Virgin Mobile USA launched in 2002 with a new pricing model aimed at the youth market aged 15-29. It offered prepaid plans without contracts starting at $35 per month, which included unlimited minutes and unique content and entertainment features through partnerships with MTV. This novel approach analyzed customer lifetime value to determine competitive pricing could be profitable while meeting unmet needs of the target demographic.

1. We Answer To A Higher Calling
Prepared By – Team 4
Pooja Gupta (P122033)
Rohit Singh (P122038)
Saurabh Singh (P122041)
Varun Anand (P122049

2. Virgin Group
“Virgin believes in making a difference. We
stand for value for money, quality,
innovation, fun and a sense of
competitive challenge. We strive to
achieve this by empowering our
employees to continually deliver an
unbeatable customer experience.”

3. Virgin Mobile USA
• Commenced operations in June, 2002
• Led by founding CEO Dan Schulman
• Entered USA as a 50-50 joint venture
between Virgin Group and Sprint
Corporation. Virgin Mobile USA’s service
would be hosted on Sprint’s PCS network
• Sprint was in process of updating its
network and increasing its capacity.

4. Virgin Mobile USA
• Schulamn- “The nice thing about this
model is that we don’t have to worry
about huge fixed costs or the physical
infrastructure. We can focus on what we
do best-understanding and meeting
customer needs.”
• “We Answer To A Higher Calling”
• Providing extra-ordinary services and
experiences at a low price as $35

5. Objective
• Create value and profitability in cell phone service
industry
• Target market ages 15-29, opportunity for growth with
this market segment
• 1 million subscribers by year 1, 3 million by year 4
• “By focusing on the youth market from the ground up,
we’re putting ourselves in a position to serve these
customers in a way they have never been served
before”
-Dan Schulman, CEO, Virgin Mobile USA

6. 4P’s of Virgin Mobile USA
Why?

7. Problem with Current
Telecom Services
• Low penetration among consumers aged 15-29.
Growth rate for this segment was projected to
be robust for the next 5 years
• Target group had been undeserved by existing
carriers and specific needs that haven’t been
met
• Average monthly cell phone bill - $52
representing 417 minutes of use. Hence, cost to
serve a customer - $30
• Carriers tended to be wary of acquiring low-
value subscribers

8. Target Group and Behavior
• Consumers aged 15-29
• Calling pattern is different from typical business
person
• Open to new things:
– Text messaging
– Downloading information using cell phones
– More likely to use: ringtones, faceplates and
graphics
• It’s a fashion accessory and a personal style
statement

9. Mobile Penetration by Age Group

10. Revenue from Mobile Entertainment Services

11. Pricing Trend in US before
Virgin
• Over 90% of all subscribers had contractual
agreements for a period of 1-2 years with their
cellular providers
• Customers would sign up for ‘buckets of minutes’
• If a user used more than allocated minutes, they
would be charged with extremely high rates (eg:
40 cents / minute)
• If a user used less than allocated minutes, they
were still charged the fixed monthly fee, which
drove up their price per minute

12. Calling Plans – Industry Prices
Price per minute
Contract Commitment - Minutes

13. Calling Plans – Industry Prices
Price per Minute
Contract Commitment - Minutes

14. Pricing Trend in US before
Virgin
• Carriers charged less for off-peak than on-peak
minutes
• Off-peak time changed from 6:00 PM to 7:00,
8:00 and then finally 9:00 PM
• Some carriers charged a monthly fee (appox. $7)
to move the peak time back to one hour
• Carriers added additional fees to monthly bill (tax
or other additional cost information was not
communicated. So a $29 plan ended up being a
$35 plan)

15. What Virgin focused on?
• Customers couldn’t predict their usage and ended up
choosing wrong plan pattern
• Customers think they use more minutes than they
actually use
• Target segment actually used 100-300 mins/month but
target predicted their usage is higher than that
• People tried picking up lower bucket plans to avoid high
monthly fees but they ended up paying a lot more than
that due to usage of minutes above the bucket
• On-peak and off-peak minutes weren’t in right mix

16. 4P’s of Virgin Mobile USA
What?

17. What to provide them?
VirginXtras
• Delivery of content, features and
entertainment
• Signed a exclusive and multiyear, content
& marketing agreement with MTV
networks to deliver music, games and
other MTV, VH1 and Nickelodeon based
content to Virgin Mobile Subscribers
• Deal with MTV also ensured airtime on
MTV’s channel and web site

18. VirginXtras
• MTV-branded accessories and phones
and contents (ringtones, text alerts and
voice mails
• To vote for their favorite videos on MTV’s
shows like “Total request Live”
• Text messaging
– No. of text msgs tends to skyrocket during
school hours. Reason: Parents don’t see who
they call, private form of communication

19. VirginXtras
• Online Real-Time Billing
– No call detail on monthly bills. Website will
record individual calls on a real-time basis
• Rescue ring
– Mobile subscriber will get a call at
prearranged time to “escape” in case a date
was not going well.
• Wake-up Call
– Chance to wake up to original messages
from a variety of cheeky celebrity

20. VirginXtras
• Ring Tones
– Customized ringtones would be available for
subscribers to download
• Fun clips
– News, tidbits, jokes, gossip, sports and more
• Hit List
– Vote top 10 list of hit songs. Would be able
to hear the %age of other subscribers who
either “loved it” or “hated it”

21. VirginXtras
• Music Messenger
– Tap into 10 songs list & forward it to a friend
allowing them to check out a hot new track
• Movies
– Movie descriptions, show timings, and buy
tickets in advance
Handset: First 2 basic models named “Party
Animal” and “Super Model” came with
interchangeable faceplates decorated with
eye-catching colors and patterns

22. 4P’s of Virgin Mobile USA
How?

