Virgin Mobile is considering two pricing strategies for entering the US mobile market: 1. A cheaper rate plan targeting 18-29 year olds with subsidized handsets and hidden fees. 2. Prepaid plans targeting 15-29 year olds with unsubsidized handsets and transparent pricing. Analysis shows the prepaid option has lower risk of competitive reaction and higher growth potential given the target demographic. It is recommended to pursue the prepaid strategy and implement an advertising campaign, prepaid service offerings, and distribution through retail partners to acquire the youth market.

1. Pricing for the Very First Time
Jon Arnett
Abhijit Paralikar
Manan Kaura
Emily Feng
Qian Xiaoyun
Mahmoud Hashim

2. Key Issues
Create a pricing strategy for US market entry that will:
1. Attract and retain subscribers
2. Be profitable
3. Avoid triggering competitive reactions
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3. SWOT
Strengths Weaknesses
- Top 3 brand in UK - Little brand recognition in US other
- Previous success with MVNO model than in travel
- MVNO model has low fixed costs - Failed launch of MVNO venture in
- Strategic alliances with MTV, Singapore
Kyocera, Best Buy, and Target - Limited $60M advertising budget
- Dan Schulman has 18 years telecom
experience
Opportunities Threats
- Untapped niche market of 15-29 - Mature market, 6 carriers, 50%
year olds with highest projected market penetration
growth - 15-29 year oldsare low value
- Industry suffering from poor subscribers
customer service - Sprint owns infrastructure. At mercy
- Youth market open to value added for network issues.
services (text,ringtones, downloads) - Prepaid market not loyal to brands
- 30% of customers rejected by other
carriers for poor credit
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4. Alternative 1
Cheaper Rate, Plain and Simple
Target Segment: 18-29 year old customers
Product: VirginXtras, Free Handset, 1-2 years postpaid contract with
hidden fees
Price: 8 cents/min
Promotion: Creative ads, collaboration with popular magazines, and
street marketing events
Place: Target, Best Buy, Music Store (3000 retail outlets in US)
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5. Alternative 2
Prepaid Plans
Target Segment: 15-29 year old customers
Product: Prepaid plan, VirginXtras, Unsubsidized Handset, no hidden
fees
Price: 20 cents/min
Promotion: Creative ads, collaboration with popular magazines, and
street marketing events
Place: Target, Best Buy, Music Store (3000 retail outlets in US)
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6. Decision Criteria
Decision Criteria Alternative 1 Alternative 2
Weight Low Cost Prepaid for Youth
Competitive 0.25 2/10 (0.05) 10/10 (0.25)
reaction risk
Fits with company 0.10 7/10 (0.07) 7/10 (0.07)
strengths
Market share 0.25 7/10 (0.175) 8/10 (0.20)
Brand image 0.15 5/10 (0.075) 7/10 (0.105)
Market exposure 0.10 4/10 (0.04) 7/10 (0.07)
Profitability 0.15 7/10 (0.105) 5/10 (0.075)
Total 1.00 0.515 0.77
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7. Recommendation
Alternative 2:
- Positive LTV of $137.09 vs. Alternative 1 LTV $194.71
- Lower risk of triggering competitive reaction
- High growth potential
- < 18 year olds can get the service without their parents
- Sold where the youth shop
- Transparent and clear pricing
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8. Implementation Plan
Main Task Department Performance Reporting Start Date
Metric To
Initial Ad Marketing Brand Dan May 2001
Campaign Comm. awareness Schulman
New Prepaid Product Increased Dan April 2001
services with Management customer LTV Schulman
VirginXtras
Handset Product Loyalty & Dan April 2001
subsidies & Management transparency Schulman
Hidden Fee
Distribution/ Sales Ease to get Dan June 2001
POS Schulman
Check on Marketing Loyalty Dan October
Churn Comm. Schulman 2001(ongoing)
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9. Questions
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10. Alternatives
Option Alternative 1 Alternative 2
Payment type Post paid Prepaid
Market size 130 M 26.8 M
Market share 3M 3M
Handset Option Free handsets At cost
Average cost per 8 cents 20 cents
minute
Customer Acquisition $170 $95
Cost
LTV per customer $194.71 $137.09
Average Monthly Bill $52.41 $52.41
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