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P R I C I N G F O R T H E V E R Y F I R S T T I M E
1 June 2015Consumer Behaviour Case Study -Virgin Mobile
Virgin Mobiles...
2
Index
 Introduction-Virgin Group
 Introduction-Virgin Mobile
 Virgin Mobile – Ventures
 Virgin Mobile USA
 Mission
...
3
Introduction-Virgin Group
1 June 2015Consumer Behaviour Case Study -Virgin Mobile
Type Private limited company
Industry ...
4 1 June 2015Consumer Behaviour Case Study -Virgin Mobile
Introduction-Virgin Group
Virgin Group Products
Banking
Beverage...
5
Virgin Mobile
1 June 2015Consumer Behaviour Case Study -Virgin Mobile
Ansoff Growth Matrix
Market
Product
Foray into new...
6 1 June 2015Consumer Behaviour Case Study -Virgin Mobile
Year Countries Partners
In operation
1999 UK NTL Telewest
2000 A...
7
Virgin Mobile - Ventures
1 June 2015Consumer Behaviour Case Study -Virgin Mobile
Success
Cellular Operation in UK
2.5 Mi...
8
Virgin Mobile USA
1 June2015Consumer Behaviour Case Study -Virgin Mobile
Facts:
• Mobile market seems to have 50% penetr...
9
Search for Leadership
Virgin Mobile USA
2 Apr 2014Consumer Behaviour Case Study -Virgin Mobile
• US Telecommunications h...
10 1 June 2015Consumer Behaviour Case Study -Virgin Mobile
Mission
Mission
 Making a difference in the eyes of the custom...
11
Objective
1 June 2015Consumer Behaviour Case Study -Virgin Mobile
Objective
•Targeting age group of 15-29 years
•The co...
12
Virgin Mobile- Promotion
VirginXtras
 Text Messaging
 Online Real Time Billing
 Rescue Calling
 Wake Up call
 Ring...
G I V E N V I R G I N M O B I L E ’ S T A R G E T M A R K E T ( 1 4 T O 2 4 - Y E A R -
O L D S ) , H O W S H O U L D I T ...
14
Pricing strategy
1 June 2015Consumer Behaviour Case Study -Virgin Mobile
Overall Goal in choosing pricing structure
Nee...
15 1 June 2015Consumer Behaviour Case Study -Virgin Mobile
Pricing strategy
Option 1 : Clone the industry prices
1. Simple...
16 1 June 2015Consumer Behaviour Case Study -Virgin Mobile
Pricing strategy
Minutes
Option 1 : Pricing Structure
17 1 June 2015Consumer Behaviour Case Study -Virgin Mobile
Pricing strategy
Option 1 : Benefits and Shortcomings
Pros
And
...
18 1 June 2015Consumer Behaviour Case Study -Virgin Mobile
Pricing strategy
Option 2 : Price below competition
1. Similar ...
19 1 June 2015Consumer Behaviour Case Study -Virgin Mobile
Pricing strategy
Option 2 : Pricing Structure
20 1 June 2015Consumer Behaviour Case Study -Virgin Mobile
Pricing strategy
Option 2 : Benefits and Shortcomings
Pros
And
...
21 1 June 2015Consumer Behaviour Case Study -Virgin Mobile
Pricing strategy
Option 3 : Radically new plan
1. Shorten or el...
22
Pricing strategy
1 June 2015Consumer Behaviour Case Study -Virgin Mobile
 Price Elasticity of Demand
 Characteristics...
23 1 June 2015Consumer Behaviour Case Study -Virgin Mobile
Pricing strategy
Pricing
 Assumptions
 Churn Rate= 6% for Pre...
24 1 June 2015Consumer Behaviour Case Study -Virgin Mobile
Pricing strategy
Contracts: Does it make sense to shorten subsc...
25 1 June 2015Consumer Behaviour Case Study -Virgin Mobile
Pricing strategy
Handset subsidies
Fact
 Currently carriers pu...
26 1 June 2015Consumer Behaviour Case Study -Virgin Mobile
Pricing strategy
Hidden Fees Off-peak hours
Goal: Make pricing ...
27 1 June 2015Consumer Behaviour Case Study -Virgin Mobile
Pricing strategy
What is LTV?
ARPU CCPU M AC LTV
Average
Revenu...
28 1 June 2015Consumer Behaviour Case Study -Virgin Mobile
Pricing strategy
Acquisition Cost
 Advertising per gross add-
...
