Virgin Mobile USA: Pricing for the Very First Time
Problem Statement.
To define a price strategy that allows Virgin to compete in the USA mobile communications industry. Virgin decided to target a niche (young people from 15 to 29 years old) and consequently the key factor of Virgin Mobile USA success is a price strategy which fulfill their needs and at the same time assure adequate earnings.
Situation Analysis.
? Customers.
o The target of major national providers is businessmen. In fact the major national carries common behavior in order to be sure to cover the cost and to have a profit, due the relative high average cost to acquire a new customer (rough $370) and the net profit (rough $22 per month), is to target customers who are presumed to:
• have a high credit quality;
• do a large use of the mobile.
o Customers typically have a contractual agreement (from 1 to 2 years) with the providers; it is due the will of the providers to have a guaranteed annuity stream and to contrast the high churn trend of the market.
o Low usage customers and poor credit customers are hindered by the companies which operate in the market and provide very expensive price for prepaid arrangements.
o The consumers are not satisfied with the services offered in fact pricing plans are difficult to understand and it is a common practice for providers to charge hidden fees. This contributes to determine a high percentage of consumers who leave their providers (the average industry churn rate is of about 2% on a monthly base).
? Competition.
In the USA mobile communication industry is constituted by: