VIRGIN MOBILE

PRICING STRATEGY CASE

PRESENTASI KELOMPOK 4
WHO IS The Virgin Group was
founded in 1970 by iconic

VIRGIN
business entrepreneur
Richard Branson. The
Virgin Group comprises a

GROUP?
variety of products and
services including video
games, travel, music, radio
etc. 
In 2000 Virgin Mobile went
global. Branson recognized
an area of unsatisfied and
under-served customers.
Customers ages 15-29 years
old were significantly less
penetrated than other mobile
uses. This age group
represented an area of
extreme growth over the next
several years. He could
create a diversified product
and phone plan to target this
group.
OBJECTIVE TARGET BUSINESS BRAND AREA
SEGMENT MODEL PERSONALITY
To develop a pricing Teens and Twenties Mobile Virtual Innovative, fun, Area where
strategy for a new Network Operator pro-active and competitors are
wireless dervice (MVNO).  challenging complacent or
costumers taken
No fixed cost or
invesment in for a ride by
physical existing players
infrastructure

OVERVIEW :
VIRGIN MOBILE's TARGET
 Value of Money
What you pay is what you got

Honesty
No Hidden fees and taxes

CORE Innovation
COMPETENCY Creating something new for the youth to enjoy

Making difference in the eyes of the

costumer in terms of Fun
Youth spirit is about fun

A Sense of 'Coolness'
for the youth, phone is also a kind of fashion
VirginXtras
Text Messaging Online Real-Time Rescue Ring Wake-up Call
Being
Set up a message
Key Selling point for Providing record of Schedule a
and call from a
youth. They like to individual calls on a prearranged call to
variety of cheeky
communicate. real-time basis 'escape' in a wrong
celebrity
date.
personalities to
wake you up

Ring Tones Fun Clips The Hit List Music and

Movies
Costumize your Audio clips consist Listen and vote on a subscribe into a tip
own ring tones with of tidbits, jokes, top 10 list of hit 10 song list and
many options of gossip, sports song look into movie
songs information and description and
more showtimes 
Value Proposition
The intention was to
Integrate
appeal to the youth,
entertainment with
market, generate VIRGIN
BASIC EXTRAS basic telephone
additional usage, and
service
create loyalty

Colorful and vibrant, At places frequented

PACKAGING hassle free sale AVAILABILITY by the youth
VALUE POSITIONING
Holistic marketing approach takes pricing decision based on
various factors (3C)

Company Costumer Competition

Pricing should Uniform and hassle A Pricing strategy
conform to the free pricing which will which will provide the
company's marketing enhance Costumer's company a distinct
strategy and its target satisfaction competitive
markets and brand advantage
positioning
 Model
MVNO - This model was successful in Uk, but not in
Singapore

BUSINESS
MODEL
Virgin mobile has decided some
strategy model which they will
apply to launch this product
according to their budget
Advertisement
The budget of Virgin mobile is approximately $60
million. Using magazine anf publication as The
complex, Vibe, and XXL (opinion-leading magazines)
Commission
Lower commisions - $30 per phone as against industry
average of $100
Channel Strategy
Using different channel strategy where youth shop.
reduce sales fee
 THE PRICING
DECISION??
Virgin mobile should decide their price in order to
win the market. They are faced with more or less
three options....
Clone the Industry Prices
1
Price Below the Competition
2
3
A Whole New Plan
Considerations
AWARENESS Young people know that there are a lot of hidden charges, and they resend this.

CONTRACT 90% of all subscribers in U.S had a contractual agreements with their cellular providers

BILLING Quite hard to check your mothly bill in the middle of the months

Different goal than other competitor. try to breakthrough the clutter. focus on much
GOAL
narrower target market.

