Virgin Mobile USA: Pricing for the Very First Time

1. Presented by: Aditya Kamboj
Student ID: 128390184
Email: akamboj4@myseneca.ca
Presented to: Prof. Duncan Reith
Course: BMK810 (Business Metrics)

2. 1.1
3.5
6.5 6.7
14.5
20.5 21.7
26.1
29.5
0
5
10
15
20
25
30
35
Subscribers in Million
Current Industry Facts
 Industry penetration is close to 50% with about 130 million
subscribers, which are shared amongst top 9 national and
regional carriers
 The wireless mobile market is over-crowded, increasingly
mature, capital intensive and highly competitive in nature
 The current carriers are believed to be complacent in
nature and existing subscribers believed that they are
receiving a poor deal and are not offered an adequate
customer service
 Due to high customer industry acquisition cost, carriers
believed that it is worth acquiring customers who would
use the wireless service on frequent basis
 This left out a significant portion of the market i.e. people
who are between the age of 15 – 29 years. These
customers were believed to be low value and high risk
subscribers by the existing carriers
15%
45%
53%
0%
10%
20%
30%
40%
50%
60%
15-19 yrs 20-29 yrs 30-59 yrs
US Penetration Rate for different age group
CURRENT WIRELESS MOBILE INDUSTRY IS OVERCROWDED, MATURE AND CAPITAL INTENSIVE, WITH LESS OR NO
FOCUS ON YOUNGER CUSTOMERS AS THE TARGET MARKET

3. KEY FINDINGS LEARNINGS
Virgin plans to target youth (consumers between the
age of 15 – 29 years)
 This market that has been unexplored and under-
served by existing carriers.
 Hence the nature of the target market is tight and
risky.
 They also tend to be more price sensitive than
others
✙
Virgin as a company stands for providing products
and services that are value for money and produce
quality innovative
 Current customers believe that they are exploited
by existing carriers with high monthly bills and
hidden charges
 There has been a confusion in the market amongst
customers about carriers pricing
The existing US wireless mobile industry is
overcrowded, mature, saturated and very capital
intensive
 Existing national carriers were already established
with majority market share, and were mostly
targeting business customers, who would use their
services on a frequent basis
✙
Virgin Mobile in Singapore, which was a joint venture
with Singapore Telecommunication was a failure as it
was only able to attract fewer than 30,000
subscribers.
 According to several analyst, this was mainly due
to saturated market condition and, also due to
Virgin’s non-traditional and trendy brand
positioning
One of the most critical decision that
would play a vital role in Virgin’s success
in US is the selection of the right pricing
strategy
The other decision that would have a
significant impact on Virgin’s success is
establishing a positioning strategy that
would effectively communicate the value
Virgin has to offer
Decisions
to be
made
DUE TO PAST MISTAKES, NATURE OF THE INDUSTRY AND PLANNED TARGET MARKET , VIRGIN NEEDS TO BE
CAUTIOUS WHILE MAKING PRICING AND POSITIONING DECISIONS

4. Basis Consumer Facts Company’s Facts Implications
Contracts
Over 90% of the US subscribers
were part of contractual agreements
and the contracts were generally for
1 to 2 years
Company’s used contracts as a
hedge against churn rate, and
contracts guaranteed annuity
stream
Companies used contracts to bound
customers to their service and US
customers were used to the contract
subscription structure
Pricing Buckets
Consumer signed up for bucket of
minutes and if they actually used
more than the assigned bucket, they
are heavily penalized
On an average companies charged
$0.40 cents if a customer went
beyond assigned bucket, but were
charged same monthly fees if their
usage was with in the bucket
This drove up subscribers price per
minute, due to which they were
losing confidence in the existing
carriers
Hidden Cost
Consumers paid hidden fees in the
form of taxes, universal fees and
several one-time fees that they are
not even aware about
Carriers did not educate subscribers
about their hidden charges when
advertising their subscription plan
This is adding resentment amongst
existing subscribers, as they are
paying an average of 17% hidden
fees over their actual bill
Off peak/On Peak Differentials
Consumers paid on an average 1.5
cents less for off-peak hours,
compared to the average on-peak
hours
Companies charged lesser prices for
off peak hours, but over time off
peak hours were also shrunk from
6pm to 9pm
Reduction in off peak hours forced
consumers to use their minutes in a
tight range
Credit Checks
30% of the potential subscribers
failed to pass the credit checks
Carriers did a rigorous credit checks
to qualify the subscribers that low
probability of defaulting
A big portion of the population
couldn’t subscribe to wireless
mobile service
Sales Process
Consumers bought the services from
commissioned professional sales
people who would explain
complicated pricing structure and
perform credit checks
Carriers sold their services in their
outlets, kiosks, and electronic
stores. They even paid high
commission to their sales people to
ensure hand on service
Consumers ended up bearing the
cost of high commission paid to the
retailers and sales people
Adds to
consumer
resentment
EXISTING AND POTENTIAL SUBSCRIBERS ARE DISSATISFIED DUE TO THE EXISTING CONFUSING WIRELESS SERVICE
PRICING STRUCTURE

