV-branded accessories and phones Text messaging Rescue Ring Online Real-time Billing Wake up Call Ring tones Fun Clips The Hit List Music Messenger Movies 14 . irrespective of their handsets.
Introduction Analysis Conclusion 180 Company Background Number of Subscribers 160 Growth Rate 140 Number of Subscribers (in millions) Case Background 120 100 Issue of Concern 80 60 40 20 15 .
C 19% 15% AT&T Cinular Verizon VoiceStream 20% Alltel Sprint U.Introduction Analysis Conclusion Carrier 35 30 25 20 15 10 5 0 Ci nu la r V er izo V n oi ce St re am llt el in t el lu la r Le ap er Ca rri er s O th T& T Sp r U A Company Background Millions A Case Background Subscribers Issue of Concern 1% 3% .S .S.Cellular Leap 11% 5% 5% 21% Other Carriers [Source: The Case] 16 .
and also create profitability with this target segment.Introduction Analysis Conclusion Company Background Case Background Issue of Concern “ If we can figure out a way to create value so that we can successfully enter a very competitive and saturated market. then we will have truly accomplished something big.” 17 .
Introduction Analysis Conclusion 70 ₵ Market Research All Options Theory Application 60 ₵ 50 ₵ 40 ₵ 30 ₵ 20 ₵ 10 ₵ Calculation 0 ₵ 100 200 300 400 500 600 700 800 Contract Commitment .Minutes 18 : Adapted from company data. Morgan Stanley Research] .
Minutes 19 : Adapted from company data. Morgan Stanley Research] .Introduction Analysis Conclusion 70 ₵ Market Research All Options Theory Application 60 ₵ 50 ₵ 40 ₵ 30 ₵ 20 ₵ et un M e P eci r P i r Calculation 10 ₵ 0 ₵ 100 300 500 700 Contract Commitment .
Introduction Analysis Conclusion Market Research All Options Theory Application Need to find a Breakthrough! • Must reach our target market: Youth! • Create a positive Lifetime Value (LTV) for every customer Calculation – We must be able to make money! 20 .
Clone the Industry Prices Market Research All Options Theory Application Options 2. 2? Or 3? Calculation 21 . A Whole New plan Options 1.Introduction Analysis Conclusion 1. Price Below Competition 3.
MTV applications .Pricing competitively .Superior customer service Calculation • Better off peak hours • Fewer hidden fees 22 .Introduction Analysis Conclusion Market Research All Options Theory Application • Simple message: .
Morgan Stanley Research] .Introduction Analysis Conclusion 70 ₵ Market Research All Options Theory Application 60 ₵ 50 ₵ 40 ₵ 30 ₵ 20 ₵ 10 ₵ Calculation 0 ₵ 100 200 300 400 500 600 700 800 Industry and Virgin Minutes 23 : Adapted from company data.
consumers are not willing to switch over just for the Virgin Extras features. Pros and Cons The target youth market is not stressed. Savings on advertising budget costs. Consumers are used to ‘buckets’ and peak/off-peak distinctions. With no real price distinction. always paying the same high price. No flexibility in calling habits. Hard for a new entrant to the market. Simple packaging could save costs on high commissioned salespeople.Introduction Analysis Conclusion Market Research All Options Theory Application Easy to promote. Calculation 24 .
Introduction Analysis Conclusion • Similar structure Market Research All Options Theory Application – Pricing slightly below the competition • Maintain ‘buckets’ of minutes – Price per minute set below industry average in certain key buckets – Target young market that uses 100 to 300 minutes 25 Calculation .
Introduction Analysis Conclusion 70 ₵ Market Research All Options Theory Application 60 ₵ 50 ₵ 40 ₵ 30 ₵ 20 ₵ 10 ₵ Calculation 0 ₵ Industry Virg in 100 200 300 400 500 600 700 800 : Adapted from company data. Morgan Stanley Research] 26 .
