PROFESSOR:| Philippe René Gillet|
CASE: Virgin Mobile USA “Pricing for the first time”| DATE: 20/02/2012CLASS: MBS-Entrepreneuriat|
PART I) ANSWERS BASED ON MY “GUT FEELINGS”
Virgin Mobile targets the 14 to 24-year-olds market. The case lays out three pricing options. Which option would you choose and why?
I would go for option number two for several reasons. The first one is that I think offer number one is not sufficiently different from the rest of the market. The price positioning is the same and we only get better off peak hours, supposedly “fewer hidden fees” and applications. Virgin Xtras is a creative idea and definitely suits Virgin’s image and targeted young audience, however I don’t think it is a sustainable selling argument. It is the cherry on the top of the cake, but it is not meaningful to the customer as a main sole advantage.
Option number three is way too groundbreaking to have success on the US market. First of all, 90% of US subscribers choose postpaid services because it is almost common knowledge that it is a better deal. It seems like a dangerous strategy to go in such a small niche it you want to reach high numbers of people. Secondly, there is the contract issue that tends to push the customer away at first but ultimately secures his fidelity over a one to two year period. I believe that Virgin should try to facilitate the credit check process, but having no contract at all seems dangerous in terms of churn rate (going from 2% to 6%).
Option number two looks like a good alternative because money is always a powerful argument and most customers seem to feel like they are paying too much. Besides, we are focusing on a target audience (14 to 29 years old) that has a small budget. Focusing on the 100 to 300 minute audience is also well adapted to our target audience’s need. Keeping the “buckets” of minute is also a good thing because we do not take the risk to confuse people with something entirely different. The industry’s offers are already complicated enough, it is good to keep the standards that work (Buckets, On/Off peak).
PART II) MARKET ANALYSIS
What are the sources of all of this dissatisfaction?
The main reason behind this dissatisfaction is confusion. The pricing plans are very hard to understand for most people. You need to have a sales person dedicated to the selling process when you come to the store because explaining what’s behind every cost is not a simple task. There are many hidden fees and comparing the deals between cellular operators takes a lot of time. It is so hard to know if you are taking the right decision that the average customer needs a human support (sales person) to be confident enough to make up his mind.
That is the first part of the buying experience, because once you have chosen the right cell phone and the appropriate consumption plan, you still need to go through the credit check process. Like it says in the case, 30% of the prospective customers fail to pass the credit check because they either lack the information required or they just do not fit the criterias that are required. Another source of dissatisfaction is the contract issue because no one likes to feel attached to a company or service provider for one or two years. It is a very competitive business and the offers seem very similar. Dissatisfaction is also due to the frustration you feel when you find a better deal while still being bound by a contract.
How have the various pricing variables (ex contracts, pricing buckets, hidden fees, off-peak hours) affected the consumer experience?
The contract issue is a painful experience that makes the customer reluctant to go further in the buying process. It is the main explanation for the small...