5. Contract but with
Hidden fees
Contract with No
Hidden fees
No Contract with
Hidden fees
No Contract with No
Hidden fees
Does the pricing
structure
resonates with the
customers
No, customers felt
exploited with the
existing price
structure, as they
paid more even if
they use their
minutes optimally
Yes, Customers
would prefer
carriers to
eliminate hidden
fees as on average
a customer is
paying additional
17% on actual bill
No, US customers
were used to the
contract structure
(92%) and against
carriers adding
hidden fees to the
bill
Yes, This pricing
structure would
be the ideal plan
as customer is
would pay no
hidden fees and is
not bound to any
contract
Is the pricing
strategy profitable
for the carriers
Yes, currently the
pricing structure is
profitable for the
carriers but it is
not sustainable as
it is sensitive to
churn rate and
hidden fee
No, This plan is
not profitable for
the carriers due to
high industry
acquisition cost
and carriers are
banking on hidden
fees
No, low
profitability with
this strategy, as
monthly churn
rate is expected to
increase to 6%
with no contract
No, carriers are
expected to lose
money due very
high churn rate
and no hidden
fees
= Due to high average acquisition cost and average churn rate, contract with hidden
fees is the only structure that enables carriers to stay profitable and attain break-
even in 17 months, although it is not something that customers prefers and it creates
resentment amongst the subscribers
Current Industry Average
Average Industry Customers
Case 1 - Contract
but with Hidden
fees
Case 2 - Contract
with No Hidden
fees
Case 3 - No
Contract with
Hidden fees
Case 4 - No
Contract with No
Hidden fees
Advertising $120.00 $120.00 $120.00 $120.00
Sales Commission $100.00 $100.00 $100.00 $100.00
Handset Subsidy $150.00 $150.00 $150.00 $150.00
Average Acquisition cost $370.00 $370.00 $370.00 $370.00
ARPU $52.00 $43.09 $52.00 $43.09
CCPU $30.00 $30.00 $30.00 $30.00
Contribution Margin
Monthly $22.00 $13.09 $22.00 $13.09
Contribution Margin PA $264.00 $157.03 $264.00 $157.03
Churn Rate Monthly 2% 2% 6% 6%
Churn Rate Yearly 20% 20% 49% 49%
Retention Rate 80% 80% 51% 51%
Discount Rate 8% 8% 8% 8%
Multiple Margin 2.87 2.87 0.88 0.88
CLV $756.95 $450.24 $232.98 $138.58
CLTV $386.95 $80.24 -$137.02 -$231.42
Break Even in months 17 28 17 28
Average Industry
price/minute $0.12 $0.10 $0.12 $0.10
CURRENTLY DUE TO HIGH INDUSTRY CUSTOMER ACQUISITION COST, EXISTING CARRIERS CAN STAY PROFITABLE BY
CHARGING HIDDEN FEES – PRACTICE THAT IS DISLIKED BY THE SUBSCRIBERS

6. Contract with 5% lesser hidden fees than usual
Average Acquisition cost $370.00
Price Per Minute $0.12
ARPU $49.40
CLTV $297.49
Reducing churn rate by 0.5%
Average Acquisition cost $370.00
Price Per Minute $0.12
ARPU $52.00
CLTV $588.82
Increasing churn rate by 0.5%
Average Acquisition cost $370.00
Price Per Minute $0.12
ARPU $52.00
CLTV $147.80
Current carriers in the market are highly sensitive to change in hidden fees. They are banking on the hidden charges to maintain profitability. Decreasing usual
hidden fees by 5% reduces CLTV by 23% and 10% by 46%
Contract with 10% lesser hidden fees than usual
Average Acquisition cost $370.00
Price Per Minute $0.11
ARPU $46.80
CLTV $208.04
Change in churn rate also have a significant effect on carrier’s CLTV. Increase in monthly churn rate by 1% would lead to reduction in CLTV by 62%
Reducing Acquisition cost by 10%
Average Acquisition cost $332.63
Price Per Minute $0.12
ARPU $52.00
CLTV $424.32
Reducing Discount Rate by 2%
Average Acquisition cost $370.00
Price Per Minute $0.12
ARPU $52.00
CLTV $445.34
Hidden Fees Effect
Churn Rate Effect
Change in discount rate doesn’t have a significant effectDecreasing acquisition cost has significant positive effect,
but can competition do that?
CHURN RATE HAS THE MOST SIGNIFICANT EFFECT ON EXISTING CARRIERS PROFITABILITY. ALSO, CARRIERS ARE
BANKING ON HIDDEN CHARGES AND CUSTOMER CONFUSION TO MAINTAIN PROFITABILITY

