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1. We Answer To A Higher Calling
Prepared By – Team 4
Pooja Gupta (P122033)
Rohit Singh (P122038)
Saurabh Singh (P122041)
Varun Anand (P122049
2. Virgin Group
“Virgin believes in making a difference. We
stand for value for money, quality,
innovation, fun and a sense of
competitive challenge. We strive to
achieve this by empowering our
employees to continually deliver an
unbeatable customer experience.”
3. Virgin Mobile USA
• Commenced operations in June, 2002
• Led by founding CEO Dan Schulman
• Entered USA as a 50-50 joint venture
between Virgin Group and Sprint
Corporation. Virgin Mobile USA’s service
would be hosted on Sprint’s PCS network
• Sprint was in process of updating its
network and increasing its capacity.
4. Virgin Mobile USA
• Schulamn- “The nice thing about this
model is that we don’t have to worry
about huge fixed costs or the physical
infrastructure. We can focus on what we
do best-understanding and meeting
customer needs.”
• “We Answer To A Higher Calling”
• Providing extra-ordinary services and
experiences at a low price as $35
5. Objective
• Create value and profitability in cell phone service
industry
• Target market ages 15-29, opportunity for growth with
this market segment
• 1 million subscribers by year 1, 3 million by year 4
• “By focusing on the youth market from the ground up,
we’re putting ourselves in a position to serve these
customers in a way they have never been served
before”
-Dan Schulman, CEO, Virgin Mobile USA
7. Problem with Current
Telecom Services
• Low penetration among consumers aged 15-29.
Growth rate for this segment was projected to
be robust for the next 5 years
• Target group had been undeserved by existing
carriers and specific needs that haven’t been
met
• Average monthly cell phone bill - $52
representing 417 minutes of use. Hence, cost to
serve a customer - $30
• Carriers tended to be wary of acquiring low-
value subscribers
8. Target Group and Behavior
• Consumers aged 15-29
• Calling pattern is different from typical business
person
• Open to new things:
– Text messaging
– Downloading information using cell phones
– More likely to use: ringtones, faceplates and
graphics
• It’s a fashion accessory and a personal style
statement
11. Pricing Trend in US before
Virgin
• Over 90% of all subscribers had contractual
agreements for a period of 1-2 years with their
cellular providers
• Customers would sign up for ‘buckets of minutes’
• If a user used more than allocated minutes, they
would be charged with extremely high rates (eg:
40 cents / minute)
• If a user used less than allocated minutes, they
were still charged the fixed monthly fee, which
drove up their price per minute
12. Calling Plans – Industry Prices
Price per minute
Contract Commitment - Minutes
13. Calling Plans – Industry Prices
Price per Minute
Contract Commitment - Minutes
14. Pricing Trend in US before
Virgin
• Carriers charged less for off-peak than on-peak
minutes
• Off-peak time changed from 6:00 PM to 7:00,
8:00 and then finally 9:00 PM
• Some carriers charged a monthly fee (appox. $7)
to move the peak time back to one hour
• Carriers added additional fees to monthly bill (tax
or other additional cost information was not
communicated. So a $29 plan ended up being a
$35 plan)
15. What Virgin focused on?
• Customers couldn’t predict their usage and ended up
choosing wrong plan pattern
• Customers think they use more minutes than they
actually use
• Target segment actually used 100-300 mins/month but
target predicted their usage is higher than that
• People tried picking up lower bucket plans to avoid high
monthly fees but they ended up paying a lot more than
that due to usage of minutes above the bucket
• On-peak and off-peak minutes weren’t in right mix
17. What to provide them?
VirginXtras
• Delivery of content, features and
entertainment
• Signed a exclusive and multiyear, content
& marketing agreement with MTV
networks to deliver music, games and
other MTV, VH1 and Nickelodeon based
content to Virgin Mobile Subscribers
• Deal with MTV also ensured airtime on
MTV’s channel and web site
18. VirginXtras
• MTV-branded accessories and phones
and contents (ringtones, text alerts and
voice mails
• To vote for their favorite videos on MTV’s
shows like “Total request Live”
• Text messaging
– No. of text msgs tends to skyrocket during
school hours. Reason: Parents don’t see who
they call, private form of communication
19. VirginXtras
• Online Real-Time Billing
– No call detail on monthly bills. Website will
record individual calls on a real-time basis
• Rescue ring
– Mobile subscriber will get a call at
prearranged time to “escape” in case a date
was not going well.
