Virgin Mobile Retail strategy for entering the Indian Handset market

An Update On 1st March 2008, Virgin Mobile has entered the Indian Market, tying up with Tata Tele-services. Virgin is primarily an MVNO company, and retail distribution is only a part of the overall strategy.

On 1st March 2008, Virgin Mobile has entered the Indian Market, tying up with Tata Tele-services.

Virgin is primarily an MVNO company, and retail distribution is only a part of the overall strategy.

However, it is a very important piece. Even for an MVNO like Virgin, having a finely crafted retail strategy can mean the difference between a strong subscriber uptake rate or a mediocre showing among the target audience.

However, it is a very important piece.

Even for an MVNO like Virgin, having a finely crafted retail strategy can mean the difference between a strong subscriber uptake rate or a mediocre showing among the target audience.

Agenda Virgin Mobile - Company Brief The Indian Opportunity Competition and Positioning The Indian Consumer VM’s Entry Strategy Review Analysis and Recommendations

Virgin Mobile - Company Brief

The Indian Opportunity

Competition and Positioning

The Indian Consumer

VM’s Entry Strategy Review

Analysis and Recommendations

Virgin Mobile The Company

Global Reach

Virgin Mobile Charter As a customer, there’s nothing more frustrating than dealing with a faceless bureaucracy or a member of staff who tows the party line. A little something extra can really go a long way to improve a their experience and their opinion of Virgin. E.g. A Virgin Trains manager took all the placemats from First class and folded them into fans for the passengers caught in an unpleasantly hot carriage when the air-conditioning failed. To add a personal touch to our customer experience: the little extras….

Virgin Mobile Charter Speak from the heart, not a script. Talk to people the way they prefer to be talked to – with warmth and humanity. When Virgin Money sends people letters about their financial services they recognise it’s the customer’s money, not theirs. They don’t write in jargon but as one human being to another To offer an experience that’s 100% human, treating customers with respect.

Organizational Mission Keep it simple Do what you say Take the leap of faith Keep on checking Stay true to your values Love the locals

Keep it simple

Do what you say

Take the leap of faith

Keep on checking

Stay true to your values

Love the locals

Virgin’s New Venture Strategy When we start a new venture, we base it on hard research and analysis. Typically, we review the industry and put ourselves in the customer's shoes to see what could make it better. We ask fundamental questions: Is this an opportunity for restructuring a market and creating competitive advantage? What are the competitors doing? Is the customer confused or badly served ? Is this an opportunity for building the Virgin brand ? Can we add value ? Will it interact with our other businesses? Is there an appropriate trade-off between risk and reward?

When we start a new venture, we base it on hard research and analysis. Typically, we review the industry and put ourselves in the customer's shoes to see what could make it better. We ask fundamental questions: Is this an opportunity for restructuring a market and creating competitive advantage? What are the competitors doing? Is the customer confused or badly served ? Is this an opportunity for building the Virgin brand ? Can we add value ? Will it interact with our other businesses? Is there an appropriate trade-off between risk and reward?

The Indian Opportunity Market Size, Structure and Segments for Handset Retail

Mobile Retail - The Numbers New Connections per month = 60,00,000 Handset Retail = 3,50,00,00,00,000 Airtime + Accessories + Handset = 7,50,00,00,00,000

New Connections per month = 60,00,000

Handset Retail = 3,50,00,00,00,000

Airtime + Accessories + Handset = 7,50,00,00,00,000

The Demographics 50%

50%

What Virgin Needs To Know No Bundling - Handsets sold directly so far, not by operators. This works in the favor of retailers, though it has begun to change. 7-9 Models added every month. Replacement sales account for as much as 60%. People are replacing handsets every 18-24 months

No Bundling - Handsets sold directly so far, not by operators. This works in the favor of retailers, though it has begun to change.

7-9 Models added every month.

Replacement sales account for as much as 60%.

People are replacing handsets every 18-24 months

Organized Retail There are 95000 retail outlets in all Only 1% of these are organized retailers By Sales, organized retail has a share of 7%

There are 95000 retail outlets in all

Only 1% of these are organized retailers

By Sales, organized retail has a share of 7%

The Future - Growth Rates Handset retail market has been growing at a CAGR of 60% Overall, the Mobile retail market is growing at 20% According to Gartner figures for Sep 07, India recorded the fastest growth in mobile handset sales

Handset retail market has been growing at a CAGR of 60%

Overall, the Mobile retail market is growing at 20%

According to Gartner figures for Sep 07, India recorded the fastest growth in mobile handset sales

The Future - Volumes

The Potential - Handset Retail

The Future - Trends Saturation in the urban market Rural India will drive growth, accounting for 35-38% of total handset market. Aggressive promotions to get more common Low priced handsets and handset bundle offers.

