Virgin Mobile is considering entering the mature US cellular market. It will target younger customers aged 15-25 who have been underserved. Virgin Mobile should offer a prepaid pricing model without contracts or hidden fees. A competitive prepaid plan with 400 minutes for $80 and off-peak hours starting at 8pm could help Virgin Mobile achieve its goal of 1 million subscribers in the first year by separating it from competitors.

1. Developing Targeting, Pricing
and Positioning Strategy for
Virgin Mobile USA
Serhii Hryb
Id:145746160
siliagrib@gmail.com
10th of July, 2017

2. MKM 805 2
Virgin Mobile Is Going To Enter Overcrowded U.S. Cellular Market That Has Reached Maturity Stage.
U.S. Cellular Market has six national carriers and a
number of regional and affiliate providers.
Industry penetration rate is close to 50% with
about 130 million subscribers.
Carrier Subscribers
AT&T (affiliates) 20,5
Cingular 21,7
Verizon 29,5
VoiceStream 6,5
Alltel 6,7
Sprint 14,5
U.S. Cellular 3,5
Leap 1,1
Other Carriers 26,1
Total 130,0
Cellular provide customers with two options:
1. Prepaid plan:
• Prohibitive pricing, 35-75 cents per minute.
• No Credit Checks.
2. Post-paid plan:
• Contracts with “buckets” of minutes for one to two years.
• Off-peak hours form 9 PM.
• Require credit check.
Overall industry metrics per one customer:
Churn Rate Per Month 2%
Retention Rate Per Month 98%
Monthly Bill $ 52
Cost To Serve $ 30
Acquisition Cost $ 370
Advertising Costs $ 75-105
Sales Commission $ 100
Cost Per Handset $ 150-300
Handset subsidy $ 100-200
CLTV1 (Prepaid with Hidden fees) $ 322
Time Required To Break Even (Prepaid with Hidden fees) 16,8 Month
Price Floor Per Minute $ 0,072
1. CLTV – Customer Lifetime Value

3. MKM 805 3
How Should Virgin Mobile Identify Its Niche Market and Offer a Competitive Value Proposition to The Customers
in Order to be Profitable and to Achieve 1 Million Total Subscribers During The First Year of Operations?
Valuable Rare Imitable Organized
Marketing ✓ ✓ ✓ ✓
Financial Model (low fixed
cost) ✓ ✓ ✓ ✓
Brand ✓ ✓ ✓ ✕
Distribution ✓ ? ✓ ✓
“…we’d be entering with a brand that had little U.S.
name recognition except for possibly as an airline.
“…what we do best—understanding and meeting
customer needs.”
“…we don’t have to worry about huge fixed costs ”
Distributors commission per phone is low, but Virgin
Mobile will be presented in fewer stores than competitors.
Virgin Mobile competitive advantages:
Targeting Offering Positioning
Identify the most valuable
consumer group among
segmentation and build brand
appeal around them.
Evaluate best pricing option and
adjust it to the target audience.
Develop the desired perception of
a product in the consumer mind.
Steps for successfully launching Virgin Mobile:

4. MKM 805 4
Virgin Mobile Should Target Younger Segment Because it Has Been Underserved by The Existing Carriers and Represent a
Great Opportunity For The Company Growth.
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Ages 15-19 Ages 20-29 Ages 30-59
Mobile Penetration by Age
Group Description Ability to Switch
What they are
trying to get
done?
Opportunity to
develop a
compelling value
proposition.
Segment 1
(Youth)
Young people. Use 100-
300 minutes(use less
minutes than they
think)
Low. They have no
credit cards or poor
credit quality.
To be independent
from parents.
Flexible Cellular Plan.
Entertainment on their
phone.
High
Segment 2
(Low-usage
customers.)
Tend to use their
phones on an
occasional basis as a
safety device.
Low. They have poor
credit history.
To have plan without
credit checks.
Affordable cellular
Plan.
Moderate
Segment 3
(Lower bucket
users )
Tend to use more
minutes than they
think. They want to
save money but
actually paying more.
High. They have credit
cards with good credit
history.
They want to have a
flexible and fair plan
that corresponds to
their needs.
Moderate
Youth segment represents a great opportunity for Virgin Mobile:
 The growth rate among this demographic was projected to be robust for the next five years.
 The big players haven’t targeted this segment.
 They have specific needs that haven’t been met.
 Virgin core values correspond to this segment.