23. Virgin’s Goal
• To make sure their prices are competitive
• To make sure they could make profit
• Don’t want to trigger off competitive reactions

24. Options
• Clone the Industry Prices
• Price Below Competition
• Whole New Plan

25. Clone the Industry Prices
• Use same prices as other competitors
• Communicate -“priced competitively with
everyone else but with a few key advantages
like differentiated applications (MTV) and
superior customer service”
– MTV Applications and features
– Superior Customer service
• Offering better off-peak hours and fewer
hidden fees
• Put on packaging so that even without a
salesperson, consumers would get the message

26. Price per minute
Contract Commitment - Minutes

27. Clone the Industry Prices

28. Price Below the
Competition
• Maintain buckets and volume discounts
• Set price per minute below the industry
average for certain key buckets – Target young
market 100-300 mins

29. Price per minute
Contract Commitment - Minutes

30. Price Below the
Competition

31. A Whole New Plan
• Shorten or Eliminate Contracts
– Contracts guarantee annuity stream
– Contract allows 18 years or below to purchase the product
– Churn rate was 2%, new plan could increase churn rate to 6%
• Prepaid service
– 92% US subscribers had Post-paid
– Pre-paid was used on occasional basis as rates per minute was high
and no credit check was required
– Has high churn rates. Company would never be able to recoup its
customer acquisition costs
– New mechanism or infrastructure was required for prepaid services

32. A Whole New Plan
• Handset subsidies
– Mobile carriers subsidized the cost of handset to end users to
acquire customer cost
• Eliminate Hidden Fees and off-peak hours
– ‘what you see is what you get’
– Rolling out hidden costs into pricing such that pricing feels
competitive
– off-peak should benefit the target group. Minute usage is very
different from business class

33. Price Below the
Competition

34. What they did?
• LTV Model – Life Time Value
• In marketing, customer lifetime
value (CLV), lifetime customer value (LCV),
or user lifetime value (LTV) is a prediction of
the net profit attributed to the entire future
relationship with a customer
• Simplified Model
• LTV = (M/(1-r+i)) – AC

35. Factors influencing LTV
• ARPU: Avg Revenue Per User
• CCPU: Cash Cost per User = 45% of ARPU
• M: Monthly Margin = ARPU – CCPU
• r: Retention rate ( 1 – (12*6%)) = 0.28
• AC: Acquisition Cost ( = $120 for Virgin)
– Sale commission
– Advertising per gross add
– Subsidy cost

36. LTV Calculation
• LTV = (M/(1-r+i)) – AC
• => M = ARPU – CCPU
= (1 – 45)%
= 55%
M on yearly basis, assuming that a customer talks
for 200mins.
M = (1-0.45) * 200 * 12 * p
p -> can be 5 – 30 cents/min (As competitors
are charging more than 30 cents/min

37. LTV @ Different Price
Points
• LTV(at 5 cents)= (1-.45) (200*12*.05) /(1-.28 + .05) –
120 = -34.28
• LTV(at 7 cents)= (1-.45) (200*12*.07) /(1-.28 + .05) -
120 = 0  Break-even point
• LTV(at 10 cents)= (1-.45) (200*12*.1) /(1-.28 + .05) -
120 = 51.42
• LTV(at 15 cents)= (1-.45) (200*12*.15) /(1-.28 + .05) -
120 = 137.14
• At 7 cents, the LTV =0 which tells that minimum of 7
cents should be charged by the virgin
• Virgin can charge any amount more than 7 cents

38. LTV @ Different Price
Points
Price Point LTV
5 cents / minute -34.28
7 cents / minute 0
10 cents / minute 51.42
15 cents / minute 137.14
Break-even point

39. Current Plans in Market
Company Plan Value
AT&T Starting at $40/month
Virgin Mobile USA $35
T-Mobile $34.99 (Only talk +
text) other plans
starting at $59.99
Providing a plan with music and other
added features

40. Virgin’s Service Offering
• Extra features: Music, Wallpapers, Videos, Live Video Request,
Rescue ring, wake-up call facility
• New improved billing pattern and online real-time monthly bills
• Prepaid plan
• No contracts
• No hidden charges
• No peak off peak hours
• Very low handset subsidies
• No credit checks
• No Monthly bills
• Price: 25 cents per minute for the first 10 minutes; 10
cents/minute for the rest of the day
• No exact numbers, but churn rate lower than 6%

41. Conclusion
• Virgin correctly identified service gaps in telecom industry and what
customers needed.
• Virgin identify inflexibility in calling plans and in other plans.
• Provided extra services than current mobile carriers.
• Provided a medium of entertainment on go.
• Offered customized services at a relatively low cost.

43. References
• HBR case study “Virgin Mobile USA:
Pricing for the Very First Time”
• Wikipedia.com