Expand the size of the market and result in greater sales and profits.Introduction Analysis Conclusion Market Research All Options Theory Application Pros and Cons Maintain the buckets and volume discounts with price per minute set below industry average. thus an unfavorable image. Risk of being regarded as low-quality service. plain and simple. Calculation 27 . Earnings from each consumer will be less. May trigger off competitive reactions. Offer best off-peak hours and few hidden fees so consumers will know Virgin Mobile is cheaper. Sales growth does not necessarily mean big profits.
Introduction Analysis Conclusion Market Research All Options Theory Application Calculation Radically New Plan! • Shorten or eliminate Contracts • Prepaid service • Handset subsidies • Eliminate all hidden fees and off-peak hours • Concept of LTV 28 .
Introduction Analysis Conclusion Market Research All Options Theory Application • Does it make sense to shorten subscription terms or eliminate them altogether? – Contract provide a hedge against churn – Estimated churn rises from 2% to 6% Calculation • Allows 18yrs and younger to purchase the product 29 .
35 – 50 cents per minute up to 75 cents .Phone use that is very infrequent Higher churn rate Recoup Acquisition Costs (AC) Morgan Stanley research suggests AC must be at or below $100 for prepaid to be viable Need a method to add minutes (such as Website) All Options Theory Application • • • • Calculation 30 .Introduction Analysis Conclusion Currently 92% of subscribers have post-paid plans Market Research Concerns: • Prepaid arrangements now have prohibitive pricing .
Introduction Analysis Conclusion Market Research All Options Theory Application • Currently carriers purchase handsets from major manufacturers at a cost of $150$300. • Carriers then subsidize the end user $100-$200 (becomes part of AC). • How do we minimize the AC? • Does this matter to our target market? Calculation 31 .
Introduction Analysis Conclusion Hidden Fees Market Research All Options Theory Application • Goal: Make the pricing very simple – “What you see is what you get!” • Rolling all these normally hidden costs that include taxes and fees into the final price Off-Peak Hours • Consider the target market: Young People! .Minute usage is very different Calculation 32 .
Introduction Analysis Conclusion The Business Customer Market Research All Options Theory Application • TWO DISTINCTIONS: – Make calls during office hours – Rarely worry about the cost of calls (Finance Dept can deal with it) • PRICE INSENSITIVE! • Demand is INELASTIC • A percentage decrease in price will have a smaller percentage increase in Quantity Demanded (Calls made) Calculation 33 .
Introduction Analysis Conclusion Market Research All Options Theory Application Calculation The student customer • TWO DISTINCTIONS – You make calls whenever necessary and can seek to avoid calls that come with a higher pricetag – Students CARE about the price of calls • PRICE SENSITIVE • Demand is ELASTIC • A percentage decrease in price will result in a larger percentage increase in quantity demanded (calls made) 34 .
downward adjustment in price is relevant! A>B for Revenue Gain! 35 .Introduction Analysis Conclusion Market Research All Options Theory Application Calculation Mobile phone company revenue: • The revenue gain from increased quantity must be greater than the revenue loss from dropping the price • Since our target market is Youth. whose demand is relatively elastic.
Introduction Analysis Conclusion Option 1 : Clone industry Market Research All Options Theory Application Industry pricing -Same price of handset offered -Same churn rate of 2% Xtras Hidden Fee Off-peak hour Option 2 : Price below Industry pricing Xtras Hidden Fee Off-peak (1) hour Priced (5c) below 36 Calculation -Same price of handset offered -Same churn rate of 2% .
Introduction Analysis Conclusion Option 3 : New pricing structure: prepaid Market Research All Options Theory Application Average monthly revenue from minute usage = Avg. min + avg. minute charge -Same price of handset offered -Churn rate of 6% Xtras Hidden Fee Off-peak (1) hour Calculation 37 .
CCPU Calculation r: retention rate = 1 – churn rate i : interest rate = 5% -Sale commission -Advertising per gross add -Subsidy cost 38 .Introduction Analysis Conclusion Market Research All Options Theory Application LTV = ARPU CCPU M − AC 1− r + i M AC LTV Lifetime Value MonthlyAcquisition Cost Margin Average Cash Cost per user Revenue per= 45% of ARPU user = ARPU .
