Strategic Issues & Problems
Virgin Mobile is looking to launch a new cell phone service in the US marketplace, which is already a highly saturated industry. This analysis will help select a pricing strategy that attracts and retains subscribers, while still maintaining a competitive edge within the industry. The cell phone industry has many sources of customer dissatisfaction. For instance, customers’ distrust in pricing plans due to confusing usage rates; companies’ inconvenient and inconsistent off-peak hours; service provider’s hidden fees that include taxes and higher rates after minutes are used up, universal service charges, and one-time costs; and binding contracts by the service providers that require good credit history. Major carriers are not addressing these needs because they are complacent among competitors, and they do not view the non-business and/or younger market as a viable option for growth.
As a delayed market entrant, Virgin Mobile’s strategy is to target an unsaturated market segment, while still attempting to earn a profit from a limited income segment. The target market consists of trendy consumers from ages 14 to 29. The company sees this market as an opportunity for growth because of their different usage, needs, and spending habits. However, this market’s limited purchasing power and distrust of industry pricing plans has made creating customer lifetime value and achieving profitability difficult. To reach Schulman’s goal of having 1 million subscribers by the end of the first year, and 3 million by the fourth, the company must determine the most profitable and sustainable pricing plan.
Option One - Clone the Industry Prices: The proven success of the cell phone industry’s current prices is a viable option for modeling Virgin Mobile’s pricing strategy. Because Virgin Mobile has a limited advertising budget of $60 million, the familiarity of customers with established promotional...