29 1 June 2015Consumer Behaviour Case Study -Virgin Mobile
Pricing strategy
Lifetime value Analysis
Option 1
1)r(annual re...
30 1 June 2015Consumer Behaviour Case Study -Virgin Mobile
Pricing strategy
Option 3a
With
contract
$29 -- $35 due to hid...
31 1 June 2015Consumer Behaviour Case Study -Virgin Mobile
Pricing strategy
Lifetime value Analysis Results
Option 1 2 3a ...
32 1 June 2015Consumer Behaviour Case Study -Virgin Mobile
Pricing strategy
Achieving profitability
1. Breakeven Analysis
...
T H E C E L L U L A R I N D U S T R Y I S N O T O R I O U S F O R H I G H
C U S T O M E R D I S S A T I S F A C T I O N . ...
34 1 June 2015Consumer Behaviour Case Study -Virgin Mobile
Addressing the Customers’ dissatisfaction
Sources of
customer
d...
35
Reasons for dissatisfaction
 Customer under contract leads to lower churn rate
 Hidden charges allows the company to ...
36
 Virgin Mobile – A Different Approach
1. From a customer perspective, an "ideal" plan would probably
include a number ...
37 1 June 2015Consumer Behaviour Case Study -Virgin Mobile
No contracts
A Consumer Friendly Plan: Potential Problems
Incre...
38 1 June 2015Consumer Behaviour Case Study -Virgin Mobile
Lowering Customer Acquisition Costs
1. On sales commissions
• B...
39
 Embracing Additional Pricing Elements
1. Pre-paid requirement – no contract
• Eliminate the problem of uncollectible
...
40
 Developing a Highly-Differentiated Positioning
1. A highly-differentiated service proposition
• Rescue Rings
• Wake-U...
41
 A Consumer Friendly Plan: Potential Solutions
1 June 2015Consumer Behaviour Case Study -Virgin Mobile
No contracts In...
W H A T D O Y O U T H I N K O F V I R G I N M O B I L E ’ S V A L U E
P R O P O S I T I O N ( T H E V I R G I N X T R A S ...
43
Value Proposition
1 June 2015Consumer Behaviour Case Study -Virgin Mobile
 Basic intent to appeal to the youth, market...
D O Y O U A G R E E W I T H V I R G I N M O B I L E ’ S T A R G E T M A R K E T
S E L E C T I O N ? W H A T A R E T H E R ...
45 1 June 2015Consumer Behaviour Case Study -Virgin Mobile
Target Market Selection
 Identified the age segment where the ...
46
Target Market Selection
1 June 2015Consumer Behaviour Case Study -Virgin Mobile
 Identified the income segment with a ...
H O W D O T H E M A J O R C A R R I E R S M A K E M O N E Y I N T H I S
I N D U S T R Y ? I S T H E R E A F I N A N C I A ...
48
Make Money
1 June 2015Consumer Behaviour Case Study -Virgin Mobile
1. Major carriers continue to hold customers "hostag...
H O W C O N F I D E N T A R E Y O U T H A T T H E P L A N Y O U H A V E
D E S I G N E D W I L L B E P R O F I T A B L E ? ...
50
The Designed Plan
1 June 2015Consumer Behaviour Case Study -Virgin Mobile
1. From a customer perspective, an "ideal" pl...
51
Lowering Customer Acquisition Costs
1 June2015Consumer Behaviour Case Study -Virgin Mobile
1. On sales commissions
• Be...
52
Lowering Customer Acquisition Costs
1 June2015Consumer Behaviour Case Study -Virgin Mobile
3. On handset subsidies
• Vi...
P L E A S E D E S C R I B E H O W T H E S I T U A T I O N A N D F I N D I N G S I N
T H E C A S E A N D / O R Y O U R C O ...
54 1 June 2015Consumer Behaviour Case Study -Virgin Mobile
Websites
 http://www.virginmobile.in/
 http://www.virginmobil...