7. Virgin Xtras Feature Description Consumer perspective
Text Messaging
Text messaging would be one the key
selling point for youth
Young consumers extensively use text
messaging for communication
Online Real-Time
Billing
No call details on the monthly bills.
Monthly bills would be provided via
website
Young subscribers prefer maintaining
privacy regarding who they communicate
with
Rescue Ring
Mobile subscribers would be able pre-
arrange an escape call if the date is not
going well
The targeted market would find this
appealing as dating is big part of their
lifestyle
Wake-up call
Virgin would offer a personalized wake
up call from subscriber’s chosen celebrity
Millennials by nature are lazy, hence a
personalized wake up call would help them
to stay proactive
Ring Tones
A large selection of ring tones would be
offered to the users
Personalized ring tones feature is known to
be appealing to the users
Fun Clips
Fun clips would include audio clips, jokes,
gossips, sports information etc.
Young subscribers like to keep themselves
aware and are technology savvy. Hence,
for them phones are more than an
instrument used to make calls and
communicate
The Hit List
Handsets can also be used to listen and
vote to favorite list of songs
Music Messengers
This service would allow users to share
top 10 song lists with their friends
Movies
Virgin would also provide movie
description, show times and allow them
to buy tickets
MOBILE ENTERTAINMENT IS A HIGHLY PREFERRED SERVICE BY YOUTHS. ALSO, REVENUE FROM MOBILE ENTERTAINMENT
IS PROJECTED TO GROW STEADILY AND VIRGIN HAS NUMBER OF FEATURES TO EXPLOIT THIS OPPORTUNITY
0 20 40 60 80
1999
2000
2001
2002
2003E
2004E
2005E
Revenue in Billion

8. Criteria Young customers between the age of 15 – 29
years
Business professionals who use wireless service
on frequent basis
Does the target market synchronizes with Virgin’s
core values?
Yes, Virgin as a company believe in offering services that
are value for money and fun, which resonates with the
target market
No, Business professionals are usually driven by
functionality of the service rather than fun and emotional
aspects
Is the target market strategically relevant for
Virgin?
Yes, Growth rate for this target market is projected to
be robust for the next 5 years.
No, Existing carriers have already established their foot-hold
on this target segment as they believe that it is worth
acquiring customers who would use the wireless service on
frequent basis
Does the existing carriers consider this target
market viable ?
Yes, This market that has been un-explored and under-
served by existing carriers, which serves as a great
opportunity
No, for a national carrier to change their target market, a
significant change in core values would be needed
Virgin Xtras Hip and Trendy handsets
Are the Benefits offered relevant to Target
Segment?
Yes, customers between the age of 15-29 are expected
to find Virgin Xtras features appealing
Yes, due to the trendy and fun nature of the handsets,
target market would incline towards the newer and freshers
look
Could these benefits offered lead to future
profitability for Virgin?
Yes, mobile entertainment is projected to increase
steadily over next few years.
Yes, younger people prefer indulging in non-traditional, fun
and personalized products and services, the target market is
expected to buy the new handsets
✙
YOUNG GENERATION BETWEEN THE AGE OF 15 – 29 YEARS IS THE RIGHT TARGET MARKET FOR VIRGIN MOBILE AS IT
SYNCHRONIZES WITH THE COMPANY’S CORE VALUES AND IT IS PROJECTED TO GROW IN FUTURE