5. MKM 805 5
Demographic Description
Urban college or school student, living with parents, 15-25 y. o., who is part-time employed or unemployed. He/she is partially
dependent on parents financial support. He has no credit card or poor credit line.
Their Needs
They need a flexible and affordable plan because their usage is inconsistent. They need to use text messaging and downloading
information using their phones. They’re more likely to use ring tones, faceplates, and graphics. They want their phone to look like a
fashion accessory. They want to be independent of parents credit cards.
Their Enemy Credit Checks, Off-peak hours, Hidden fees.
Insights That Tell The Story
"These are people who don't necessarily have credit cards and often don’t pass the credit checks that the cellular contracts require”,
“Kids discreetly text message while they’re in class. Part of the reason why they communicate like this is so their parents don’t see
who they call. It’s a very private form of communication for them.” , “VirginXtras will attract and retain the youth segment.”
What Do They Think Now
I have not heard about Virgin Mobile before, but it looks like they have affordable prices and new fashionable phones with
innovative features.
How are They Buying
They will buy consumer electronics packaging with the starter in places like Target, Sam Goody music stores, and Best Buy. They can
add minutes to their phone via Website or physical phone cards . A lot of the consumers in this age group are in flux in their lives,
therefore the frequency of the purchases will be inconsistent.
We Want Them to Think/Feel/Do
Think: Virgin Mobile has affordable prices and new phones with innovative features.
Do: Try to purchase Virgin Mobile product and see if I like it.
Feel: Independent from parents. I have fashionable phone.
Target Audience For Virgin Mobile Will be Young People Aged 15-25 With a Poor Credit Quality or No Credit Cards.

6. MKM 805 6
Virgin Mobile Should Evaluate Three Pricing Strategy Alternatives.
Option 1: “Clone the Industry
Prices”
Option 2: “Price Below the
Competition”
Option 3: “A Whole New Plan”
1. Copy existing industry price
structure.
2. Contract, Post-paid plan
3. Credit check required
4. Hidden fees
5. Offer better off-peak hours
6. Phone subsidy
 Market stage: Maturity
1. Price below the industry
average for certain key
buckets.
2. Contract, Post-paid Plan
3. Credit check required
4. Hidden fees
5. Offer better off-peak hours
6. Phone subsidy
 Market stage: Maturity
1. Eliminate the contracts
2. A prepaid pricing structure.
Customers would buy
minutes in advance.
3. No Credit check required
4. No Hidden fees
5. Offer better off-peak hours
6. No Phone subsidy
 Market stage: Growth

7. MKM 805 7
Option 1: Virgin Mobile Will Copy Existing Industry Price Structure, But Offer Better Off-Peak Hours and VirginXtras.
CLTV $ 745
Time Required To Break Even 4,4 Month
Monthly Churn Rate 2%
Monthly Retention Rate 98%
Advertising Cost Per Customer $ 60
Sales Commission $ 30
Handset subsidy $ 30
Acquisition Cost $ 120
Price Floor Per Minute $ 0,032
Customer Company Competition
Advantages
Better off-peak hours, Lower universal service charge,
VirginXtras with music, games, and other MTV-, VH1-,
and Nickelodeon- based content, Mobile phone with
38% discount.
High CLTV, Low churn rate, Contracts
provide financial safety, Easy to
promote
This approach will avoid price
competition.
Disadvantages
Customer under 18, can’t even enter into a contract
without their parents, For young people it will be hard
to pass credit checks
Unlikely to achieve 1 million total
subscribers during the first year.
With low advertising budget it will be
hard to compete with big players and
acquire new customers.
• One to two years contract with credit check.
• Monthly Plan will cost $ 50:
o Bucket of 400 minutes
o Cost per minute is $ 0,125
• Hidden fees (taxes, universal services charge)
are not included in the bill.
• Off-peak hours starts at 8 PM.
• Mobile Phone subsidy will be 38%.

8. MKM 805 8
Option 2: Virgin Mobile Will Price Below The Industry Average For Certain Key Buckets and Offer Better Off-Peak Hours
and Mobile Phone Subsidies.
CLTV $ 582
Time Required To Break Even 5,0 Month
Monthly Churn Rate 2%
Monthly Retention Rate 98%
Advertising Cost Per Customer $ 60
Sales Commission $ 30
Handset subsidy $ 20
Acquisition Cost $ 110
Price Floor Per Minute $ 0,030
Customer Company Competition
Advantages
Consumers will get best price on the market, Better
off-peak hours, Lower universal service charge,
VirginXtras with music, games, and other MTV-, VH1-,
and Nickelodeon- based content, Mobile phone at
25% discount.
High CLTV, Low churn rate, Contracts
provide financial safety., Easy to
promote.
__
Disadvantages
Customer under 18, can’t even enter into a contract
without their parents, For young people it will be hard
to pass credit checks
Unlikely to achieve 1 million total
subscribers during the first year
This approach will cause price
competition. With low advertising
budget it will be hard to compete with
big players and acquire new customers.
• One to two years contract with credit check.
• Monthly Plan will cost $ 40:
o Bucket of 400 minutes
o Cost per minute is $ 0,10
• Hidden fees (taxes, universal services charge)
are not included in the bill.
• Off-peak hours starts at 8 PM.
• Mobile Phone subsidy will be 25%.