1 June2015Consumer Behaviour Case Study -Virgin Mobile
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Annalysed Case study of Virgin mobiles HARVARD UNIVERSITY CASE

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Annalysed Case study of Virgin mobiles HARVARD UNIVERSITY CASE

  1. 1. P R I C I N G F O R T H E V E R Y F I R S T T I M E 1 June 2015Consumer Behaviour Case Study -Virgin Mobile Virgin Mobiles USA Prepared by- Mohammad Tariq Stanikzai Course- Consumer Behavior Instructor- Prof. Mark. Runge
  2. 2. 2 Index  Introduction-Virgin Group  Introduction-Virgin Mobile  Virgin Mobile – Ventures  Virgin Mobile USA  Mission  Objective  Case Questions  Pricing strategy  Addressing the Customers’ dissatisfaction  Telecom Market Comparison – Afghanisatan Vs USA 1 June 2015Consumer Behaviour Case Study -Virgin Mobile
  3. 3. 3 Introduction-Virgin Group 1 June 2015Consumer Behaviour Case Study -Virgin Mobile Type Private limited company Industry Conglomerate Founded 1970 Founder Richard Branson Headquarters London, United Kingdom Area served Global Revenue £15 billion (2012) Employees Approximately 50,000 Year Milestones 1960 A seventeen-year-old Richard Branson launches his first two businesses 1970 Virgin opens Britain’s first residential recording studio 1980 Virgin Games is launched 1990 First national radio station hits the airwaves 2000 •Virgin Media becomes the UK's first quadplay company •Virgin Mobile goes Global Britain's Flag Carrier Virgin Group
  4. 4. 4 1 June 2015Consumer Behaviour Case Study -Virgin Mobile Introduction-Virgin Group Virgin Group Products Banking Beverages Travel Video games Consumer electronics Financial Services Films Internet Music Radio Books Cosmetics Jewellery Houseware Retail Mobile Phones Commercial spaceflight
  5. 5. 5 Virgin Mobile 1 June 2015Consumer Behaviour Case Study -Virgin Mobile Ansoff Growth Matrix Market Product Foray into new Market with new Product- “Diversification”
  6. 6. 6 1 June 2015Consumer Behaviour Case Study -Virgin Mobile Year Countries Partners In operation 1999 UK NTL Telewest 2000 Australia Optus network 2002 USA Sprint 2005 Canada Bell Canada 2006 France Carphone Warehouse 2006 South Africa Cell C 2011 India Tata Teleservices 2012 Poland PLAY Virgin Mobile Launch Defunct 2001 Singapore Singtel 2010 Qatar Qatar Telecom Virgin Mobile
  7. 7. 7 Virgin Mobile - Ventures 1 June 2015Consumer Behaviour Case Study -Virgin Mobile Success Cellular Operation in UK 2.5 Million customers in 3 years Country’s 1st MNVO (Mobile Network Virtual Operator) United Kingdom Singapore Failure Cellular Operation in Singapore Joint venture with Singapore Telecom Fewer than 30,000 customers in 5 years Strategy Company leased Network space from Deutsche Telekom Cause Saturation of market Virgin’s hip & trendy positioning
  8. 8. 8 Virgin Mobile USA 1 June2015Consumer Behaviour Case Study -Virgin Mobile Facts: • Mobile market seems to have 50% penetration with 130 million mobile subscribers • Age group 15-29 yrs came out to be less penetrated in terms of Mobile usage • This young demography was projected to have good growth in next 5 years Issue: • Big players didn’t target this potential customer segment • This segment had been underserved; their specific needs had not been met USA, Year 2011 Not just a ca
  9. 9. 9 Search for Leadership Virgin Mobile USA 2 Apr 2014Consumer Behaviour Case Study -Virgin Mobile • US Telecommunications holding company • Providing wireless services • Major global Internet carrier • 3rd largest U.S. wireless network operator Search for Service provider 50-50 Richard Branson & Daniel Schulman Daniel Schulman, CEO, Virgin Mobile USA “..We would be entering with a brand that had little US name recognition except for Airline.. It’s these kind of opportunities where a team can define itself and if this could be pulled off it would be unbelievable..”
  10. 10. 10 1 June 2015Consumer Behaviour Case Study -Virgin Mobile Mission Mission  Making a difference in the eyes of the customer in terms of • Value for Money • Quality • Innovation • Fun • A sense of competitive challenge
  11. 11. 11 Objective 1 June 2015Consumer Behaviour Case Study -Virgin Mobile Objective •Targeting age group of 15-29 years •The company aims to get 1 million subscribers by year 1 •3 million by year 4 By focusing on the youth market from the ground up and to serve these customers in a way they have never been served before.
