INSTITUTE OF BUSINESS ADMINISTRATION

UNIVERISTY OF DHAKA
Course: Principles of Marketing

Virgin Mobile USA: Pricing for very

First Time

Submitted to:
Mr. Khaled Mahmud
Assistant Professor
IBA, University of Dhaka

Submitted By:
1.
2.
3.
4.

Lina Binta Ataur Rahman, Roll # 11, Batch# 51E

Minhazul Islam Chowdhury Batch: 48D Roll: 49
Md. Shofikul Islam, Roll # 05, Batch# 51E
Md Warishul Islam; MBA 51E Roll 18M

Date of Submission: March 25, 2015

1 | Page

Contents
Introduction:..........................................................................................................................................3
Answer to the question no. 1.................................................................................................................4
Source of Dissatisfaction...................................................................................................................4
Hidden charges..............................................................................................................................4
Fluctuating pricing.........................................................................................................................4
Minimal switching cost..................................................................................................................4
Availability of other communication media...................................................................................4
Vigorous credit check....................................................................................................................5
Decreasing off-peak hour...............................................................................................................5
Answer to the question no. 2.................................................................................................................5
Value Proposition and Channel Distribution Analysis.......................................................................5
Thoughts on Virgin Mobiles value proposition (The Virgin Xtras, etc.).......................................5
Channel and merchandising strategy.............................................................................................6
Answer to the question no. 3.................................................................................................................7
Market Selection & Risk analysis......................................................................................................7
Lower penetration for this Niche:..................................................................................................7
Expected growth rate of the niche..................................................................................................7
Niche being untapped and underserved by other players:..............................................................7
There are more than a mobile:.......................................................................................................7
No fixed income source:................................................................................................................8
Less brand loyalty..........................................................................................................................8
High churn rate due to shortened contract terms and prepaid offers..............................................8

2 | Page

Introduction
Virgin, a UK based company and one of the top three most recognized brand in Britain, wants to
introduce the Virgin mobile USA at U.S with a different pricing and marketing strategy that will
attract consumers aged 15-29. The market is already saturated with a number of national and regional
carriers. The market prefers contractual customers mainly business use as the acquisition cost of the
customer is pretty high, including the subsidized handset ($370) and the payback period to recoup the
fixed cost is average 17months. However the customer is dissatisfied with a couple of issues i.e.
a)
b)
c)
d)

Hidden charges
Off Peak and On-Peak minutes.
Fixed rent on bucket usage (not able to switch)
Indifferent at the prepaid plan.

Given the market competitive scenario, Virgin mobile USA is targeting the aged group 15-29
(monthly use100-200minutes). Though the segment is showing growth in the next 5 years, big players
are indifferent about this segment because the segment has a poor credit check. Using not run of the
mill adds strategy, alternate distribution channel, eye-catching starter packs, unique publications and
VirginXtras, Virgin mobile is looking to get hold of the market. The company is very cautious about
its pricing model, mitigating all the above mentioned confusion of the market and is thinking about
the pricing strategy that will make it profitable and will increase the LTV of customer. The Pricing
strategies are:
a) Replica the current pricing of the market but provide extra such as VirginXtras and no hidden
charges
b) Below market price with better off-peak plan
c) New dynamic plan
Offsetting the contract as part of the target customer is not able to get into contract.
Encouraging the prepaid plan
Increase subsidies on handset
Rolling of hidden charges in the pricing and better align the off peak hours.

3 | Page

Answer to the question no. 1

The cellular industry is notorious for high customer dissatisfaction. Despite
existence of service contracts, the big carriers churn roughly 24% of their
customers each year. Clearly, there is very little loyalty in this market. What is the
source of all these dissatisfaction?
Source of Dissatisfaction
The cellular industry experiences a very high churn rate which indicates disloyalty among customers.
And customer disloyalty is often caused by dissatisfaction with the pricing, service, relationship with
the company, etc. The lack of loyalty in the cell phone market may be explained by the following
factors:
Hidden charges
For advertising purpose, cell phone companies continuously offer many services which they claim to
be free but bear hidden charges. This could be a reason for dissatisfaction among customers.
Fluctuating pricing
In the competitive market of cellular phones, pricing is a very fluctuating issue. That makes customer
to be disloyal and switch for better option.
Minimal switching cost
Switching cost from one company to another is not that vital. For this reason customer may prove
disloyal and respond to better offer.
Availability of other communication media
People have more and cheaper options now-a-days to communicate other than calling through phones.
Gadgets like tabs, electronic watch and other devices offer more features than cell phones. So, people
may prefer other gadgets to cellular phones for communication purpose.

4 | Page

Vigorous credit check

Vigorous credit check done by cell phone companies is another reason that irritates customer to go
through a contract with cell phone companies.
Decreasing off-peak hour
Length of off peak hour is decreasing. Because of that people have less opportunity to avoid cost and
communicate more using cell phones.
All the players of the cell phone market are looking for improving the above stated issues and increase
loyalty among customers.