9. MKM 805 9
Option 3: Virgin Mobile Will eliminate contracts and provide A Whole New Prepaid Plan without hidden fees.
CLTV $ 246
Time Required To Break Even 1,2 Month
Monthly Churn Rate 6%
Monthly Retention Rate 94%
Advertising Cost Per Customer $ 60
Sales Commission $ 30
Handset subsidy -
Acquisition Cost $ 90
Price Floor Per Minute $ 0,020
Customer Company Competition
Advantages
Flexible plan with opportunity to reload minutes
anytime, Better off-peak hours, VirginXtras with
music, games, and other MTV-, VH1-, and
Nickelodeon- based content, No Credit check and
contract required.
Likely to achieve 1 million total
subscribers during the first year. This
offer is a great solution for target
market.
This approach will separate Virgin
Mobile from Competitors and avoid
price war.
Disadvantages No discount for mobile phones. High churn rate, lower retention rate, __
• A prepaid plan. Customers would buy
minutes in advance.
• Bucket of 400 minutes will cost $ 140
• Cost per minute is $ 0,35
• Bucket for 300 minute will also be available.
• Taxes, universal services charge are included
in the bill.
• Off-peak hours starts at 8 PM.
• No Mobile Phone subsidy.

10. MKM 805 10
In Order to Separate Pricing Model From Competition, Virgin Mobile Should Implement The Plan Without Contracts and
Hidden Fees, and Reduce The Price Per Minute For a Bucket With 400 Minutes.
CLTV for U.S. Cellular Industry
without contract and hidden fees: $ -290
The big players In the cellular Industry are not able
to provide consumers with fare prepaid plans.
CLTV $ 102
Rate per minute (400) $ 0,20
Bill per 400 minutes $ 80
Cost To Serve $ 36
Monthly Margin $ 44
Recommended Pricing Strategy for Virgin Mobile USA:
 300 Minute bucket will be available at a price of $ 0.22 per minute.
 Taxes, universal services charge are included in the bill.
 Free VirginXtras.
 Off-peak hours starts at 8 PM and ends at 8 AM.
 Customers will reload 400 minutes for $80 or 300 minutes for $ 66.
 Customers will have to pay a full amount for Virgin Mobile Phone.
This way Virgin Mobile could establish true loyalty among its customers
and reduce churn rate.
BREAK EVEN?

11. MKM 805 11
Virgin Mobile will adopt a channel strategy that is more closely aligned to its target market selection.
Distribution Channels
Locate product in shops where young
people are used to buying consumer
electronics products:
• Target
• Best Buy
• Sam Goody
• Circuit City
• Media Play
• Virgin Megastores
The company expected its phones to be
available at more than 3,000 U.S. retail
outlets by the time the service launched
in July.
 Customers will be able to buy Virgin
Phones and physical phone cards for
100 and 200 minutes in all these
shops.
Distribution Agreements
Virgin Mobile had entered into
distribution agreements with Target and
Best Buy, both of which charged lower
commissions than traditional industry
channels—$30 per phone, versus an
industry average of $100.
 The company will also sign
agreements with 7-Eleven
(Convenience stores) and Shell (gas
stations) for physical phone cards
distribution.
Packaging
• Virgin Mobile will have bright red
clamshell-style, clear, see-through
Starter Packs.
• Consumers can pick up the phone
without a salesperson help.
• The first two basic models would be
“Party Animal” and the “Super
Model”.
• The Starter Packs would be easily
visible on large point-of-sale displays.