  12. 12. 12 Virgin Mobile- Promotion VirginXtras  Text Messaging  Online Real Time Billing  Rescue Calling  Wake Up call  Ring Tones  Fun Clips  The Hit List  Music Messenger  Movies Daniel Schulman “Our market research indicates that VirginXtras will attract and retain the youth segment” 1 June 2015Consumer Behaviour Case Study -Virgin Mobile
  13. 13. G I V E N V I R G I N M O B I L E ’ S T A R G E T M A R K E T ( 1 4 T O 2 4 - Y E A R - O L D S ) , H O W S H O U L D I T S T R U C T U R E I T S P R I C I N G ? T H E C A S E L A Y S O U T T H R E E P R I C I N G O P T I O N S . W H I C H O P T I O N S W O U L D Y O U C H O S E A N D W H Y ? I N D E S I G N I N G Y O U R P R I C I N G P L A N , B E A S S P E C I F I C A S P O S S I B L E W I T H R E S P E C T T O T H E V A R I O U S E L E M E N T S U N D E R C O N S I D E R A T I O N S ( E . G . , C O N T R A C T S , T H E S I Z E O F T H E S U B S I D E S , H I D D E N F E E , A V E R A G E P E R - M I N U T E C H A R G E S , E T C ) . 1 June 2015Consumer Behaviour Case Study -Virgin Mobile Question-1
  14. 14. 14 Pricing strategy 1 June 2015Consumer Behaviour Case Study -Virgin Mobile Overall Goal in choosing pricing structure Need A Breakthrough  Must reach target market : YOUTH!  Create a positive lifetime value (LTV) for every customer. - Must be able to make money Three main options 1. Clone the industry prices. 2. Price below competition. 3. A whole new plan. Audience don’t trust industry pricing plan. Opportunity
  15. 15. 15 1 June 2015Consumer Behaviour Case Study -Virgin Mobile Pricing strategy Option 1 : Clone the industry prices 1. Simple message  Pricing competitively.  MTV applications.  Superior customer service. 2. Better Off-peak hours. 3. Fewer hidden fees.
  16. 16. 16 1 June 2015Consumer Behaviour Case Study -Virgin Mobile Pricing strategy Minutes Option 1 : Pricing Structure
  17. 17. 17 1 June 2015Consumer Behaviour Case Study -Virgin Mobile Pricing strategy Option 1 : Benefits and Shortcomings Pros And cons  Easy to Promote.  Consumers are used to “BUCKETS” and peak/off-peak distinctions.  Savings on advertising budget costs.  Simple packaging  Hard for a new entrant.  No flexibility in calling habits.  No price distinction hence consumers are not willing to switch
  18. 18. 18 1 June 2015Consumer Behaviour Case Study -Virgin Mobile Pricing strategy Option 2 : Price below competition 1. Similar structure  Pricing slightly below the competition. 2. Maintain “buckets” of minutes.  Price per minute set below industry average in certain key buckets.  Target young market that uses 100 to 300 minutes.
  19. 19. 19 1 June 2015Consumer Behaviour Case Study -Virgin Mobile Pricing strategy Option 2 : Pricing Structure
  20. 20. 20 1 June 2015Consumer Behaviour Case Study -Virgin Mobile Pricing strategy Option 2 : Benefits and Shortcomings Pros And cons  Maintain BUCKETS and volume discounts with price per minute set below industry average.  Offer best off-peak hours and less hide charges so consumer will know virgin mobile is cheaper and simple.  Expand size of market that results in greater sales and profit  Earnings from each consumer will be less  Sales growth doesn’t mean big profit  May trigger competitive reaction
  21. 21. 21 1 June 2015Consumer Behaviour Case Study -Virgin Mobile Pricing strategy Option 3 : Radically new plan 1. Shorten or eliminate contracts. 2. Prepaid service. 3. Handset subsidies. 4. Eliminate all hidden fees and off peak hours. 5. Concept of LTV After evaluating the Pros and Cons of the three plans, we decide to try Option 3 with Optimal Pricing.
  22. 22. 22 Pricing strategy 1 June 2015Consumer Behaviour Case Study -Virgin Mobile  Price Elasticity of Demand  Characteristics  Demand is elastic  Price sensitive  A decrease in pricing will increase in corresponding increase in quantity of demand P1 P2 Q1 Q2 Price Quantity D
  23. 23. 23 1 June 2015Consumer Behaviour Case Study -Virgin Mobile Pricing strategy Pricing  Assumptions  Churn Rate= 6% for Prepaid  Rate of Interest (i)= 5% per annum  Market price = $ 0.15 for 200 minutes per month  A customer uses the service for one year as Expected number of months a customer will stay with Virgin is 1/ Churn rate = 1/ 0.06 = 16.67 months  Churn rate remains constant for the period  a= 1  VirginXtras is not added to revenue
  24. 24. 24 1 June 2015Consumer Behaviour Case Study -Virgin Mobile Pricing strategy Contracts: Does it make sense to shorten subscription terms or eliminate them? 1) Contract provides a hedge against churn. 2) Estimated churn rises from 2 to 6%. Advantage: It allows 18 years and younger to purchase the product. Prepaid Vs Postpaid Fact: 92% of subscribers have postpaid plan. Concerns:  Prepaid arrangements have prohibitive pricing.  (35-50 cents per minute to as high as 75 cents)  Phone use was infrequent.  Higher churn rate.  No loyalty to provider.  Recoup acquisition cost.  Morgan stanley research suggest that acquisition cost must be at or below $100 for prepaid to be viable.  Need a method to add minutes.
