Case Solution Virgin Mobile

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Problem Statement Virgin Mobile is planning to enter the U.S. market in July 2002. Their objective is to reach 1 million total subscribers by the end of the first year, and 3 million by year four. This represents 0.8% and 2.3% of the current market size. Their biggest concern is how to price their service. Virgin Mobile wants their prices to be competitive, allowing them to make money without triggering off competitive reactions. Situation Analysis At the end of 2001, the U.S. had six national carriers and a number of regional providers. The market was considered to have reached maturity with 130 million subscribers. However, among consumers aged 15 to 19 penetration was around 17%. Consumers aged 15 to 29 had poor credit quality and they were considered to be low users, therefore they were not as attractive to current players. The cost to acquire a customer was roughly $370 and the average monthly bill was $52. The average cost to serve one customer was $32. Virgin Mobile was able to identify this niche, its needs and where they usually bought for electronics. The company knew that these customers’ usage was inconsistent and that they did not like the confusion current rates created. Customers wanted clear, flexible plans. They were unable to predict their own usage so they usually ended up paying more than they wanted to. Peak hour’s rates, extra minutes and one-time costs increased monthly bills unexpectedly. Pre paid plans were unusual because of prohibitive pricing (starting at 35 and as high as 75 cents) In 2001 mobile entertainment represented $10 billion and was projected to increase steadily over the next few years. Alliances with MTV, VH1 and Nickelodeon were going to be Virgin Mobile’s main communication strategies to position the brand with potential customers. Alternatives Virgin was considering three pricing options to introduce the

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