12. MKM 805 12
For young people who are just starting an adult life,
Virgin Mobile offers a new and affordable prepaid cell
phone plan accomplished with an interactive and
fashionable phone, and unlike cellulars do not have
hidden fees, Virgin Mobile will give you flexibility and
freedom because you do not need to sign any
Contracts.
Target Market Frame of Reference
Reason to Believe Point of Difference
Virgin Mobile should be positioned as a brand for young people that gives flexibility and freedom in life.
Features:
Fashionable phones with interactive
features (VirginXtras).
Product benefits:
Affordable, flexible and reasonably
priced plan.
Consumer rewards:
Stay in control of what you are paying.
Virgin Mobile has no hidden charges and
stays fair with customers.
Emotional Benefit:
Make me feel free and independent
from parents.
Functional
Benefits
Higher-Order
Benefits

13. MKM 805 13
Appendix 1
U.S. Cellular Industry Metrix
U.S. Cellular Industry Month Retention Month Retention HF%
1 98% 1 94% 17,14%
Churn Rate Per Month 2% 2 96% 2 88%
Retention Rate Per Year 76% 3 94% 3 82%
ARPU $52 4 92% 4 76%
Cost To Serve Per Month $30 5 90% 5 70%
Monthly Margin Prepaid $18,23 6 88% 6 64%
Monthly Margin Postpaid $22 7 86% 7 58%
Yearly Margin Prepaid $219 8 84% 8 52%
Yearly Margin Postpaid $264 9 82% 9 46%
Dicount Rate 5% 10 80% 10 40%
Acquisition Cost $370 11 78% 11 34%
12 76% 12 28%
CLTV Postpaid with HF $322
CLTV Postpaid without HF $203
CLTV Prepaid with HF $ -274
CLTV Prepaid without HF $ -290
Break Even in Month Postpaid 16,8
Break Even in Month Prepaid 20,3
Price Floor $0,072

14. MKM 805 14
Appendix 2,3
Option 1: “Clone The Industry Prices”,
Option 2: “Price Below The Competition”
Option 1
Churn Rate Per Month 2%
Retention Rate Per Year 76%
Rate per 400 Minutes $0,13
ARPU $50
Cost To Serve Per Month $23
Monthly Margin $28
Yearly Margin $330
Dicount Rate 5%
Acquisition Costs:
Advertising $60
Sales Commission $30
Handset Subsidy $30
Total Acquisition Cost $120
CLTV $745
Break Even in Month 4,4
Price Floor $0,032
Prospect CLTV $625
Option 2
Churn Rate Per Month 2%
Retention Rate Per Year 76%
Rate per 400 Minutes $0,10
ARPU $40
Cost To Serve Per Month $18
Monthly Margin $22
Yearly Margin $264
Dicount Rate 5%
Acquisition Costs:
Advertising $60
Sales Commission $30
Handset Subsidy $20
Total Acquisition Cost $110
CLTV $582
Break Even in Month 5,0
Price Floor $0,030
Prospect CLTV $472

15. MKM 805 15
Appendix 4,5
Option 3: “Clone The Industry Prices”
Option 4: “Recommendation for pricing strategy”
Option 3
Churn Rate Per Month 6%
Retention Rate Per Year 28%
Rate per 400 Minutes $0,35
ARPU $140
Cost To Serve Per Month $63
Monthly Margin $77
Yearly Margin $924
Dicount Rate 5%
Acquisition Costs:
Advertising $60
Sales Commission $30
Handset Subsidy -
Total Acquisition Cost $90
CLTV $246
Break Even in Month 1,2
Price Floor $0,020
Prospect CLTV $156
Option 4: Recommendation
Churn Rate Per Month 6%
Retention Rate Per Year 28%
Rate per 400 Minutes $0,20
ARPU $80
Cost To Serve Per Month $36
Monthly Margin $44
Yearly Margin $528
Dicount Rate 5%
Acquisition Costs:
Advertising $60
Sales Commission $30
Handset Subsidy -
Total Acquisition Cost $90
Virgin CLTV $102
Break Even 2,0
Price Floor $0,020
Prospect CLTV $12

16. MKM 805 16
Option 1 Option 2 Option 3
Advertising budget $60 000 000 Advertising budget $60 000 000 Advertising budget $60 000 000
# of Cuctomers 1 000 000 # of Cuctomers 1 000 000 # of Cuctomers 1 000 000
Handset Cost $60 - $100 Handset Cost $60 - $100 Advertising Costs Per Customer $60
Average Handset Cost $ 80 Average Handset Cost $ 80 Sales commission $30
Advertising Costs Per Customer $60 Advertising Costs Per Customer $60 Handset subsidy $-
Sales commission $30 Sales commission $30 Total Acquisition costs $90
Handset subsidy $30 Handset subsidy $20
Total Acquisition costs $120 Total Acquisition costs $110
Appendix 6
Acquisition Cost Calculation