  25. 25. 25 1 June 2015Consumer Behaviour Case Study -Virgin Mobile Pricing strategy Handset subsidies Fact  Currently carriers purchase handsets from major manufacturers at a cost of $150 to $300.  Carriers then subsidize user $100- $200 ---becomes part of acquisition cost. Approach Increasing subsidies so that phones are cheaper than competition. Getting consumers to feel more invested and loyal.
  26. 26. 26 1 June 2015Consumer Behaviour Case Study -Virgin Mobile Pricing strategy Hidden Fees Off-peak hours Goal: Make pricing very simple. “What you see is what you get” 1)Rolling inner prices of taxes and fees into final prices. 2)Make money. Target market Young people!  Price insensitive.  Demand is inelastic.  Rarely worry about charges. Call in office hours.  Make calls whenever necessary and can avoid.  Care about price  Price sensitive.  Elastic demand Business person Student
  27. 27. 27 1 June 2015Consumer Behaviour Case Study -Virgin Mobile Pricing strategy What is LTV? ARPU CCPU M AC LTV Average Revenue per user Cash cost per user (45% of ARPU) Monthly Margin (ARPU- CCPU) Acquisition cost Lifeti me Value R: Retention rate= 1- churn rate i= interest rate = 5% -Sales commission -Advertising per gross add -subsidy cost  Value of customer in terms of how much service or product he will purchase in his lifetime.  Value of keeping customers loyal
  28. 28. 28 1 June 2015Consumer Behaviour Case Study -Virgin Mobile Pricing strategy Acquisition Cost  Advertising per gross add- $75-$100  Sales commission-$100  Handset subsidy-$100-$200  Total- $275-$400  Acquisition cost roughly- $370 Breakeven Analysis  Monthly ARPU- $52  Monthly cost to serve- $30  Monthly margin=($52- $30)=$22 Time to breakeven on acquisition cost = $370/$22= 17 months
  29. 29. 29 1 June 2015Consumer Behaviour Case Study -Virgin Mobile Pricing strategy Lifetime value Analysis Option 1 1)r(annual retention rate): 1-(0.02*12) = 0.76 2)M (yearly margin): 22* $12= $264 3)i(interest rate) : 5% 4)AC(acquisition cost): $370 LTV=[264/(1-0.76+0.05)]-370 =$540 Option 2 1)r(annual retention rate): 1-(0.06*12) = 0.28 2)M (yearly margin): 22* $12= $264 3)i(interest rate) : 5% 4)AC(acquisition cost): $370 LTV=[264/(1-0.28+0.05)]-370 = -$27.14
  30. 30. 30 1 June 2015Consumer Behaviour Case Study -Virgin Mobile Pricing strategy Option 3a With contract $29 -- $35 due to hidden cost (21% decrease) 1) r(annual retention rate): 1-(0.02*12) = 0.76 2)M (yearly margin): 22/1.21=$218.16 3)i(interest rate) : 5% 4)AC(acquisition cost): $370 LTV=[218.16/(1-0.76+0.05)]- 370 =$382 Option 3b Without contract 1)r(annual retention rate): 1-(0.06*12) = 0.28 2)M (yearly margin): $218.16 3)i(interest rate) : 5% 4)AC(acquisition cost): $370 LTV=[218.16/(1-0.28+0.05)]- 370 = -$86.68
  31. 31. 31 1 June 2015Consumer Behaviour Case Study -Virgin Mobile Pricing strategy Lifetime value Analysis Results Option 1 2 3a 3b LTV +$540 -$27.14 +$382 -$86.68 +value Acceptable A different approach 1)Lowering customer Acquisition cost • Sales commission: $30 • Advertising per gross add: $60 • Handset subsidy: $30 Total customer Acquisition cost= $120 2)Embracing additional pricing elements 3)Developing competitive positioning through pricing.
