Virgin Mobile Case Presentation

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Case: Virgin Mobile USA 1 Synopsis Virgin Mobile USA, as a new entrant into the US wireless service market, aimed to acquire one million subscribers in a year. The company chose to focus on a niche market: consumers in their teens and twenties. The company also was wondering about its pricing strategy: -- Following the typical pricing structure in the industry, -- Or adopting a new pricing structure which gets rid of contracts, hidden fees, and bucket plans, and includes pre-paid plans? 2 1 What are the threats to industry profitability? 3 Industry Analysis Competitors: Crowded markets with six national service providers (AT&T, Cingular, Verizon, etc) -- no single provider can control more than 25% of the market (Exhibit 1). Buyers: -- The main segment with consumers above 30 has reached maturity with a penetration rate of about 50%. -- Penetration into the niche segment with consumers aged 15-29 was much lower. However, it did not attract many providers given that such consumers typically do not have credit history. -- Buyers do not have much bargaining power but their satisfaction is low. 4 2 Industry Analysis (Cont’d) Suppliers: Cell phone manufactures collaborate with service providers to bundle phones and service plans. Distribution channels (outlets, electronic stores, etc) have large bargaining power and typically require for $100 commission per phone. Entrants: Threats from new entrants are low given that the market is very crowded and network effects are significant. Substitutes: There are no good substitutes to wireless phone services. Conclusion: the key threats to industry profitability include fierce competition, consumers’ dissatisfaction on pricing structure, and high customer acquisition costs (roughly $370 including distribution commission, handset subsidy, and advertising). Therefore, the key task for Virgin

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