What is the Interplay between Pricing, STP & Value proposition ? Are there Multiple pricing options ? Should one follow Long term Strategic than short term tactical perspective What should be the Pricing level i.e. how much the consumer pays ? What should be the Pricing structure - how it is presented to the customer ? Can we draw some Industry parallels in the Indian context ?
Segment : Basis of age group Below 30yrs Target : Youth,14-24 yrs, college/school going Value Proposition : Delivery of Content, Features, Entertainment. Positioning : Symbol of Fun, Honesty, Great Value for Money. Pricing –Differentiated, Transparent, Industry pricing plans are not trusted by users.
Yes.2. Clone Industry prices: Differentiated applications, Superior Service3. Price Below competition4. New Plan End contracts Prepaid Vs. Postpaid Handset Subsidies Remove Hidden fees and peak hours
Long term : Robust growth for next five years Untapped Market – 16-18% in US More time to recover entry subsidies.
Company should select option three titled “A Whole New Plan.” This is the most radical and risky of the three options, but if executed correctly can proved to be profitable and the right choice. No contracts, prepaid compared to post-paid, no hidden fees, and off- peak hours. Considering Virgin Mobile’s target market ranges from 14 to 24, it would guarantee the younger teens would be able to purchase their products. Ideal for occasional users and it also goes along with the group of consumers who do not have good credit. Create the image of “what you see is what you get,” by eliminating hidden fees which will help attain more of the youth market and even some unhappy customers of their competitors. Option three provides Virgin Mobile with the ability to stick with the company’s value proposition of always being innovative and supplying the best products and services to consumers.
Per Minute Rate : $0.15 VirginXtras rate : $24/month No hidden Fees No peak hour rates
ARPU= (200 minutes x 0.15 dollars/minute + VirginXtras - hidden fee – off peak hour) = $30+ $23.74 - $6 - $3 = $44.74 dollars Thus Customer pays $44.74 per unit per month
• 1 million customers at the end of year one(first page of the case)• 200 minute per month average use (exhibit 9a)• 15 cent per minute average rate (exhibit 9a)• Hidden fee $6 dollars (page 7)• Off peak hour cost $3 dollars (exhibit 10b) $30- (200 x 0.135)• Market share : 1 million out of 130 million = 0.77%
Option#1 (2% churn) Price = Industry pricing + VirginXtras – hidden fee – off peak hour Option#2 (2% churn) Price = Industry pricing + VirginXtras – hidden fee – off peak hour- 5 cents per minute Option#3 (6% churn) Price = average minutes of use x earnings per minute + VirginXtras – hidden fee – off peak hour
From exhibit 3: Revenue for mobile entertainment services average between 2002 and 2003 approx 37 billion VirginXtras revenue = $37 billion x 0.0077 market share = 284.9 million dollars VirginXtras revenue per customer = 284.9 million / 1 million customers / 12 months = $23.74 dollars per month
ARPU= (200 minutes x 0.15 dollars/ minute + VirginXtras - hidden fee – off peak hour) = $30+ $23.74 - $6 - $3 = $44.74 dollars LTV = (M/ 1-r+i) – AC If LTV = 0 because of a prepaid scheme, then AC = (M/ 1-r+i) M= ARPU – CCPU = ARPU – 45% ARPU= 0.55% ARPU= $24.607 USD r= retention rate = 1- churn = 1-0.06 = 0.94 , i=interest rate= 5%
AC=acquisition cost = sales costs+ marketing costs + handset cost = $223.70 Industry AC = $100 Dollars (page 9) Conclusion: Virgin could spend up to $123.70 MORE dollars on marketing or quality of service and still LTV would be positive.