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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 promoteo Better of peak hours and fewer hidden
feesDis advantages:o Hard to attract the target market o Limited value adds
Option 1 – Pricing Structure
Option 2 - Analysis
Advantageso Cheaper, plan and simpleo Better off-peak hours and fewer hidden feesDis advantageso Less profit per customer
Option 2 – pricing structure
Option 3 - Analysis
Advantages:o Attracts the target market because of
elimination of contracts for prepaid customerso Cheaper handset subsidieso 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 costo 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 rateI = interest rateAC = Acquisition costN = no. of years of relationship
Contd..
Assuming infinite economic lifeLTV = M/(1-r+i) – ACM = ARPU – CCPUARPU = average revenue per minute per
monthCCPU = cash cost per server
Contd..
o Churn rate 2% :r = 1- churn rate = 1-(0.02*12) = 0.76i = 0.05AC = $370CCPU = $13.5ARPU = $30M = ARPU - CCPU
Contd..
LTV = [(16.5*12)/(1-0.76+0.05)] – 370 = $312
o Churn rate 6%r = 1-0.06 = 0.94CCPU = 45% of ARPUM = ARPU – CCPU
Contd..
Contd
Estimated total revenue = $30 billionNo. of. Subscribers = 130 millionMarket share of target segment = 45%ARPU = 30b /(130*0.45*12) = $43M = $23AC = $100LTV = 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
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