Saturation in the urban market

Rural India will drive growth, accounting for 35-38% of total handset market.

Aggressive promotions to get more common

Low priced handsets and handset bundle offers.

PEST – Politico-Legal Environment Politically stable country. However, there are certain parties with vested interests that act as bottlenecks. FDI allowed upto 24% for foreign players w.e.f. April, 2008 Availability of cheap as well as professional labour Weak consumer protection laws Increasing recognition of the potential in the retail space by the government.

Politically stable country. However, there are certain parties with vested interests that act as bottlenecks.

FDI allowed upto 24% for foreign players w.e.f. April, 2008

Availability of cheap as well as professional labour

Weak consumer protection laws

Increasing recognition of the potential in the retail space by the government.

PEST - Economic Environment 7-9% growth rate; mobile retail growing at 20%. Credit Sales have started, and Cell Phones are being sold on EMI. The Monetary policy aims to contain inflation close to 5.0% in 2007-08 while conditioning expectations in the range of 4.0-4.5%. Indirect taxes like service tax on immovable property adds to the costs. The retailers want to move the service tax on rent, telephone, etc to sales tax. Consumer confidence in the organized retail format is high and encouraging.

7-9% growth rate; mobile retail growing at 20%.

Credit Sales have started, and Cell Phones are being sold on EMI.

The Monetary policy aims to contain inflation close to 5.0% in 2007-08 while conditioning expectations in the range of 4.0-4.5%.

Indirect taxes like service tax on immovable property adds to the costs. The retailers want to move the service tax on rent, telephone, etc to sales tax.

Consumer confidence in the organized retail format is high and encouraging.

PEST - Social Environment 21.5 crore people between the ages of 14 – 25 years Demographics - A lot of demand is coming from Rural India, as as much as half of the newly added subscriber are from rural areas. Growing middle class and youth with an increasing propensity to save. Changing attitude- live for today

21.5 crore people between the ages of 14 – 25 years

Demographics - A lot of demand is coming from Rural India, as as much as half of the newly added subscriber are from rural areas.

Growing middle class and youth with an increasing propensity to save.

Changing attitude- live for today

PEST - Technological Environment The mobile sector has grown more than tenfold from 2001 to around 6 crore subscribers by mid-2005. 10% of the ISPs have 90% of the subscribers The country’s mobile market stands at Rs. 35,000 crores and is growing at an annual rate of 60%.

The mobile sector has grown more than tenfold from 2001 to around 6 crore subscribers by mid-2005.

10% of the ISPs have 90% of the subscribers

The country’s mobile market stands at Rs. 35,000 crores and is growing at an annual rate of 60%.

Porter’s Five Forces

Porter’s Five Forces Threat from New Entrants: High Rising cost of retail real estate makes nationwide competition difficult, but numerous national and foreign players are interested to enter

Threat from New Entrants: High

Rising cost of retail real estate makes nationwide competition difficult, but numerous national and foreign players are interested to enter

Porter’s Five Forces Competitive Rivalry: Moderate Margins are thin at mere 4%. Pressure from Second hand sales makes it worse. Buyer Power: High Buyers Demanding greater variety at lower prices

Competitive Rivalry: Moderate

Margins are thin at mere 4%. Pressure from Second hand sales makes it worse.

Buyer Power: High

Buyers Demanding greater variety at lower prices

Porter’s Five Forces Supplier Power: Moderate Suppliers have strong brands and often have a presence in retail themselves Network Operators are able to push cheaper brands (e.g. Reliance Classic)

Supplier Power: Moderate

Suppliers have strong brands and often have a presence in retail themselves

Network Operators are able to push cheaper brands (e.g. Reliance Classic)

Porter’s Five Forces Threat of Substitution: High Second hand phone market and unorganized retail is strong. Most demand is from rural areas – where organized retailers don’t have a presence.

Threat of Substitution: High

Second hand phone market and unorganized retail is strong.

Most demand is from rural areas – where organized retailers don’t have a presence.