9. Criteria
Case 1 current
industry practice
clone
Case 2 Current
industry practice
Discounted
Case 3 industry
practice without
contracts- Prepaid
Plan
Case 4 Current
industry practice
without contracts
Case 5 Current
industry practice with
less hidden fees and
subsidy on handsets
Case 6 - Whole new
plan with on and off
peak pricing
Case 7 - new plan
with free handset and
flat per minute price
Does the plan creates
loyalty amongst our
customers?
No, this plan offers
value similar to existing
carriers
No, lower prices would
attract customers but
not create loyalty
No, customers are used
to contracts and
prepaid plan involves
higher per minute price
No, eliminating
contracts would make
customers feel that
they are not invested in
the program
Yes, addressing pain
customer points would
attract and create
loyalty amongst
customers
No, it doesn’t addresses
customers pain point of
high average bill and
hidden charges
No, doesn’t addresses
customers pain point
of high average bill and
hidden charges
Does the plan has any
effect the suppliers?
No, contract with sprint
and Kyocera is already
established
No, no significant
impact is expected
No, no significant
impact is expected
No, no significant
impact is expected.
Supplier power remains
high
No, no significant
impact on suppliers.
Their power remains
high
No, no significant
impact on suppliers.
No, no significant
impact on suppliers.
Their power remains
high
Does our pricing
structure and strategy
increases risks of new
entrants?
No, the market is
already saturated
overcrowded
No, the market is
mature and capital
intensive
No, the market is not
attractive for the new
entrants
No, the market remains
un-attractive
No, the market is
already mature,
overcrowded and
saturated
No, the market stays
un-attractive
For new entrants
No, the market remains
un-attractive
Would it effect existing
competition.
No, No significant
impact on the
competition
Yes, it might trigger a
price war in the market,
No, this strategy is
against current industry
practice
No, competition would
not adapt this strategy
due to associated high
churn rate
Yes, it would effect
competition but
currently they won’t be
able to retaliate
No, competition is
already using this
strategy in the market
No, currently
competition can not
react to this plan as
lowering handset price
won’t be profitable
Is there any threat
expected from the
substitutes?
No, mobile service
market has less threat
from the substitutes
No, the industry has
less substitutes
No, the industry has
low threat of
substitutes
No, the industry has
low threat of
substitutes
No, the industry has
low threat of
substitutes
No, the industry has
low threat of
substitutes
No, the industry has
low threat of
substitutes
ALTHOUGH THE ANALYZED PLANS DOES NOT HAVE AN IMPACT ON SUPPLIERS AND MARKET, BUT SOME OF THE CONTRACTS DOES
IMPACT EXISTING CARRIERS (COMPETITION) AND THE CUSTOMERS

10. Criteria
Case 1 current industry
practice clone
Case 2 Current
industry practice
Discounted
Case 3 industry
practice without
contracts- Prepaid
Plan
Case 4 Current industry
practice without
contracts
Case 5 Current industry
practice with less
hidden fees and
subsidy on handsets
Case 6 - Whole new
plan with on and off
peak pricing
Case 7 - new plan with
free handset and flat
per minute price
Does the pricing strategy
resonates with its target
audience?
No, the per minute
pricing is same as other
carriers, Lower ARPU is
due to low minute usage
assumption
Yes, the ARPU and per
minute cost is less than
industry average.
No, prepaid plan is not a
viable plan for customers
due to extremely high
per minute price (ARPU)
0.35 cents average
No, ARPU is same as
industry average and
lower projected bill
amount is only due
estimated low minute
usage
Yes, with this plan
monthly bill would be
less than industry
average. Price per minute
$0.11 cents
Yes, with this plan
customers can expect a
lower monthly bill, if they
use it according to
prescribed minute bucket
No, this plan would offer
100% subsidy on
handsets, but would
result in higher average
monthly bill
Does it effectively
address our Customer’s
pain point?
No, the ARPU still has
hidden fees
incorporated, similar per
minute pricing and
contract agreement
Yes, discounted rate
addresses the pain point
of paying higher monthly
bills
No, the plan would result
in high bills and less
usage. Also, buying
minutes separately
would make things
complicated
No, the bill would have
hidden fees. The plus
point is, no contract for
the users
Yes, reducing the hidden
charges and increasing
handset subsidy
addresses customer pain
point.
No, the plan structure
can confuse customers
and majority of the
customers can not
predict their
consumption
No, waiving initial cost
does address the issue of
paying for the handset
but higher per minute
cost doesn’t
Can competition
immediately adapt this
pricing?
Yes, Competition has
similar pricing structure –
no differentiation
No, if competition tries
to adapt this pricing,
CLTV is expected to
decline by 139%
No, 92% of the people
are bound to contract
agreements. prepaid in
US would be a radical
decision
No, competition would
lose money due to high
churn rate if they adapt
this pricing. Estimated
CLTV
-$137.02
No, competition would
lose money on reducing
hidden fees.
Yes, many carriers in the
market are already using
this pricing structure
No, Considering existing
carriers are using
branded handsets, any
further subsidy would
result in losing money
Is the pricing structure
profitable?
Yes, it’s profitable and
achieves break-even in 6
months but does not
address subscribers pain
point
No, it is not the most
profitable structure and
leaves money on the
table
No, significant increase in
churn rate and prepaid
plan would bought to
avoid credit checks
No, it is not very
profitable due to
estimated high churn
attached to this plan
Yes, it is one of the most
profitable plan and
achieves break even in
6.9 months.
Yes, it is profitable but
not the most profitable
pricing structure
Yes, it’s very profitable,
but at the cost of Virgin’s
values and brand
strategy
Does It aligns with
Virgin’s Branding
strategy?
No, Virgin stands for
providing value for
money
Yes, it delivers a plan that
can be perceived as value
for money
No, Virgin wish to offer
something simple and
value for money and our
target market is price
sensitive
No, the plan won’t be
perceived as value for
money and profitable
Yes, the pricing is not
very complicated and is
value for money
No, with on and off peak
plan, pricing remains a
confusing aspect
No, Increasing the
average monthly bill is
against virgin strategy as
our target market is price
sensitive
Does it aligns with our
Virgin’s core values?
No, Virgin believes in
offering something
better and fresher
No, discounting is not a
fresh and different
approach.
No, prepaid plan won’t
attract customers and
create customer loyalty
No, without contract this
plan would only increase
churn rate
Yes, it’s a different
approach in the industry
that addresses customers
pain point
No, it does not resolve
the current pricing issue.
Yes, it’s a differentiated
strategy but the price per
minute is higher than
industry average ($0.13)
REDUCING AND INCORPORATING THE HIDDEN FEES (BY 5%) WITHIN THE TOTAL MONTHLY CHARGE, INCREASING THE SUBSIDY ON THE
HANDSETS AND PERFORMING RELAXED CREDIT CHECK WOULD ENABLE PROFITABILITY AND ACCEPTANCE FROM THE TARGET MARKET