  32. 32. 32 1 June 2015Consumer Behaviour Case Study -Virgin Mobile Pricing strategy Achieving profitability 1. Breakeven Analysis  Given the acquisition Virgin’s $120 acquisition cost, what would the company have to charge on a per-minute basis (P) to equal the industry’s break-even time of 17 months, assuming that Virgin’s customers use 200 minutes per month (a midpoint of estimate p. 7)?  Monthly ARPU: 200(P)  Monthly cost-to-serve (45% - Ex. 11): (0.45)*[200(P)]  Monthly margin: [200(P)] - [90(P)] = 110(P)  Virgin Acquisition Cost: $120  Price to Break-Even: 120 / 110(P) = 17  P = 6.4 cents  r (annual retention rate): 1 - (0.06 * 12) = 0.28  LTV (6.4): [(0.064 * 110 * 12) / (1 – 0.28 + 0.05)] – 120= - $10.29  LTV (10): [(0.10 * 110 * 12) / (1 – 0.28 + 0.05)] – 120 = $51  LTV (25): [(0.25 * 110 * 12) / (1 – 0.28 + 0.05)] – 120 = $ 309 LTV Analysis: Eliminating contracts
  33. 33. T H E C E L L U L A R I N D U S T R Y I S N O T O R I O U S F O R H I G H C U S T O M E R D I S S A T I S F A C T I O N . D E S P I T E T H E E X I S T E N C E O F S E R V I C E C O N T R A C T S , T H E B I G C A R R I E R S C H U R N R O U G H L Y 2 4 % O F T H E I R C U S T O M E R S E A C H Y E A R . C L E A R L Y , T H E R E I S V E R Y L I T T L E L O Y A L T Y I N T H I S M A R K E T . W H A T I S T H E S O U R C E O F A L L O F T H I S D I S S A T I S F A C T I O N ? H O W H A V E T H E V A R I O U S P R I C I N G V A R I A B L E S ( C O N T R A C T S , P R I C I N G B U C K E T S , H I D D E N F E E S , O F F - P E A K H O U R S , E T C . ) A F F E C T E D T H E C O N S U M E R E X P E R I E N C E ? W H Y H A V E N ’ T T H E B I G C A R R I E R S R E S P O N D E D M O R E A G G R E S S I V E L Y T O C U S T O M E R D I S S A T I S F A C T I O N ? 1 June 2015Consumer Behaviour Case Study -Virgin Mobile Question-2
  34. 34. 34 1 June 2015Consumer Behaviour Case Study -Virgin Mobile Addressing the Customers’ dissatisfaction Sources of customer dissatisfaction contracts Peak time differentials Complex sales process privacy concerns Credit checks Poor customer service Hidden fees Bucket pricing
  35. 35. 35 Reasons for dissatisfaction  Customer under contract leads to lower churn rate  Hidden charges allows the company to promote at lower per minute pricing levels.  A complex sales process, which in turn drives costly sales commissions.  Bucket pricing system often lead to confusion with customers and so they are penalized.  Off-Peak/On-Peak differentials add to customer confusion and off-peak period has shrunk over time 1 June 2015Consumer Behaviour Case Study -Virgin Mobile Addressing the Customers’ dissatisfaction
  36. 36. 36  Virgin Mobile – A Different Approach 1. From a customer perspective, an "ideal" plan would probably include a number of elements which would have a potentially negative impact of the company’s financial… 2. … but Virgin can use a number of different managerial tools to counter these negatives, for example: • Lowering Customer Acquisition Costs • Embracing Additional Pricing Elements • Developing a Highly-Differentiated Competitive Positioning through a new services package and a new pricing proposition 1 June 2015Consumer Behaviour Case Study -Virgin Mobile Addressing the Customers’ dissatisfaction
  37. 37. 37 1 June 2015Consumer Behaviour Case Study -Virgin Mobile No contracts A Consumer Friendly Plan: Potential Problems Increased Churn Consumers want….. But the problem is ….. No Pricing Buckets No Hidden Fees Lower Operating Margins No Peak/Off Peak Hrs No Credit Checks More Uncollectibles Simple Sales Process Sales commission reduction Great Service Increased Costs Addressing the Customers’ dissatisfaction
  38. 38. 38 1 June 2015Consumer Behaviour Case Study -Virgin Mobile Lowering Customer Acquisition Costs 1. On sales commissions • Because of a different channel and merchandising strategy where "consumers can pick up the phone without a salesperson helping them" , Virgin expect its sales commissions to be $30 per phone, as opposed to $100 for the industry average. 2. On advertising costs • Virgin plans to spend much less than its competitors (approx. $60 million for the year. Given the company’s target to acquire 1 million customers during this period, the advertising cost will be $60 per gross ad, compared to the industry average of $75 to $100 . 3. On handset subsidies • Virgin handsets cost the firm between $60 to $100 compared to an industry average of $150 to $300 because the company plans to stay away from selling high-end phones to young customers. • If Virgin is decided to offer subsides at half the rate of the industry average (current industry handset cost / subsidy = 67%), then this subsidy would be roughly ($80 * 35%) = $30 4. Virgin total acquisition costs: $120 • Sales commission: $30 • Advertising per gross ad: $60 • Handset subsidy: $30 Addressing the Customers’ dissatisfaction