Answer to the question no. 2

What do you think of Virgin Mobiles value proposition (the VirginXtras, etc.)?
What do you think of its channel and merchandising strategy?
Value Proposition & Channel Distribution Analysis
Thoughts on Virgin Mobiles value proposition (The Virgin Xtras, etc.)
According to Virginmobileusa.com, our team works to provide not only the best wireless products
and services, but we also hold fast to fresh style, innovation and championing the consumer. With
this statement which they call part of the Virgin Mobile story, by adding such values as The Virgin
Xtras, no hidden fees, exclusive content from MTV, and so much keeps true to their word. Due to
their goal of attracting a youth market, Virgin Mobile USA is always trying to add new features that
keep their products exciting in the eyes of the consumers.

In order to creat value proprosition, team of Virgin Mobile decides to involve delivery content, feature
and entertainment, which they call Virgin Xtras

I believe Virgin is being creative and innovative with their products. Keeping in mind of its terget
segment, company signed an exclusive marketing agreement with MTV network to deliver musics,
game, and other MTV and Nickelodeon based content to Virgin mobile subscriber. Virgin Xtras also
includes feature like text messaging, online real time billing which would provide privacy from the
parents. Large section of ring tone, music messenger, fun clip will appeal to the youth market,
generate additional usage and creat loyalty. Not only will these feature be appealing, but the company
believe they will be addictive and will bond their customer to their cell phones.

5 | Page

Virgin Xtras planned to eliminate all type of contract, price bucket and other hidden charge. One of its
goal is to offer a service that is priced so simply that consumers dont need a math degree to figure it
out.
By making their features more on the entertainment end to attract their target market of 14 to 24 year
olds,it would also give Virgin Mobile an advantage over their competitors. If they are able to create
consumer loyalty with the youth market, which is a market none of their competitors are going after
for the fear of low-value subscribers, bad credit, and infrequent usage, it would speak volumes and
establish Virgin Mobile USA as a mainstream provider.
Channel and merchandising strategy
Unlike other cellular company, Virgin Mobile created a different channel strategy for attracting their
target market. They needed to create one that would help get their products to their target. This
included the placement of the products at stores were their target segment shops. These retailers
include Target, Best Buy, Sam Goody, etc.

Virgin Mobile USA also thought about how their target market shops. They want to examine the
products and touch them, not talk to a sales person and the products not being kept locked behind the
counters. Knowing this information, Virgin created a clear see through packaging that allowed
consumers to look and touch the product like other consumer electronics product. Also, this new sales
tactic allowed the youth market to examine the products without the stores salespeople harassing
them. The Virgin Mobile USA team also created large point-of-sales displays to showcase and feature
the new packaging. The displays were made available to the retailers so that they would feature them.
The company has entered into distribution agreement with Target and Best Buy that would charge
lower commission than traditional industry channels.

Virgin Mobile USA not only changed the way they were going to package the product, but they made
strides to reach the desired market to make them aware. Virgin Mobile had a different way to
approach marketing. They needed to be innovative since they only had $60 million dollars for
advertisement compared to Verizon Wireless which had $650 million dollar budget. Dan Schulman,
Virgins CEO, said it best, Unless youre between 14 and 24, youre probably never going to see our
ads. They created ads that featured teens and made them stand out to the rest of the industry. They
need to be more entertaining and more unique in their creative execution. Virgin made sure to place
the ads in magazines such as The Complex, Vibe and XXL representing the targeted age group. It also
sponsor and plan street marketing events to create the hpye for the product.

6 | Page

Answer to the question no. 3

Do you agree with Virgin Mobiles target market selection? What are the risks
associated with targeting this segment?
Market Selection & Risk analysis
Virgin Mobiles target market was the consumers aged 15 to 29. We do agree with this target market
selection. The following paragraphs justify our stance:
Lower penetration for this Niche:
Since the US Cellular Market was overcrowded, it was essential to find out a niche. This niche was
the customer group of age 15 to 29. Despite the market being overcrowded, this niche had lower
penetration rate.
Expected growth rate of the niche:
The growth rate among the demographic of age group 15 to 29 was projected to be robust for the next
five years. Virgin Mobile should have targeted the segment that was supposed to have and anticipated
high growth rate.
Niche being untapped and underserved by other players:
The big players of the cellular market have not targeted the segment of 15 to 29. So it will be easier
for Virgin Market to have a good go in the market.
There are more than a mobile:
This age group is more open to new things, like text messaging and downloading information using
their phones. They are more likely to use ring tones, faceplates and graphics. So, Virgin Mobiles
target market segment was right.
However, there is no market without any risk. The higher the risk is the higher the return. The
consumers aged 15 to 29 have the following risks associated to them.

No fixed income source:

7 | Page

This age group has very little or no income source. So generating profits from this group is quite
difficult. They hardly have any credit checks.
Less brand loyalty
This age group tends to taste the new things. So they might switch to a competitors offer even if the
offer is similar or slightly better.
High churn rate due to shortened contract terms and prepaid offers
It was estimated that the churn rate would rise up to 6% due to the nature of shortened contract that
would be offered to this market segments. Also the other players of the market are less interested in
offering prepaid due to the high churn rate.

8 | Page