Case Study-Virgin Mobile USA

Contents
• Introduction
• Entering US Market
• Core needs of Target Market
• Value Adds
• Advertising and Promotions
• Pricing Options
 Introduction
• Portfolio of more than 200 corporate entities -
History of Brand extensions
• First to adopt the MVNO model in the UK
• Focus on understanding and meeting
customer needs
 Entering the US Market

• Virgin mobile identified the underserved

target market based on demographic
segmentation (ppl with age group 15 to 29)
• Marketing strategy – to mainly attack the
niche market segment – the teens
• Used MVNO model again and entered into 50-
50 joint venture with Sprint
• Industry Penetration was 50% with 130 million
subscribers
 Analysed the core needs of the
identified segment—
• Variation of usage pattern, mobile is used mainly
for downloading ringtones, images, text
messaging etc.
• Mobile used as a fashion accessory and personal
identity
• Prime needs— delivery of content, features,
entertainment for the target segment
 Value Adds
• Different  channel strategy  was adopted to
reach the target customer
• Mobile displayed in attractive packages in
electronic outlet shops mostly visited by youths
• Easy availability— people could pick up the
phone and purchase it like any other electronic
good
• Incorporation of Virgin Xtras like wake up call,
rescue ring, hitlist, etc.
 Advertising and Promotions
• Miniscule budget of 60 million
• Advertising in youth magazines
• Publishing of advertorials in opinion leading
magazines like The Complex, Vibe XXL
• High profile street marketing events
• Quirky, off-beat ad treatments
 Pricing Options
• Clone the Industry Prices

• Price Below the Competition

• A Whole New Plan

 Option 1 – analysis

Advantages:
o Easy to promote
o Better of peak hours and fewer hidden
fees
Dis advantages:
o Hard to attract the target market
o Limited value adds
Option 1 – Pricing Structure
 Option 2 - Analysis
Advantages
o Cheaper, plan and simple
o Better off-peak hours and fewer hidden fees
Dis advantages
o Less profit per customer
Option 2 – pricing structure
 Option 3 - Analysis
Advantages:
o Attracts the target market because of
elimination of contracts for prepaid customers
o Cheaper handset subsidies
o Reduced hidden cost and off peak hours
 Option 3 - Analysis
Disadvantages:
o Risk of Increase in customer churn rate from
2% to 6%
o Difficult to recoup customer acquisition cost
o Prepaid customers would require new
mechanism to add minutes.
 LTV for option 3
o LTV = ∑ (Ma ra-1)/(1+i)a – AC
(from a=1 to N)

Where

Ma = Margin per year for year a

r = retention rate
I = interest rate
AC = Acquisition cost
N = no. of years of relationship
 Contd..
Assuming infinite economic life
LTV = M/(1-r+i) – AC
M = ARPU – CCPU
ARPU = average revenue per minute per
month
CCPU = cash cost per server
 Contd..
o Churn rate 2% :
r = 1- churn rate
= 1-(0.02*12) = 0.76
i = 0.05
AC = $370
CCPU = $13.5
ARPU = $30
M = ARPU - CCPU
 Contd..
LTV = [(16.5*12)/(1-0.76+0.05)] – 370 = $312

o Churn rate 6%
r = 1-0.06 = 0.94
CCPU = 45% of ARPU
M = ARPU – CCPU
Contd..
 Contd
Estimated total revenue = $30 billion
No. of. Subscribers = 130 million
Market share of target segment = 45%
ARPU = 30b /(130*0.45*12) = $43
M = $23
AC = $100
LTV = 23/(1+0.05-0.94) – 100 = $113.6
 conclusion
o Prepaid service plan with pricing based on
option 3 provides positive LTV
o Virgin would be able to create customer
loyalty with the youth market.
Thank You