November 4, 2013
Virgin Mobile USA: Pricing for the Very First Time Case Study
The CEO of Virgin Mobile USA, Dan Schulam, is faced with the challenge to successfully enter Virgin Mobile into an already saturated cellular market. Mr. Schulam needs to identify a niche in the cellular marketplace and devise a pricing strategy to attract their target segment, consumers between 14 and 24. Schulam must choose one of three pricing strategies to implement that will best allow Virgin Mobile to differentiate itself from competitors and attracts consumers in their teens and twenties to buy from Virgin.
1. The most viable option is the one in which Virgin Mobile adopts a similar pricing structure, but with actual prices below the major carriers. Virgin is attempting to enter into a very saturated and competitive market so it needs a way to attract its target customer. The target age group of 14-24 years old is one with elastic demand towards mobile devices and is sensitive to price. By offering a price below the industry average, Virgin will be able to increase the demand of their devices. In order to maintain stability, I believe Virgin Mobile will be better off utilizing 2-year contracts as opposed to no contracts at all. Even though not offering contracts has the potential to win over a lot of customers, the 72% yearly churn rate without contracts is a huge risk to take for Virgin. The young demographic Virgin is targeting tends to shop around for the best deal so by utilizing contracts Virgin can ensure a stable customer base that won’t switch to a competitor provided that another carrier suddenly begins to offer an even cheaper plan. Virgin Mobile offering a price per minute below the industry average for their key bucket of 100-300 minutes per month will enable them to provide customers with the best price available.
2. Combining a price below the industry average with demographic specific applications such as VirginXtras, Virgin Mobile will receive an influx of customers. The breakdown analysis of 17 months