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Cody Rigsby . Given Virgin Mobiles target market (14 to 24 year olds), how should it structure its pricing?

The case lays out three pricing options. Which option would you choose and why? In designing your pricing plan, be as specific as possible with respect to various elements under consideration (e.g., contracts, the size of subsidies, hidden fees, average per minute charge, etc.).

1.

We decided that that pricing strategy three a whole new plan would be

the most effective at positioning Virgin mobile as the brand for adolescents and young adults in the United States. This pricing strategy is easy for young consumers to understand and afford. The phones are at the most expensive $100, which a high school student can afford with half of their part-time job paycheck or a teenager who has an allowance can save up for a month and buy. It is also at a reasonable price for parents to spend on a phone if they were to purchase a handset as a gift or for their childs safety as a way of instant communication between parent and child. This plan is also an excellent strategy because it throws out the idea of contracts, which 14-17 old teens cannot obtain without a parent to co-sign. This allows a teenager whose parent may not want them to have a cellular phone to get a cell phone or parents whom are not willing to jeopardize their credit or risk a high cell phone bill to fulfill their teenagers wants. This strategy will also be a great tool at building brand loyalty at a young age. If a teenager is given the freedom to have a cell phone at an early age by Virgin mobile and feels comfortable and trusting of the provider they will come back to the brand when their are of legal age to a contractual cell phone plan and opt out of it by choosing Virgin Mobile. Cell phones are a form of constantly innovated

technology and young consumers are the opinion leader on these products and services in comparison to mature consumers. Targeting this market and eliminating all hidden fees such as taxes and service charges is a great way for this market to think of Virgin Mobile as trustworthy. We believe that the whole new plan is the best way to enter the mobile phone market, but if we were to create our own plan for the company we would use the same plan but change or give suggestions to overcome some obstacles. When deciding how minute pricing should be handled, Virgin should stay with the industry average of about 20 per minute because they should not position themselves as more cost efficient in talk time prices, but rather focus on their Virgin extras. Text messaging has become such an accepted and widely used form of communication. In 2001 when virgin was launching their mobile brand the U.S sent over 253 million text messages, and that number elevated to 4.3 billion in 2006(Text messages.., Li Yuan, 2005. www.wsj.com). Text messaging allows you to gather and send information without all the interference of small talk. Test messaging is much more convenient way of communication if you dont have enough time for a full conversation you can let your friends know your thinking about them or tell them youre at work with a simple message. This is where Virgin should differentiate itself when it comes to pricing strategies. If Virgin were to price their text messages below the regular rate of other carriers this is where their pricing would become a deciding factor in a consumers choice to buy Virgin Mobile. The case study mentioned that young adults are not making business calls and consuming large amounts of minutes, but students are using text messaging as form of

communicating when they are not allowed to talk, like in class. This is why this strategy would be highly affective. Another area that could be fixed is the prepaid feature of Virgin Mobile. This is a great way for consumers to avoid credit checks and not go over a budget on their cell phone bill, but the channels of purchasing these products could be altered to better the customers convenience. Buying a calling card looks cheap or tacky and in a time where being luxuries and spendthrift is very important to teens self image, a teenager is not going to jeopardize their image to insure they have more minutes. The option to pay online is available, but teenagers cannot obtain credit cards until the age of 18 and most banks dont give debit cards till one is 18 also. Another option for in-store purchasing of minutes would be to have retailers accept payments on behalf of virgin mobile and credit that payment to ones account. This looks less tasteless and is more convenient for the customer because they dont need to carry around a card to use their minutes. The virgin Xtras could also be where Virgin makes there money, since these options are at the consumers will and are not a necessity the charge on these features could be higher than the industry standard. Young adults are looking for luxury and individualism; ring-tones are a great way to project that image. Teens will be willing t pay a little Xtra for these services especially if Virgin has co-branded exclusive offers from MTV and Nickelodeon.

2. How confident are you that the plan you designed will be profitable? Provide evidence of financial viability of your pricing strategy. 2. Customer dissatisfaction stems from the apparent confusion which all

cellular customers have experience at least once from their carrier. It starts with the fact that over 90% of all subscribers in the US have been required to sign a contractual agreement with the start of a new service which nine times out of ten require a credit check be done and the plans that are offered only consist of buckets of minutes as options. Buckets of minutes only allow a certain amount of talk time and if customers underestimate this amount of time, they either dont use all their minutes or they go over the allowed amount resulting in charges per minute of each additional minute used. Many carriers are also guilty of sneaking in extra hidden charges and fees which arent mentioned to the customers when they subscribe for service, so a $29 plan could end up costing the subscriber $35. Advertisements can also be misleading and give customers a sense of receiving some type of deal or discount. Customers no longer feel as though they can trust one particular carrier to have their best interest at heart and dont find it necessary to remain loyal to one particular carrier because they are all after the same thing, money. Customers have also taken offense to mergers which have occurred in the wireless industry between major carriers such as Sprint and Nextel. When people hear of a merger, they surmise they're going to have problems, and some of their dissatisfaction is based on perceived rather than real problems. Large carriers have not attended to customer dissatisfaction due to the fact that they have trapped their customers into contracts, so they can do as little as possible and

spend very little to please these people. Also many customers are unsatisfied with hidden fees and overage charges. If a large carrier were to eliminate these fees sales and revenue would drop.

