The document presents a case on Virgin Mobile USA's marketing strategy, focusing on pricing and targeting the underserved young demographic. It outlines their historical context, segmentation, differentiation approaches, and innovative pricing strategies aimed at capturing market share. Additionally, it provides insights into customer lifetime value calculations and the challenges associated with pre-paid versus post-paid service models.

1. Case Presentation On:
Virgin Mobiles USA : Pricing for very First Time.
Course: Marketing Management Presented By:
Akash Gupta.
Biswadeep Ghosh.
Goura Murali Krishna.
Nikhil Nandanwar.
Saurabh Shukla.
Sourish Kumar Deb.

2. Contents
1. Introduction.
2. Historical Details.
3. Segmentation.
4. Targeting.
5. Differentiation.
6. Positioning.
7. Channel Strategy and Distribution.
8. Pricing Decision.
9. Various Pricing options.
10. LTV calculation and inference.

3. Introduction: Virgin Group
The Virgin Group
Year of Foundation February 1970, United Kingdom.
Founder Richard Branson.
Ownership Type Private.
Industry Type A Conglomerate.
Domain of Operation Consumer Electronics, Consumer aviation etc.
Subsidiaries Virgin Megastores, Virgin Atlantic, Virgin Unite.
Key Personality Josh Bayliss (CEO), Peter Norris(Chairman).
Competitors Turkish Airlines, Vodafone, BT group.

4. Historical Details:
• Top 3 most recognized brand in United Kingdom.
• It has a vast Portfolio ; ranging from Planes, Trains, beverages and Cosmetics.
• Virgin music was phenomenally successful; Virgin cola was a failure.
• Customer base of 2.5 million in 3 years.
• Pioneer in Mobile Virtual Network Operator(MVNO).
• Leased Network spaces from Deutsche Telekom.
• Failure of Telecom venture in Singapore Market.
• Explored new market: USA.
• Joint venture with Sprint for networking assistance.
• Kept their focus on MVNO.

5. Standing on Marketing Pillars:
Segmentation
• Identification of Niche, which was till now remain unserved.
• A Saturated telecom market of US, with many big players competing.
• Industry Penetration was around 50%.
• Market was divided into various segment as per their usage.(refer no.01)
• Notion was Mobiles were extensively used for jobs and business purposes.
• Market players targeted those groups, who can avail subscription with good credit rating.
• Cost incurred by operators to acquire a customer was $370.
0
10
20
30
40
50
60
70
80
90
100
Finland UK Japan USA
Penetration by Age group(%).
Age 15-19 Age 20-29 Age 30-59

6. Targeting the Unserved Segment:
• From the previous figure it is clear that 15-29 age group was underserved.
• They are not very regular and extensive mobile user.
• Telecom penetration in the above group was significantly lower.
• Most of the market players don’t want to serve this group.
• Virgin envisioned the opportunity in this group.
• This group formed the base of their target customers.
• Identified the niche for young consumers and exploring their needs.
• They have inconsistent cellular usage pattern with specific needs.
• Need to create value proposition to appeal youth.
• Offerings should be more fashionable to entice target audience.

7. Marketing Differentiation:
• As Virgin is targeting the narrow segment of market, it needs differentiation strategy.
• They decided to deliver contents, features and entertainment, “Virgin-Xtras”.
• Exclusive deals to enhance Virgin-Xtras(MTV, Nickelodeon).
• MTV network has youth brands in the country, Vast reach to under 30 market.
• Promotional Airtime on MTV’s Channels and websites.
• Few services under Virgin-Xtras are: Text Messaging, Billing, Ringtones, Music messenger.
• These features could attract and appeal the target customers.
• Make customers loyal, as others are not offering such to them.
• It wont create any competitive edge under this segment.