Target average minute per month is 200 .000 out of 1 million Option 3: new pricing structure and features -> most attractive -> 1 million out of 1 million Calculation 39 .Year 1 is the immediate target .000 out of 1 million subscribers Option 2: lower cost -> attractive -> 750.Target average charge per minute is 15 cent .Level of subscribers Option 1: same industry pricing -> less attractive -> 500.Introduction Analysis Conclusion Assumptions Market Research All Options Theory Application .Customer with us 1 year for prepaid .
04 $ 30.00 Hidden Fee Off-peak (1) hour Priced below (5c) Option 1 Option 2 Option 3 Xtras Xtras Xtras Rev.02 $ 18.00) $ 12.03 $ 24.Introduction Analysis Conclusion Item Market Research All Options Theory Application Value $ (6.00) $ (10.00) $ (3. from minute usage Calculation 40 .
Introduction Analysis Xtras Value Conclusion Market Research All Options Theory Application % of the market share Calculation # of subscriber x 12 months 41 .
00 $30.04 $20.00 $24.27 $24.00 LTV $44.76 M $22.07 $120.29 Industry Avg.94 Option 3 Calculation $45.Introduction Analysis Conclusion ARPU Market Research All Options CCPU $30.02 Option 2 Theory Application $51.26 AC $270.89 M LTV = − AC 1− r + i 42 .00 $253. Option 1 $52.96 $28.03 $22.00 $160.29 $272.77 $100.00 $55.00 $280.
Break Even Point with AC and LTV Market Research All Options Theory Application Let LTV = 0 -> 0 = M/(1 .11 If LTV = 0 .r .i) – AC -> M = 0.77/0.Introduction Analysis Conclusion Option 3 . AC = $225. we can lower price or increase quality Calculation 43 .11 AC -> AC = 24. That is the max we can go with AC. Now with AC at $100. -For Ads budget. we can spend more -For the handset.
Introduction Analysis Conclusion Option 3 .15 0 ~ Break even 0.37 0.Break Even Per customer Market Research All Options Theory Application Revenue = Cost Xtras + minute usage = CCPU + AC Cost Total Net With Xtras Without Xtras 11.21 Calculation 44 .09 0.
Introduction Analysis Conclusion Market Research All Options Theory Application Calculation 45 .
com/virgin-mobile-details-launch-plans.aspx .wirelessweek.Introduction Analysis Conclusion Virgin Response Recommendations Questions Pricing Strategy Pricing Objective Sales Maximization Demand Estimate Current market penetration of target market is only 25%1 Create Demand amongst remaining 75% Brand Switch by current users Capitalize on Highly Elastic Demand of Target Market Cost Estimates Monthly Cost to Serve per Customer Networking Cost Customer Service Cost Overhead Cost Customer Acquisition Cost Subsidy on Cell Phone set Marketing Communication Cost Sales commission 46 Source: http://www.
Introduction Analysis Conclusion Pricing Strategy (contd…) Virgin Response Recommendations Competitors’ Prices ARPU of $52 with 417 minute of use 60 – 20 c per minute for less than 100 minutes 20 – 12 c per minute for 100 to 300 minutes (Virgin Target Market) 35 – 50 c per minute for Pre-paid Costumers (Virgin Target Market) Questions Pricing Method Penetration Pricing Costs per Unit is inversely related to Number of Subscribers Reduce CCPU by increase in Number of Subscribers Increase in Margin will follow 47 .
Introduction Analysis Conclusion Virgin Response Recommendations Questions 48 .
04 Questions 49 .04 Total Estimated ARPU of $45.Introduction Analysis Conclusion Final Price !!!! Virgin Response Recommendations 15c per minute with Revenue of $30 per unit (average use of 200 mins) Target Virgin Xtras Revenue of 15.
Introduction Analysis Conclusion Virgin Response Recommendations Questions 50 .
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