Make sure that our price is competitive, make sure we can make money, don't
CONSTRAINT
trigger off competitive reactions
 OPTION 1

CLONE THE INDUSTRY

PRICES
"With this first options, we would simply be telling consumers
that we're priced competitively with everyone else, but with a
few key advantages like differentiated applications (MTV) and
superior costumer service"
Option 1
PROs
Easy implementation
Service and application familiarity
Competitive off peak hour rates
CONs
No Pricing advantage from
competitors
Will not work with Low income
segment
Poor Credit quality of the targeted
segment, will reduce the target
market further
Difficult to penetrate the market
without lower prices
 OPTION 2

PRICE BELOW THE

COMPETITION
"This option would allow us to tell consumers that we're
cheaper, plain and simple. under this option, we could also
offer better off-peak hours and fewer hidden fees, but I don't
know if that would be necessary id our price per minute was
clearly below the competition. We wouldn't want to leave too
much money on the table."
Option 2
PROs CONs
Having a pricce advantage Low Margin and would need deep
compared to competitors pocket
Fits with the requirement of the May cause a price war
target market (lower prices)
Cheaper and hence accessible to
low income segment
will enable better penetration
 OPTION 3

A WHOLE NEW PLAN

"This is the most radical option. the ide was to start from
scratch and come up with an entirely different pricing
structure, one that was significantly different from anything
offered by the competition."
Option 3
PROs CONs
Possible to do away with the
High churn rate of 6%
contracts so as to get low credit
Concerns over margin
customers
Concern over the recovery of cost
Prepaid services to help customer
of handset
decide their own talk plans
Specifically customized for the
target market
Subsidized handsets to make the
deal attractive
Eliminate all hidden costs
 WHAT PRICING
STRATEGY WOULD
YOU CHOOSE?
WE CHOOSE
OPTIONS 3!
ARPU CCPU Monthly Average cost
Average Cash cost per Margin to acquire
Revenue per user per user = customer
52-30 = $22
user = $52 $30 $370

Time to break even Annual retention rate 

$370/$22 = 17 months w/ contract
1-(0.02*12)=0.76
Annual retention rate  No contract
1-(monthly churn rate*12 months) 1-(0.06*12)=0.28
Exhibit 11. LTV
Interest rate = 5%

LTV = [M/(1-r+i)]-AC

M - Margin customers generates in a year 

R - Annual retention rate
i - interest rate
AC - Acquisition cost
N - Number of years over which the relationship is calculated
r - retention rate
LTV Calculation
With Contract Without Contract

[22*12/1-0.76+0.05] - 370 [22*12/1-0.28+0.05] - 370

= $540 = $-27.14
How to change the minus?
Virgin Mobile can play smart in their AC

Component of AC: (exhibit 11)

- Advertising per gross add ( $60million/1 million target
subcribers)
- The sales commission paid per subcribers (dealed in $30-
page 5)
- The handset subsidy provided to the subscribers
Hand set cost and subsidy

Industry hand set cost = $150-$300, then the average is $225

Current insdustry subsidy= $100-$200, then the average is $150

Percentage of subsidy is= (150/225)*100%=67%

Virgin possible tactic
Virgin hand set cost after agreement with kyocera manufacturer=
$60-$100, then the average is $80

Current insdustry subsidy= ?, but if follow industry trend is 67%

we suggest to lower the subsidy even more to 40%, then the

subsidy will be $30
Virgin possible tactic

Then the total acquisition cost for Virgin mobile would be=
sales commission= $30
Ad per gross add is= $60
Hand set subsidy is= $30

Total axquisition cost is $120

LET'S CALCULATE!
STRATEGY, TACTICS,
AND EXECUTION

LTV = [M/(1-r+i)]-AC
LTV = [22*12/1-0.28+0.05] - 120
= $222.857
VOILA! IT'S
POSITIVE!
 SUMMARY

Virgin Mobile can adopt the

3rd option, offering no
contract hassle free product
to their target market!
it has a high chance of success of winning the
target market (youth), and still earn in the same
time...
MEET THE TEAM!
KELOMPOK IV

ERIC LEON L. ROBERTUS ADI NUGROHO

eric.louhenapessy@gmail.com robertusadiop@gmail.com
THANK YOU!