Competitive Landscape Players, Positioning and Strength

Existing Players Nokia Samsung Sony World ConvergeM (Future Group) Mobile Store (JV between Essar and Virgin) MobileNxt Univercell Hotspot (Spice Telecom) RPG Cellucom Subhiksha M Bazaar

Nokia

Samsung

Sony World

ConvergeM (Future Group)

Mobile Store (JV between Essar and Virgin)

MobileNxt

Univercell

Hotspot (Spice Telecom)

RPG Cellucom

Subhiksha

M Bazaar

Nokia Around 50% market share in Indian mobile market Focus on “Mother Brand” than on “Another Brand” Addressed all five needs “REAPS” of Indian Consumer Strong focus on distribution network Reduced their prices to counter the grey market

Around 50% market share in Indian mobile market

Focus on “Mother Brand” than on “Another Brand”

Addressed all five needs “REAPS” of Indian Consumer

Strong focus on distribution network

Reduced their prices to counter the grey market

Mobile Store Essar Group venture - entered Jan 2007 Target Segment - 18 to 45 years Eyeing 10% market share, 2500 stores, 600 cities, and breakeven by 2010 Plans to invest 1250 cr by 2010 3 Formats - large medium and compact, in 20:60:20 ratio Against Franchising - dilutes brand value

Essar Group venture - entered Jan 2007

Target Segment - 18 to 45 years

Eyeing 10% market share, 2500 stores, 600 cities, and breakeven by 2010

Plans to invest 1250 cr by 2010

3 Formats - large medium and compact, in 20:60:20 ratio

Against Franchising - dilutes brand value

Positioning Map

Consumer Need Analysis Segments, Buyer Behavior and Gaps

Consumer Segments I want everything from my mobile and I want it now My phone means I belong amongst my peers My life is a juggling act – my mobile keeps me connected I want a phone that makes me look good - even when I can’t afford it To stay ahead of the game you need the best tools New experiences, new possessions, new technologies – that’s what I want I’ll adopt new technologies if you show me a good reason I’ll carry a mobile if I need to… Pioneer Youth Mainstream Youth In-touch Organizers Mainstream Materialists Careerist Experiencers Family Phoners Basic Phoners

The Indian CellPhone Buyer Replace handsets every 18-24 months High demand from upgraders Price Sensitive - bulk of demand from sub 5000 price range VAS such as Texting very popular among Urban, Young customers

Replace handsets every 18-24 months

High demand from upgraders

Price Sensitive - bulk of demand from sub 5000 price range

VAS such as Texting very popular among Urban, Young customers

The Opportunity Urban youth: Distinct mobile needs More and longer out-bound voice calls Large calling circles for both making and receiving calls Large users of SMS Both the earliest adopters and highest users of value-added services Higher usage for both voice and SMS at weekends

Urban youth: Distinct mobile needs

More and longer out-bound voice calls

Large calling circles for both making and receiving calls

Large users of SMS

Both the earliest adopters and highest users of value-added services

Higher usage for both voice and SMS at weekends

Urban Youth: More Than Just A Segment India has 21.5 crore people between the ages of 14 – 25 years old. Incremental urban youth subscribers between 2008 and 2010 will be more than 5 crores. Urban youth mobile service revenues > Rs. 35,000 crores by 2010 Mobile as a badge of self-expression: brand and style very important

India has 21.5 crore people between the ages of 14 – 25 years old.

Incremental urban youth subscribers between 2008 and 2010 will be more than 5 crores.

Urban youth mobile service revenues > Rs. 35,000 crores by 2010

Mobile as a badge of self-expression: brand and style very important

Indian Market Entry Strategy Target Segment, Positioning and Objectives

Virgin India Strategy Target Segment - Urban Youth Sales Objectives Revenues of Rs. 35000 Crores by 2011 (including connections, handsets and accessories) Image Objectives Establish the brand name Market Share Objectives 10% of the market in 3 years

Target Segment - Urban Youth

Sales Objectives

Revenues of Rs. 35000 Crores by 2011 (including connections, handsets and accessories)

Image Objectives

Establish the brand name

Market Share Objectives

10% of the market in 3 years

Positioning - Seeking Youngistan Mainstream Youth and Materialists 14-25 years Young executives / students / Youthful Adults

Mainstream Youth and Materialists

14-25 years

Young executives / students / Youthful Adults

Virgin India Strategy - Differentiation Win a 10% share of the urban youth market by… Delivering imaginative solutions that offer Value for money & flexible tariffs that reflect their unique needs Innovative, game-changing value-added services Great handsets at great prices Personalized customer care