8. Positioning:
• Effective Positioning leads to more clear message in the minds of customers.
• They developed advertising campaigns totally offbeat and youth appealing.
• They focused on more entertaining, unique and effective execution.
• Publications in Magazines such as “The Complex, Vibe” which are youth oriented.
• Virgin mobile also involved in Street marketing events- red performers.
• Another plan called the cast of “The Full Monty”, featuring Richard Branson.
• Entire US Cellular industry was looking for a vast and extensive environment.
Advertisement Slogan:
Unless you’re between 14 and 24, You’re probably never going to see our ads. If you …

9. Channel Strategy and Distribution:
• Channeling and Distribution was done keeping in mind the target customer, i.e. where
youth clustered.
• Target places like Sam Goody Music and Best Buy, where youth gathered.
• Packaging was done in accordance to the demand of Consumer electronics.
• Packaged and Placed their product to create a visibility among consumers.
• Carriers purchased handsets to install their services and resale them.
• Virgin ventured with handset manufacturer Kyocera.
• They targeted more than 3000 U.S retail outlets.

10. The Pricing Decision: US Market.
Pre-Existing Pattern in US Market:
• 90% of all consumers had contractual agreement with their service provider.
• Contracts were provided on the basis of credit check and usability.
• Service plans were designed on the basis “Bucket” minutes.
• Providers used to charge on the basis of Off-peak and On-Peak hours.
• Miscalculation and confusion among the masses regarding Off-peak and On-
peak timing.
• A component of fixed and variable charges present over there.
• Hidden element of taxes along with established pricing.
• False advertisement of the existing cost.

11. Pricing Strategy:
Clone the Industry Prices.
• The 1st option available is to follow the industry.
• Pay high commission to salesperson to explain their complicated pricing Structure.
• They need to go through a credit check just like other players.
• Removal of hidden charges from existing charges.
Pros.
1. Easy to promote.
2. Competitive Pricing.
3. Better offerings.
4. Savings on Advertising Cost.
5. No extra input required.
Cons.
1. There will be no switching from
other brands.
2. No flexibility in calling habits.
3. Customers are used to peak/ Off-
peak distinction.

12. Pricing below competition:
• Adopting the similar pricing structure, with actual price below the competitors.
• They would maintain the bucket and volume discounts.
• They need to target the young market who uses 100-300 mins of bucket
Pros.
1. Due to lower pricing, market share
can increase.
2. Maintains Buckets and Volume
discount, with price lower than
average price.
3. Offer better Off-peak hours with
fewer hidden charges.
Cons.
1. Earnings from each consumer
will be less.
2. Sales growth doesn’t mean
Profit.

13. A whole new Plan of Pricing:
• Shorten or eliminate the concept of Subscription Contracts.
• Problem rises due to churn rate.
• Introduction of Pre-paid service against Post-Paid Services.
• Pre-paid Pricing wont let the company to recoup its customer Acquisition cost.
• Subsidies Provided on Handset.
• Most of the carriers purchased handsets from cell phone manufacturers.
• They allowed subsidy as a part of Customer acquisition cost.
• Eliminate all hidden fees and Off-peak hours.
• Defining Off-peak hours in accordance to target consumers.
• Creating a Positive lifetime value(LTV) .

14. Eliminate Contract Subscription.
It allows 18 years and younger to purchase the
product.
But it may lead to high churn ratio.
Pre-paid vs Post-paid.
Phone usability was infrequent.
High Churn rate.
Need a proper mechanism to add Pre-paid
minutes.
No loyalty towards the Provider.
92% have post paid connection and it was
saturated.
Handset- Subsidy.
They purchase handsets from mobile
manufacturers.
Increasing subsidies so that phone are
available at a cheaper rate.
Hidden fees/Off-peak hours.
Price insensitive.
Rarely worry about the charges.
Rolling inner prices of taxes and fees into
final prices.

15. Calculation of LTV:
LTV stands for life time value of a customer from a companies perspective.
A positive LTV is good for a company.
LTV@2% churn ratio.
LTV= {M/(1-r+i)}-AC.
r1=2% monthly.
r1=0.02*12=0.24 yearly.
1-r1=0.24, r1=0.76.
r=1-r1=0.24.
AC=370.
i=5%=0.05.
M=(52-30)*12
{(52-30)*12/(1-0.76+0.5)}-370
LTV= 540
LTV@6% Churn ratio.
LTV={M/(1-r+i)}-AC.
r1=6% monthly.
r1=0.06*12=0.72 yearly.
1-r1=0.72, r1=0.28.
r=1-r1=0.72.
AC=370.
i=5%=0.05.
M=(52-30)*12
{(52-30)*12/(1-0.28+0.05)}-370
LTV= -27.14