  39. 39. 39  Embracing Additional Pricing Elements 1. Pre-paid requirement – no contract • Eliminate the problem of uncollectible • Eliminate the need for credit check • Simplify the selling process • Encourage trial (and therefore potentially lower customer acquisition costs) • Lower costs-to-serve (simplified billing, reduced number of service calls related to pricing disputes) 2. A completely transparent, simple (one-size fits-all) per-minute price – no form of pricing discrimination being practiced by the competition (pricing buckets, on/off-peak policies, hidden fees, etc.) 1 June 2015Consumer Behaviour Case Study -Virgin Mobile Addressing the Customers’ dissatisfaction
  40. 40. 40  Developing a Highly-Differentiated Positioning 1. A highly-differentiated service proposition • Rescue Rings • Wake-Up Calls • VirginXtras… 2. A highly-differentiated pricing proposition 3. An opportunity to tap into the consumer resentment with a non- cynical, non-manipulative and radically different pricing approach, one that promises full transparency, no traps and no (bad) surprises, all at a fair price (customer rage management) 1 June 2015Consumer Behaviour Case Study -Virgin Mobile Addressing the Customers’ dissatisfaction
  41. 41. 41  A Consumer Friendly Plan: Potential Solutions 1 June 2015Consumer Behaviour Case Study -Virgin Mobile No contracts Increased Churn Consumers want… But the problem is ….. No Pricing Buckets No Hidden Fees Lower Operating Margins No Peak/Off Peak Hrs No Credit Checks More Uncollectibles Simple Sales Process Consumer Confusion Great Service Increased Costs Lower Acquisition Costs Simplified Pre- paid Plan eliminates confusion, no uncollectibles, fewer service calls Lower Subsidies A possible solution is ….. Addressing the Customers’ dissatisfaction
  42. 42. W H A T D O Y O U T H I N K O F V I R G I N M O B I L E ’ S V A L U E P R O P O S I T I O N ( T H E V I R G I N X T R A S , E T C . ) ? W H A T D O Y O U T H I N K O F I T S C H A N N E L A N D M E R C H A N D I S I N G S T R A T E G Y ? 1 June 2015Consumer Behaviour Case Study -Virgin Mobile Question-3
  43. 43. 43 Value Proposition 1 June 2015Consumer Behaviour Case Study -Virgin Mobile  Basic intent to appeal to the youth, market, generate additional usage, and create loyalty  virginExtra – Integrate entertainment with basic telephony  Text Messaging, Online Real-Time Billing, Rescue Ring, Wake-Up Call, Ring Tones, Fun Clips, The Hit List, Music Messenger, Movies.  Packaging – colorful and vibrant, Hassle free sale  Availability – At places frequented by the youth  Holistic marketing approach takes pricing decision based on various factors – 3Cs and marketing environment.  Company – Pricing should conform to the company’s marketing strategy and its target markets and brand positioning.  Customer – Uniform and hassle free pricing which will enhance Customer’s satisfaction.  Competition – A pricing strategy which will provide the company a distinct competitive advantage
  44. 44. D O Y O U A G R E E W I T H V I R G I N M O B I L E ’ S T A R G E T M A R K E T S E L E C T I O N ? W H A T A R E T H E R I S K S A S S O C I A T E D W I T H T A R G E T I N G T H I S S E G M E N T ? W H Y H A V E T H E M A J O R C A R R I E R S B E E N S L O W T O T A R G E T T H I S S E G M E N T ? 1 June 2015Consumer Behaviour Case Study -Virgin Mobile Question-4
  45. 45. 45 1 June 2015Consumer Behaviour Case Study -Virgin Mobile Target Market Selection  Identified the age segment where the Industry penetration was the lowest, that is, between 15 years to 29 years of age. 0 10 20 30 40 50 Age 15-19 Age 20-29 Age 30-59 Mobile Phone penetration Mobile Phone penetration