11. Increasing ARPU results in higher profitability, but then Virgin
would charge same as industry standards (6% increase)
By decreasing ARPU any further, Virgin looses money,
compared to the proposed pricing structure (6% in this case)
Churn has the most significant effect on profitability. Increase
in 1% monthly would lead to 39% decline in CLTV or
profitability
Discount rate has some effect, but not as significant as other
parameters. Increase in 1% would lead to decrease in
profitability of 8%
Increasing ARPU by 5%
Average Acquisition cost $150.00
Price Per Minute $0.12
ARPU $40.43
CLTV $684.57
Decreasing ARPU by 5%
Average Acquisition cost $150.00
Price Per Minute $0.11
ARPU $36.58
CLTV $605.08
Increasing Churn by 1%
Average Acquisition cost $150.00
Price Per Minute $0.12
ARPU $38.50
Churn Rate Monthly 3%
CLTV $393.70
Increasing Discount Rate by 2%
Average Acquisition cost $150.00
Price Per Minute $0.12
ARPU $38.50
Churn Rate Monthly 2%
CLTV $591.71
CHANGE IN CHURN RATE HAS THE MOST SIGNIFICANT EFFECT ON VIRGIN’S RECOMMENDED PRICING STRATEGY. 39% DECREASE IN
CLTV IS ESTIMATED WITH 1% INCREASE IN MONTHLY CHURN RATE
Virgin Pricing Strategy
Advertising
Sales Commission
Handset Subsidy
Average Acquisition cost
ARPU
CCPU
Contribution Margin
Monthly
Contribution Margin PA
Churn Rate Monthly
Churn Rate Yearly
Retention Rate
Discount Rate
Multiple Margin
CLV
CLTV
Value of the deal
Average Yearly Cost
Actual Value of the deal
Case 5 Current industry
practice with less hidden
fees and subsidy on
handsets
$60.00
$30.00
$60.00
$150.00
$38.50
$15.40
$23.10
$277.21
2%
20%
80%
8%
2.87
$794.82
$644.82
$794,824,781.85
$150,000,000.00
$644,824,781.85

12. HIGH PRICE
AFFORDABLE
HIGH YOUTH
APPEAL
LOW YOUTH
APPEAL
COMPETITION
VIRGIN
COMPETITION
LOW
ENTERTAINMENT
SIMPLE PLANS
VIRGIN
HIGH
ENTERTAINMENT
Criteria Price and Youth Appeal Plan type and Entertainment
Is is valuable to Virgin’s target market Yes, the target market being price sensitive would value competitive
prices and services that are designed keeping in mind criteria that
would appeal younger generation
Yes, younger generation would prefer plans that are easy to understand as
one of the perception they have is current carriers bank upon customer’s
confusion. Also, they are believed to be addicted to entertainment services
Does it Align with the Brand? Yes, Virgin stands for providing services that are value for money and
the brand relates itself to young, fun and freshness.
Mostly, one of the customer’s pain point that Virgin is trying to resolve is
simplifying complex plans. Also, mobile entertainment would be leveraged to
engage young generation
Can our competition deliver the same? No, at the moment competition won’t be able to drop their prices to an
extent that they can compete with Virgin - due to high acquisition cost
Yes, competition can simply add plans to their portfolio that are simple and
mobile entertainment services can also be enhanced
Can we own and deliver it? Yes, Virgin being an innovative, customer centric, and with past success
in wireless industry can deliver and own the services
Yes, Virgin already have contracts for entertainment services in place and, by
introducing a simple plan, we can deliver these services
Will it appeal to our channel partners? Yes, considering Virgin plans to sell it’s mobile phones at retailers like
Target, Best Buy etc. – services would be viably priced and have a youth
appeal to them
Not Entirely, as targeted retailers care more about the product being viably
priced
CONFUSING PLAN
BASED ON VIRGIN’S COMPETITIVE ADVANTAGES, THEY CAN POSITION THEIR SERVICES AS BEING VIABLY PRICED OR
SERVICE WITH A YOUTH APPEAL