Win a 10% share of the urban youth market by…

Delivering imaginative solutions that offer

Value for money & flexible tariffs that reflect their unique needs

Innovative, game-changing value-added services

Great handsets at great prices

Personalized customer care

Virgin India Strategy - Cost Whilst achieving a low operating cost per customer through Sharp focus on India’s top youth markets Fewer, stable propositions with low support and service costs Imaginative, eye-catching advertising & PR that gets youth talking A lean, enthusiastic team supported by simple processes

Whilst achieving a low operating cost per customer through

Sharp focus on India’s top youth markets

Fewer, stable propositions with low support and service costs

Imaginative, eye-catching advertising & PR that gets youth talking

A lean, enthusiastic team supported by simple processes

Differentiation Strategy - Customer Care Taking the hassle out of buying a cell phone Try before you buy Real conversations: no scripts End-to-end ownership of problems: same Champ call-back Champ empowerment: authorized to resolve issues on the spot Welcome calls: all customers are personally welcomed to Virgin Mobile A real returns policy

Taking the hassle out of buying a cell phone

Try before you buy

Real conversations: no scripts

End-to-end ownership of problems: same Champ call-back

Champ empowerment: authorized to resolve issues on the spot

Welcome calls: all customers are personally welcomed to Virgin Mobile

A real returns policy

Returns Policy q. Lost my charger, battery fell off and someone threw my phone…gasp! a. Tension nahin leneka. Whatever your problem you can walk into any service center and get replacements for faulty* items in your pack. Here’s a list of our service center . *conditions apply. But don’t get scared about it.

q. Lost my charger, battery fell off and someone threw my phone…gasp!

a. Tension nahin leneka. Whatever your problem you can walk into any service center and get replacements for faulty* items in your pack. Here’s a list of our service center .

*conditions apply. But don’t get scared about it.

Differentiation Strategy Value for Money and Flexible Service Offerings

Value for Money and Flexible Service Offerings

Differentiation Strategy - First Time In India Get paid to receive calls 50 paise to any local network TGI the weekend Bolt-on One Touch access to V-Bytes Unlimited access to V-Bytes for a simple daily charge ‘ 100% colour, 100% FM’ handsets Easy Handset upgrades Personalised Care Safe Secrets

Get paid to receive calls

50 paise to any local network

TGI the weekend Bolt-on

One Touch access to V-Bytes

Unlimited access to V-Bytes for a simple daily charge

‘ 100% colour, 100% FM’ handsets

Easy Handset upgrades

Personalised Care

Safe Secrets

Virgin India Strategy - Promotions Think Hatke Campaign 10 paise every minutes on incoming

Think Hatke Campaign

10 paise every minutes on incoming

Virgin India Strategy - Location And Ownership “ You have to be in front of the right people.” Howard Handler CMO, Virgin Mobile

“ You have to be in front of the right people.”

Howard Handler

CMO, Virgin Mobile

Virgin India Strategy - Location Shop in Shop and Kiosks Non exclusive, extensive coverage, lower costs The one commonality all of the retailers share is they are places where teens shop, because that's Virgin's core market.

Shop in Shop and Kiosks

Non exclusive, extensive coverage, lower costs

The one commonality all of the retailers share is they are places where teens shop, because that's Virgin's core market.

A Virgin Kiosk

Virgin India Strategy - Expansion Plans To begin with, Virgin Mobile services were launched in 50 cities with 15,000 handsets & 40,000 top-up outlets. Also, with 55 Virgin Mobile kiosks & Shop-in-Shops. Plan to expand to 1000 cities by 2008-end Aims to acquire 50 lakh subscribers over the next 3 years, by when it would be profitable. By the end of 2008, when the new GSM players start rolling out their services, Virgin Mobile aims to offer similar services on GSM as well.

To begin with, Virgin Mobile services were launched in 50 cities with 15,000 handsets & 40,000 top-up outlets. Also, with 55 Virgin Mobile kiosks & Shop-in-Shops.

Plan to expand to 1000 cities by 2008-end

Aims to acquire 50 lakh subscribers over the next 3 years, by when it would be profitable.

By the end of 2008, when the new GSM players start rolling out their services, Virgin Mobile aims to offer similar services on GSM as well.

