Virgin Mobile USA : Pricing for the Very First Time
1) Virgin Mobile targets the 14 to 24-year olds market. The case lays out three pricing options.
Which option woul you choose and why ?
All three options are very interesting for Virgin Mobile to introduce the American market. Considering Virgin Mobile’s background, goals and strategy, I would have choose the option 3 « A Whole New Plan » There are few reasons that explain this choice : Firstly, Virgin Mobile’s cultural values are to be innovative, fun. It also wants to make things different from its competitors and continuously improve customers’ experience through innovation. ...view middle of the document...
It would be difficult to make the difference with only $60 million on advertising budget when competitors have around $650 millions of advertising budget.
- Option 2 “Price below the Competition”: This possibility could enable Virgin Mobile to quickly gain market share. However this is not without risks. Firstly it could create a strong reaction from competitor and create a price war. According to the case, a price war could have a very negative impact on Sprint or its competitors. Indeed, there is no benefit for both, customers and supplier from a price war in western countries especially when the market arrived to maturity, which is the case for the US mobile.
Secondly, with low prices, customers could see Virgin Mobile as a low quality service provider. Moreover, the third option will fit the best with the young people, and could also attract customers that are annoyed of hidden fees from others major carriers.
Plan: Before the realization of a pricing plan, it is important here to set “boundaries”. In fact there are few things to respect regarding subsidies, acquisition cost, and so on in order to launch prepaid pack successfully. Firstly, industry analysts highlight that the acquisition cost will have to be equal or below $100. Secondly, try to lowered cost per minute, which actually cost from 35 to 75 cents. Thirdly, the subsidies will have to be managed. Fourth, we have to remember that there is fixed cost such as advertising ($60 million) and commission to the distributors per sale which has been negotiated at $30. Finally, consider that the target market is the teenager, they use their cell--‐-phone in a completely opposite way than a businessman. Also in order to facilitated the purchased of minutes, customers could buy recharges on Internet, or at the supermarket.
Prices of the prepaid recharges:
100 minutes = $20
200 minutes = $35
300 minutes = $45
Regarding the subsidies, as Virgin signs a contract with the brand Kyocera, in order to have cheap mobile, it has been decided to delete those subsidies. As off peak hour do not fit with the target market. Today teenagers are sending a lot more messages than businessman. It would be more advantageous for them to have free text. This option will be available only between Virgin Mobile’s pre--‐-paid. ...