Virgin Mobile USA – Pricing strategy for market entry
Industry Analysis
Virgin mobile is trying to make its foray into the US market for cellular phones which has several incumbents and is considered mature with an industry penetration close to 50% (approximately 130 million subscribers). The market is highly competitive with 6 national carriers and a number of regional and affiliate providers. The 4 big players have a customer base of about 66% of the total cellular subscribers in US with the rest being catered to by a large number of other players.
Incumbents have a distinct competitive advantage over the new entrants as they have already captured the bulk of the high usage credit worthy customers. Average Revenue per user (ARPU) for these carriers is approximately $52 per month which represents the premium customer base in the population. The incumbents have been focusing on customers with good credit history as they believed that the high acquisition costs, high service costs and irregular and low usage business offered by people in the younger segment as also customers with poor credit scores did not warrant targeting and acquiring them. The national carriers have tremendous financial power and they invest huge sums in advertising to gain and maintain market share in the premium end of the market.
Being a highly capital intensive industry it is imperative for the industry participants to maintain capacity utilisation by reducing consumer attrition and most of them typically bind their subscribers in a one-two year contractual agreement. In addition, these agreements typically require subscribers to choose between buckets of minute usage, one which the customers feel is most suitable for their usage patterns. Distinction is also made in the call rates fo ...