13. Criteria Viably Priced Youth Appeal
Is the benefit relevant to the target market?
Yes, youth (target market) are price sensitive and
are aware of the pricing structure of other carriers
in the market
Yes, younger generation prefer products and
services that have youth appeal to it.
Does Brand Benefit address the Target Segments’
Problem?
Yes, currently existing carriers are charging higher
prices with added first time fees and other hidden
charges which is an issue for them
Not entirely, youth appeal is important but not as
important as price they pay for the service. Some
them don’t have a full-time job or are even
dependent on their parents
Would this benefit built better trust and gain
loyalty?
Yes, offering a competitive and transparent price
would address one the major customer concern,
which would create a loyal customer base
No, it would be hard to gain loyalty from the target
market using this benefit as it does not addresses
their pain point
Does the benefit fulfills target market’s emotional
needs?
Yes, with Virgin, young generation can afford
owning a phone and stay in touch with their friends
and families
Yes, most of the existing carriers does not considers
youth as their primary market
Possible reason to believe?
Low customer acquisition cost would enable us to
price our service viably, which addresses one of the
most critical pain point of the customers
Virgin is known for offering products and services in
the market that are modern, cutting edge, hip and
trendy
VIRGIN MOBILE – POSITIONING STATEMENT
With Virgin Mobile you stay connected at an affordable
price and you get what you pay!
VIRGIN MOBILE CAN OWN THE BENEFITS OF VIABLY PRICING IT’S SERVICE, AND POSITION IT’S SERVICE AS AN
AFFORDABLE SOLUTION THAT ADDRESSES TARGET MARKET PAIN POINT

14. FORCES INSIGHT ABOUT THE MARKET LEVEL OF THREAT ATTRACTIVENESS OF THE MARKET
Buyer’s Power
 90% of the customers were bound in contracts
 Rigorous credit check was required to qualify
 Carriers were very selective of their customers and charged
them hidden fees
 Although, high churn rate of 2% suggests that customers were
frequently changing their carriers
Intensity: Moderate to High
Moderate to Low: So far carriers
are in charge of setting criteria for
qualifying customer but high churn
rate makes it less attractive
Supplier’s Power
 High cost of Handsets – carriers have to subsidize handset cost
 High industry retailer commission fees of $100
 Using MVNO model and partnering with third party might
requires giving up majority stake
Intensity: High
Low: Suppliers in telecom industry
tend to be capital intensive which
would further raise customer
acquisition cost
Threat of new Entrants
 Overcrowded, with 9 major carriers and few regional carriers
 Very capital intensive industry
 High customer acquisition cost – average $370
 50% penetration rate with 130 million subscribers
Intensity: High
Low: Being overcrowded, saturated
and capital intensive makes the
telecom market unattractive for
new entrants
Competition Rivalry
 9 major national carriers owned most of the market share
 Existing carriers were spending an aggregate of $1.8 billion on
advertising
 They were established with extensive capital and network
deployed
Intensity: High
Low: Lot of competition both
nationally and regionally. Also,
significant $ spent on advertising to
sustain in the market
Threat of substitutes
 Not a lot of substitutes available in the market for wireless
mobile technology.
 Customer could not own a mobile phone and rely on landlines
and email
Intensity: Low
High: Lack of significant substitutes
available in the market makes this
market attractive
Appendix 1 – Porter Forces

15. APPENDIX 2 - VRIO ANALYSIS
Resources and capabilities of
Virgin Mobile
Value Rare
Costly to
imitate
Exploited
Competitive
Implication
Global brand recognition and Equity:
• Recognized brand globally and top 10
company in UK with 200 different
entities
• Trustworthy brand across various
sectors ranging from transportation to
telecom
YES YES YES YES
Competitive
Advantage
Leveraging Technology and innovation:
• Known to deploy cutting edge
technology to produce quality
products and service globally
• First one to come up with MVNO
model
YES NO YES YES
Temporary
Competitive
Advantage
Past experience in wireless mobile
industry:
• Virgin already had a successful cellular
operations in UK with $2.5 million
subscribers
• Also, lesson learned from failure in
Singapore
YES YES YES YES
Competitive
Advantage
Virgin’s values, company’s culture of
being customers centric and Brand
appeal
• Virgin is known to venture in markets
where competitors are complacent
and lacks good customer service
• Also, Virgin brand is globally appealing
to younger people
YES YES YES YES
Competitive
Advantage