3. The cellular industry is notorious for high customer dissatisfaction. Despite the existence of service contracts, the big carriers churn roughly 24% of customers each year. What is the source of all this dissatisfaction? How has the various pricing variables (contracts, pricing buckets, hidden fees, off-peak hours, etc.) affected consumer experience? Why havent the big carriers responded more aggressively to customer dissatisfaction?

3. The Virgin Mobile value proposition is very effective to its target market. Virgin Mobile core positioning is that they offer a fun, honest brand at an affordable price. They go above simply providing customer reliable cellular service; they promise their customer extras that benefit to their youthful lives by adding relevant content, features, and entertainment that the company calls these VirginXtras. Virgin Mobile customers are exclusively able to access to MTV, VH1 and Nickelodeon music, game and other features. The company has a restricted agreement with MTV that allows Virgin subscribes wide variety of benefits the network can provide to its customers. This was a very thoughtful and potentially successful strategy by the company because the majority of their customers are loyal MTV viewers. The exclusiveness of Co-branding with MTV builds Virgin Mobiles Brand equity through exclusiveness and having support from a highly recognizable and trusted youth brand. Customers are giving the opportunity to vote for their favorite artists on the popular MTV show Total Request Live. Subscriber can also personalize their phones my adding MTV

brand graphics, ring tones, text alerts and voice mail. Beside the deal Virgin Mobile has with co-branded MTV content they offer customer: text messaging, online real-time billing, rescue ring, wake up call, fun clips, the hit list, music messenger, and movies. Text messaging is a key selling point to youth, many text messages more then they talk on the phone. These customers spend a great portion of their time at school secretly communicating with friend through text messaging. Text messaging also provides privacy from overbearing parent. In an internet savvy world online real time billing is an effective way for owner to keep track of their bill. The Rescue ring is a fantastic augmented product that we feel ill appeal to the customer, no one else offers such a service. The rescue ring is an innovative product offering. Many young people do not own an alarm clock so they depend on their cell phone to wake them up. In todays world if you do not have a ring tone you are not consider cool, and ring tones give a person a sense of individualism. Virgin Mobiles teen to young adult target market will be highly affected by their channeling. Their channeling consists of point of purchase marketing where consumers can purchase phones, minutes, and Xtras without pushy sales associates that sometimes neglect younger customers. Teen consumers also dont have to worry about having credit to open a phone line they can simply pick up a starter bundle pack and start their service. Placing the product in youth oriented retailers such as Target, Best Buy and Sam Goody is a good strategy, because these retailers are positioned in youths minds as places that are cool to shop with. The way that Virgin developed a horizontal marketing strategy with sprint to use their technology to carry there service keeps the cost of

developing Virgins own technology low and helps them focus on developing features that attract to their target market. Virgin has a great understanding of the teen market to the fact that they use E-commerce. Americans are spending more than ten hours a month on the internet, and using a large amount of that time to shop and purchase (www.zonalatina.com). The fact that Virgin allowed there users to purchase minutes and features online makes their target market more likely to buy there service because of the convenience of dealing with ones phone bill through E-commerce.

4. How do major carriers make money in the industry? Is there a financial logic underlying their pricing approach? 4. Virgin has taken a market specialization approach to their target market selection approach. Instead of trying to approach the masses they honed in on a specific market and made their product appeal to those people. These young customers are going to be intrigued by this new form of cellular provider. This is a profitable market because of the account for a large amount of disposable income, approximately 15 billion in 2005 (http://www.icrsurve y.com/Teen_Survey_Report_0805.ppt.). They are more willing to spend money on technological devices like cell phone. Problems that may occur with this target market are numerous. Teenagers do have a large amount of disposable income, but it is not steady, teenagers are less likely to have part-time jobs and more likely to obtain money from their parents (http://www.icrsurvey.com/Teen_Survey_Report_0805.ppt.). Parents way of

controlling their children is restricting their freedoms, one of those being a cell phone. Another problem is young adults fickleness. We are always changing our minds and after the hottest new product and if Virgin mobile does not fit that criteria we can easily get out of our service plan and move along with our life. Another risk is the backlash of unethical marketing of a product that some people see cell phones as an unnecessary and too sophisticated adult oriented product for a teenager to have. Virgin having low valued brand equity also doesnt appeal to this target market, youth want brands that are familiar and have established mass appeal. So there is a risk in targeting the young adult market. Another risk that could occur with this market is that if the Virgin brand extension into the mobile phone market doesnt do well this might reflect the way young adults view other virgin products. Other cell phone carriers have been reluctant to target this market because of many of the risks stated above. Also the fact that many of these carriers are on credit approved contracts that teens cannot obtain. Even college students with credit still do not have a steady flow of income, any high paying jobs to pay their high bills.

5. What do you think of Virgin Mobiles value propositions (the VirginXtras etc)? What do you think of its channel and merchandising strategy? 6. Do you agree with Virgin Mobiles target market selection? What are the risks associated with targeting this segment? Why have major segments been slow to target this segment?

Sources Used http://64.233.169.104/search? q=cache:PEKXp0XETN4J:www.icrsurvey.com/Teen_Survey_Report_0805.ppt+t eenage+disposable+income&hl=en&ct=clnk&cd=1&gl=us http://www.zonalatina.com/Zldata371.htm http://online.wsj.com/public/article/SB112372600885810565LVe__t8Ftcj3FzUOWPBs_wCzG9I_20060811.html?mod=rss_free

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