  46. 46. 46 Target Market Selection 1 June 2015Consumer Behaviour Case Study -Virgin Mobile  Identified the income segment with a low disposable income and high aspiration for trendiness. 1 15 32 32 USA Demography by Income Upper Class Upper Middle Class Lower Middle Class Working Class Lower Class
  47. 47. H O W D O T H E M A J O R C A R R I E R S M A K E M O N E Y I N T H I S I N D U S T R Y ? I S T H E R E A F I N A N C I A L L O G I C U N D E R L Y I N G T H E I R P R I C I N G A P P R O A C H ? 1 June 2015Consumer Behaviour Case Study -Virgin Mobile Question-5
  48. 48. 48 Make Money 1 June 2015Consumer Behaviour Case Study -Virgin Mobile 1. Major carriers continue to hold customers "hostage" through contracts and leave them feeling trapped in their plans (capture). 2. Customers, being obliged to sign up for pricing buckets, are penalized, often heavily, for shortfalls and overusages (decommoditization and consumption penalties). 3. Due to hidden costs (taxes, extra charges, service costs, etc.), customers often wind up paying 20-25% more than they expected on a per minute basis (lack of transparency). 4. Off-Peak/On-Peak differentials add to customer confusion and off-peak period has shrunk over time (constrained consumer behaviour patterns). 5. Credit checks eliminate roughly 30% of the pool of applicants due to poor credit rating, after consumers spent time and effort dealing with sales people (increased consumer rage).
  49. 49. H O W C O N F I D E N T A R E Y O U T H A T T H E P L A N Y O U H A V E D E S I G N E D W I L L B E P R O F I T A B L E ? P R O V I D E E V I D E N C E O F T H E F I N A N C I A L V I A B I L I T Y O F Y O U R P R I C I N G S T R A T E G Y 1 June 2015Consumer Behaviour Case Study -Virgin Mobile Question-6
  50. 50. 50 The Designed Plan 1 June 2015Consumer Behaviour Case Study -Virgin Mobile 1. From a customer perspective, an "ideal" plan would probably include a number of elements which would have a potentially negative impact of the company’s financial… 2. … but Virgin can use a number of different managerial tools to counter these negatives, for example: • Lowering Customer Acquisition Costs • Embracing Additional Pricing Elements • Developing a Highly-Differentiated Competitive Positioning through a new services package and a new pricing proposition
  51. 51. 51 Lowering Customer Acquisition Costs 1 June2015Consumer Behaviour Case Study -Virgin Mobile 1. On sales commissions • Because of a different channel and merchandising strategy where "consumers can pick up the phone without a salesperson helping them" (p. 5), Virgin expect its sales commissions to be $30 per phone, as opposed to $100 for the industry average. 2. On advertising costs • Virgin plans to spend much less than its competitors (approx. $60 million for the year (p. 5). Given the company’s target to acquire 1 million customers during this period, the advertising cost will be $60 per gross ad, compared to the industry average of $75 to $100 (p. 9).
  52. 52. 52 Lowering Customer Acquisition Costs 1 June2015Consumer Behaviour Case Study -Virgin Mobile 3. On handset subsidies • Virgin handsets cost the firm between $60 to $100 compared to an industry average of $150 to $300 (p. 5) because the company plans to stay away from selling high-end phones to young customers. • If Virgin is decided to offer subsides at half the rate of the industry average (current industry handset cost / subsidy = 67%), then this subsidy would be roughly ($80 * 35%) = $30 4. Virgin total acquisition costs: $120 • Sales commission: $30 • Advertising per gross ad: $60 • Handset subsidy: $30
  53. 53. P L E A S E D E S C R I B E H O W T H E S I T U A T I O N A N D F I N D I N G S I N T H E C A S E A N D / O R Y O U R C O N C L U S I O N S C O U L D B E U S E D T O B E N E F I T Y O U R J O B / E M P L O Y E R A N D A F G H A N I S T A N A S A W H O L E . 1 June2015Consumer Behaviour Case Study -Virgin Mobile Question-7
  54. 54. 54 1 June 2015Consumer Behaviour Case Study -Virgin Mobile Websites  http://www.virginmobile.in/  http://www.virginmobileusa.com/  http://en.wikipedia.org/wiki/Virgin_Mobile Tools used  Microsoft Encarta (Encyclopedia for offline references)  Microsoft Excel (for data analysis & graphs) References
  55. 55. 1 June2015Consumer Behaviour Case Study -Virgin Mobile Thankyou!

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