16. Current Industry Average
Average Industry Customers Case 1 - Contract but with Hidden fees
Case 2 - Contract with No
Hidden fees
Case 3 - No Contract with
Hidden fees
Case 4 - No Contract with No
Hidden fees
Advertising $120.00 $120.00 $120.00 $120.00
Sales Commission $100.00 $100.00 $100.00 $100.00
Handset Subsidy $150.00 $150.00 $150.00 $150.00
Average Acquisition cost $370.00 $370.00 $370.00 $370.00
ARPU $52.00 $43.09 $52.00 $43.09
CCPU $30.00 $30.00 $30.00 $30.00
Contribution Margin Monthly $22.00 $13.09 $22.00 $13.09
Contribution Margin PA $264.00 $157.03 $264.00 $157.03
Churn Rate Monthly 2% 2% 6% 6%
Churn Rate Yearly 20% 20% 49% 49%
Retention Rate 80% 80% 51% 51%
Discount Rate 8% 8% 8% 8%
Multiple Margin 2.87 2.87 0.88 0.88
CLV $756.95 $450.24 $232.98 $138.58
CLTV $386.95 $80.24 -$137.02 -$231.42
Break Even in months 17 28 17 28
Average Industry price/minute $0.12 $0.10 $0.12 $0.10
-79%
Average hidden fees 17%
Average Minutes used 417
APPENDIX 3

17. Reducing Acquisition cost by 10% Reducing Acquisition cost by 20%
4% increase in
hidden fees
5% lesser hidden
fees
10% lesser hidden
fees Discount Rate 6% Discount Rate 5%
Reducing churn
rate by 0.5%
Reducing churn
rate by 0.5%
Increasing churn
rate by 1%
Increasing churn
rate by 1%
Case 1 - Contract but
with Hidden fees
Case 2 - Contract
with No Hidden fees
Case1 - Contract but
with Hidden fees
Case 2 - Contract
with No Hidden fees
Case 1 - Contract
with 4% increase on
usual hidden fees
Case 2 - Contract
with 5% lesser
hidden fees than
usual
Case 2 - Contract
with 10% lesser
hidden fees than
usual
Case 1 - Contract but
with Hidden fees
Case 2 - Contract
with No Hidden fees
Case 1 - Contract but
with Hidden fees
Case 2 - Contract
with No Hidden fees
Case 1 - Contract but
with Hidden fees
Case 2 - Contract
with No Hidden fees
$107.88 $107.88 $102.00 $102.00 $120.00 $120.00 $120.00 $120.00 $120.00 $120.00 $120.00 $120.00 $120.00
$89.90 $89.90 $85.00 $85.00 $100.00 $100.00 $100.00 $100.00 $100.00 $100.00 $100.00 $100.00 $100.00
$134.85 $134.85 $127.50 $127.50 $150.00 $150.00 $150.00 $150.00 $150.00 $150.00 $150.00 $150.00 $150.00
$332.63 $332.63 $314.50 $314.50 $370.00 $370.00 $370.00 $370.00 $370.00 $370.00 $370.00 $370.00 $370.00
$52.00 $43.09 $52.00 $43.09 $54.60 $49.40 $46.80 $52.00 $43.09 $52.00 $43.09 $52.00 $43.09
$30.00 $30.00 $30.00 $30.00 $30.00 $30.00 $30.00 $30.00 $30.00 $30.00 $30.00 $30.00 $30.00
$22.00 $13.09 $22.00 $13.09 $24.60 $19.40 $16.80 $22.00 $13.09 $22.00 $13.09 $22.00 $13.09
$264.00 $157.03 $264.00 $157.03 $295.20 $232.80 $201.60 $264.00 $157.03 $264.00 $157.03 $264.00 $157.03
2% 2% 2% 2% 2% 2% 2% 2% 2% 2% 2% 2% 2%
20% 20% 20% 20% 20% 20% 20% 20% 20% 15% 15% 28% 28%
80% 80% 80% 80% 80% 80% 80% 80% 80% 85% 85% 72% 72%
8% 8% 8% 8% 8% 8% 8% 6% 5% 8% 8% 8% 8%
2.87 2.87 2.87 2.87 2.87 2.87 2.87 3.09 3.21 3.63 3.63 1.96 1.96
$756.95 $450.24 $756.95 $450.24 $846.41 $667.49 $578.04 $815.34 $504.43 $958.82 $570.31 $517.80 $307.99
$424.32 $117.61 $442.45 $135.74 $476.41 $297.49 $208.04 $445.34 $134.43 $588.82 $200.31 $147.80 -$62.01
15 25 14 24 15 19 22 17 28 17 28 17 28
$0.12 $0.10 $0.12 $0.10 $0.13 $0.12 $0.11 $0.12 $0.10 $0.12 $0.10 $0.12 $0.10
23% 46% 62%
APPENDIX 5

