Odette School of Business, University of Windsor
Title of case:Virgin Mobile USA: Pricing for the Very First Time
Key person and his / her position in the organization:
Dan Schulman, CEO of Virgin Mobile USA
Key issue or decision that must be made:
The key issue for Virgin Mobile USA is to select a pricing strategy that will both attract and retrain subscribers. Basic facts of the case:
Virgin is a U.K-based company led by Sir Richard Branson and is one of the three most recognized brands in Britain. The company has a vast history of brand extensions – one of which is their launch of a wireless phone service in the USA. Dan Schulman has been appointed CEO of the Virgin Mobile USA branch and is now trying to determine what pricing strategy would be most efficient in attracting and sustaining customers in the USA. There are several other decisions which also need to be made, such as who the target market will be, what unique features Virgin mobile can offer to differentiate from their competition, which channels to use in order to sell their product and how to advertise their product most efficiently.
Alternatives:There are 3 alternatives in regards to the key decision: (1)“Clone Industry Prices:” clone existing price structure –priced competitively with a few key advantages like differentiated applications and superior customer service. (2)“Price Below the Competition:” adopt similar pricing structure as that of the rest of the industry with actual prices slightly below those of the competition. (3)“A Whole New Plan:” start from scratch and come up with an entirely different pricing structure, one that is significantly different from anything offered by the competition. [For example: No contracts, Pre-paid (no credit check needed), No hidden fees and more satisfactory off-peak hours for the target market.
Your chosen alternative: After reviewing the case I would suggest that Dan Schulman, CEO of Virgin Mobile USA, choose alternative 3, “A Whole New Plan, creating a unique and distinctive pricing structure that is different from anything offered by the competition. The company should target the 15-29 target market, offer a large number of unique features that are targeted at young people, sold through channels that are more closely aligned to its target market selection [i.e. Target, Best Buy] and advertised to exclusively target the youth market.
Justification for your choice:
Target market 15-29: Because of the overcrowded nature of the mobile communications industry in the United States it is very difficult to enter the mobile phone service market with a new brand. However the 15-29 [age] market segment has not been targeted by the big companies. Reasons for this include that young consumers often have poor credit quality and also that people in that age group are less likely to use their cell-phones regularly and therefore are considered low value subscribers. This age group would be the best target market since it’s underserved by the existing carriers. VirginXtras: Unique features such as text messaging, Rescue Ring, Wake-up call etc would appeal to the youth market, generate additional usage and create loyalty, they will attract and retain the youth segment. Selling Channels: By selling the product in a more youth oriented setting the company will save money since they won’t have to employ high-touch sales people who are paid high sales commissions to ensure hands-on service. Advertising: Since the advertising budget is slim and the target market is narrow the advertising will simply target the youth market and offer unique youth oriented messages to promote the product. The reason Virgin Mobile USA should choose alternative 3 “A Whole New Plan” is because it is most likely to create value for the company and ensure that it successfully enters a very competitive, saturated market and creates profitability by...