Virgin Mobile Analysis and Recommendations

South African Experience Virgin entered as a 50-50 partnership with Cell C, H1, 2006 Classified itself as an ESP, since MVNO’s are illegal in SA Premium Pricing, supported by a strong brand, superior customer service and pricing plan simplicity

Virgin entered as a 50-50 partnership with Cell C, H1, 2006

Classified itself as an ESP, since MVNO’s are illegal in SA

Premium Pricing, supported by a strong brand, superior customer service and pricing plan simplicity

Singapore Experience Entered through a tie-up with SingTel Exited the market - citing premium pricing and crowded market Customers placed more premium on Price SingTel tariffs too high - texting too expensive

Entered through a tie-up with SingTel

Exited the market - citing premium pricing and crowded market

Customers placed more premium on Price

SingTel tariffs too high - texting too expensive

Strategic Choices for Mobile Retailers Price Volume Low High High Low Cost Strategy-Viable Low Cost Strategy- Unviable Not sustainable Premium Positioning-Viable

Positioning Virgin BRAND ENGAGEMENT CAN BE THE ONLY DIFFERENTIATOR OFFER SIMILAR ACROSS RETAILERS ASSORTMENT EXPECTED CONSUMER MORE EVOLVED PRICE COMPETIVENESS SHORT LIVED

200 companies worldwide, employing 48 500 people, an annual Virgin Group turnover of £10.8bn/US$20.4bn … .one of the most exciting brands in the world

SWOT Threats Rising Retail Costs Lack of number portability - switching barriers Unclear Government Policy on MVNO Falling Handset prices - lower margins Saturation - Mobile penetration in excess of 40%. Opportunities India a growth story - 20-30% CAGR, highest handset sales volumes. Organized Retail mere 7% by revenue, 1% by outlets. Most entrants are new, few established competitors

Threats

Rising Retail Costs

Lack of number portability - switching barriers

Unclear Government Policy on MVNO

Falling Handset prices - lower margins

Saturation - Mobile penetration in excess of 40%.

Opportunities

India a growth story - 20-30% CAGR, highest handset sales volumes.

Organized Retail mere 7% by revenue, 1% by outlets.

Most entrants are new, few established competitors

SWOT Weaknesses Dependent on Partners for pricing, capacity Non serious image may not go well with conservative Indian consumer. Limited understanding of India Market Strengths Strong Global Brand Limited overlap with Tata’s existing customers Very low fixed costs as it leases Network Time Not tied to a particular Technology

Weaknesses

Dependent on Partners for pricing, capacity

Non serious image may not go well with conservative Indian consumer.

Limited understanding of India Market

Strengths

Strong Global Brand

Limited overlap with Tata’s existing customers

Very low fixed costs as it leases Network Time

Not tied to a particular Technology

Capitalizing On Strengths Into retailing + service provider If the GoI allows MVNOs then after tying up with GSM players, can beat Reliance Good brand recall Structured pricing of airtime serves as a loyalty incentive, encouraging active use

Into retailing + service provider

If the GoI allows MVNOs then after tying up with GSM players, can beat Reliance

Good brand recall

Structured pricing of airtime serves as a loyalty incentive, encouraging active use

Making Weaknesses Irrelevant People not familiar with the MVNO concept Tata Teleservices does not have a good brand image Confusion in the minds of consumer about the Virgin-Tata deal- a re-branding exercise by Tata Teleservices?

People not familiar with the MVNO concept

Tata Teleservices does not have a good brand image

Confusion in the minds of consumer about the Virgin-Tata deal- a re-branding exercise by Tata Teleservices?

Recommendations Key advantage over other (non-operator) retailers - presence in both retailing and airtime Key advantage over operators - not tied to technology (as an MVNO)

Key advantage over other (non-operator) retailers - presence in both retailing and airtime

Key advantage over operators - not tied to technology (as an MVNO)

Recommendations Forge deal with a GSM player Offer bundled plans - subsidize handset costs with Airtime Offer for both CDMA and GSM - greater assortment Offer plans for 2 years, with upgrade options

Forge deal with a GSM player

Offer bundled plans - subsidize handset costs with Airtime

Offer for both CDMA and GSM - greater assortment

Offer plans for 2 years, with upgrade options

Recommendations VM is moving in the right direction but time is still not ripe for a big bang entry into handset retailing Need to see the response to Airtime and expand in other cities Continue tie-ups with existing Mobile retailers like Univercell, Hotspot, M Bazaar, M Port, Vishal, etc.

VM is moving in the right direction but time is still not ripe for a big bang entry into handset retailing

Need to see the response to Airtime and expand in other cities

Continue tie-ups with existing Mobile retailers like Univercell, Hotspot, M Bazaar, M Port, Vishal, etc.

Thank You !!