18. Virgin Pricing Strategy
Case 1 current
industry practice
clone
Case 2 Current
industry practice
Discounted
Case 3 industry
practice without
contracts- Prepaid
Case 4 Current
industry practice
without contracts
Case 5 Current
industry practice
with less hidden
fees and subsidy
on handsets
Case 6 - Whole
new plan with on
and off peak
pricing diffential
Case 7 - Whole
new plan with
free handset
with flat per
minute price
Advertising $60.00 $60.00 $60.00 $60.00 $60.00 $60.00 $60.00
Sales Commission $30.00 $30.00 $30.00 $30.00 $30.00 $30.00 $30.00
Handset Subsidy $53.33 $53.33 $53.33 $53.33 $60.00 $53.33 $80.00
Average Acquisition cost $143.33 $143.33 $143.33 $143.33 $150.00 $143.33 $170.00
ARPU $40.53 $33.64 $113.75 $40.53 $38.50 $33.48 $42.74
CCPU $16.21 $13.46 $45.50 $16.21 $15.40 $13.39 $17.10
Contribution Margin Monthly $24.32 $20.18 $68.25 $24.32 $23.10 $20.09 $25.64
Contribution Margin PA $291.80 $242.19 $819.00 $291.80 $277.21 $241.02 $307.71
Churn Rate Monthly 2% 2% 6% 6% 2% 2% 2%
Churn Rate Yearly 20% 20% 49% 49% 20% 20% 20%
Retention Rate 80% 80% 51% 51% 80% 80% 80%
Discount Rate 8% 8% 8% 8% 8% 8% 8%
Multiple Margin 2.87 2.87 0.88 0.88 2.87 2.87 2.87
CLV $836.66 $694.43 $722.78 $257.52 $794.82 $691.06 $882.28
CLTV $693.32 $551.09 $579.44 $114.18 $644.82 $547.73 $712.28
Value of the deal $836,657,665.10 $694,425,862.03 $722,776,600.97 $257,515,472.77 $794,824,781.85 $691,063,141.80 $882,279,642.20
Average Yearly Cost $143,333,333.33 $143,333,333.33 $143,333,333.33 $143,333,333.33 $150,000,000.00 $143,333,333.33 $170,000,000.00
Actual Value of the deal $693,324,331.77 $551,092,528.70 $579,443,267.64 $114,182,139.44 $644,824,781.85 $547,729,808.47 $712,279,642.20
Break Even in months 5.9 7.1 2.1 5.9 6.5 7.1 6.6
Average price/minute $0.125 $0.104 $0.35 $0.12 $0.118 $0.10 $0.132
Total Advertising Cost $60,000,000.00
Projected Subscribers 1,000,000
Average minutes used 325
Virgin CCPU 40%
Average Industry hidden fees 17%
Handset Subsidy
Calculation Minimum Maximum Average
Cost per Handset $150.00 $300.00 $225.00
Customer Price $60.00 $90.00 $75.00
Subsidy per Handset $90.00 $210.00 $150.00
% of Subsidy 60% 70% 67%
Virgin Handset Cost $60.00 $100.00 $80.00
Virgin Susidized price $36.00 $70.00 $53.33
Case 5 - !00% subsidy, free
handset
Minutes used
Increase per
min
Rate per
Minute
Calculated
ARPU
325 5% $0.132 $42.74
APPENDIX 5

19. Virgin Risk Analysis
Case 6 - Whole new
plan with subsidized
handset with flat per
minute price
Increasing APRU by 5% Decreasing APRU by 5%
Increasing churn rate
by 1%
Increasing Discount
rate by 2%
Advertising $60.00 $60.00 $60.00 $60.00 $60.00
Sales Commission $30.00 $30.00 $30.00 $30.00 $30.00
Handset Subsidy $60.00 $60.00 $60.00 $60.00 $60.00
Average Acquisition cost $150.00 $150.00 $150.00 $150.00 $150.00
ARPU $38.50 $40.43 $36.58 $38.50 $38.50
CCPU $15.40 $16.17 $14.63 $15.40 $15.40
Contribution Margin Monthly $23.10 $24.26 $21.95 $23.10 $23.10
Contribution Margin PA $277.21 $291.07 $263.35 $277.21 $277.21
Churn Rate Monthly 2% 2% 2% 3% 2%
Churn Rate Yearly 20% 20% 20% 28% 20%
Retention Rate 80% 80% 80% 72% 80%
Discount Rate 8% 8% 8% 8% 10%
Multiple Margin 2.87 2.87 2.87 1.96 2.68
CLV $794.82 $834.57 $755.08 $543.70 $741.71
CLTV $644.82 $684.57 $605.08 $393.70 $591.71
Value of the deal $794,824,781.85 $834,566,020.94 $755,083,542.75 $543,703,008.12 $741,706,970.55
Average Yearly Cost $150,000,000.00 $150,000,000.00 $150,000,000.00 $150,000,000.00 $150,000,000.00
Actual Value of the deal $644,824,781.85 $684,566,020.94 $605,083,542.75 $393,703,008.12 $591,706,970.55
-6% -39% -8%
APPENDIX 6