Virgin Mobile Case Study

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Topics: Costs, Cost
Pricing Decision

From Customer’s Standpoint
The company tried to distinguish itself from the competitors standpoint by playing on the fact that the targeted segment “did not trust the prevalent pricing points” in the industry that hinged on the credit worthiness. The main practices prevalent were:
1. 90 % of all subscribers had contractual agreement for a period of 1 year to 2 years
2. Required rigorous credit check
3. Plans established “buckets” of minutes, on extra usage users penalized heavily
4. Charged less for off-peak than on-peak minutes, but the off-peak period had shrunk
5. An additional fee was added to monthly bill, including taxes and services charges.

From Company’s Standpoint
Virgin Mobile USA had to fix all these problems prevalent in the industry while taking a pricing decision. The main limitation it faced was that the prices should be competitive and portable without triggering of competitive reactions. There are three options available:

Option 1: “Clone the Industry Prices”
• The message would go to customers that they were priced competitively with few advantages like differentiated applications [MTV] and superior customer service
• Better off-peak hours and fewer hidden fees would be the selling point but the pricing structure would still depend on off-peak and peak categorization as contacted minutes
• Easy to promote as this strategy of “buckets” was already prevalent in industry
• But risks alienating the target base as they already did not make the required cut for the credit worthiness

Option 2: “Price below the competition”
• Similar pricing structure as rest of industry, with actual prices slightly below those of competition only within the highest frequency range
• Better off-peak hours and fewer hidden fee could also be given

Option 3: “A whole new plan”
• Entirely Different pricing structure
• Eliminate contracts and going for prepaid pricing structure. However the nature of the American cellular

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