• Wake-up Call
– Chance to wake up to original messages
from a variety of cheeky celebrity
20. VirginXtras
• Ring Tones
– Customized ringtones would be available for
subscribers to download
• Fun clips
– News, tidbits, jokes, gossip, sports and more
• Hit List
– Vote top 10 list of hit songs. Would be able
to hear the %age of other subscribers who
either “loved it” or “hated it”
21. VirginXtras
• Music Messenger
– Tap into 10 songs list & forward it to a friend
allowing them to check out a hot new track
• Movies
– Movie descriptions, show timings, and buy
tickets in advance
Handset: First 2 basic models named “Party
Animal” and “Super Model” came with
interchangeable faceplates decorated with
eye-catching colors and patterns
23. Virgin’s Goal
• To make sure their prices are competitive
• To make sure they could make profit
• Don’t want to trigger off competitive reactions
24. Options
• Clone the Industry Prices
• Price Below Competition
• Whole New Plan
25. Clone the Industry Prices
• Use same prices as other competitors
• Communicate -“priced competitively with
everyone else but with a few key advantages
like differentiated applications (MTV) and
superior customer service”
– MTV Applications and features
– Superior Customer service
• Offering better off-peak hours and fewer
hidden fees
• Put on packaging so that even without a
salesperson, consumers would get the message
28. Price Below the
Competition
• Maintain buckets and volume discounts
• Set price per minute below the industry
average for certain key buckets – Target young
market 100-300 mins
31. A Whole New Plan
• Shorten or Eliminate Contracts
– Contracts guarantee annuity stream
– Contract allows 18 years or below to purchase the product
– Churn rate was 2%, new plan could increase churn rate to 6%
• Prepaid service
– 92% US subscribers had Post-paid
– Pre-paid was used on occasional basis as rates per minute was high
and no credit check was required
– Has high churn rates. Company would never be able to recoup its
customer acquisition costs
– New mechanism or infrastructure was required for prepaid services
32. A Whole New Plan
• Handset subsidies
– Mobile carriers subsidized the cost of handset to end users to
acquire customer cost
• Eliminate Hidden Fees and off-peak hours
– ‘what you see is what you get’
– Rolling out hidden costs into pricing such that pricing feels
competitive
– off-peak should benefit the target group. Minute usage is very
different from business class
34. What they did?
• LTV Model – Life Time Value
• In marketing, customer lifetime
value (CLV), lifetime customer value (LCV),
or user lifetime value (LTV) is a prediction of
the net profit attributed to the entire future
relationship with a customer
• Simplified Model
• LTV = (M/(1-r+i)) – AC
35. Factors influencing LTV
• ARPU: Avg Revenue Per User
• CCPU: Cash Cost per User = 45% of ARPU
• M: Monthly Margin = ARPU – CCPU
• r: Retention rate ( 1 – (12*6%)) = 0.28
• AC: Acquisition Cost ( = $120 for Virgin)
– Sale commission
– Advertising per gross add
– Subsidy cost
36. LTV Calculation
• LTV = (M/(1-r+i)) – AC
• => M = ARPU – CCPU
= (1 – 45)%
= 55%
M on yearly basis, assuming that a customer talks
for 200mins.
M = (1-0.45) * 200 * 12 * p
p -> can be 5 – 30 cents/min (As competitors
are charging more than 30 cents/min
37. LTV @ Different Price
Points
• LTV(at 5 cents)= (1-.45) (200*12*.05) /(1-.28 + .05) –
120 = -34.28
• LTV(at 7 cents)= (1-.45) (200*12*.07) /(1-.28 + .05) -
120 = 0 Break-even point
• LTV(at 10 cents)= (1-.45) (200*12*.1) /(1-.28 + .05) -
120 = 51.42
• LTV(at 15 cents)= (1-.45) (200*12*.15) /(1-.28 + .05) -
120 = 137.14
• At 7 cents, the LTV =0 which tells that minimum of 7
cents should be charged by the virgin
• Virgin can charge any amount more than 7 cents
39. Current Plans in Market
Company Plan Value
AT&T Starting at $40/month
Virgin Mobile USA $35
T-Mobile $34.99 (Only talk +
text) other plans
starting at $59.99
Providing a plan with music and other
added features
40. Virgin’s Service Offering
• Extra features: Music, Wallpapers, Videos, Live Video Request,
Rescue ring, wake-up call facility
• New improved billing pattern and online real-time monthly bills
• Prepaid plan
• No contracts
• No hidden charges
• No peak off peak hours
• Very low handset subsidies
• No credit checks
• No Monthly bills
• Price: 25 cents per minute for the first 10 minutes; 10
cents/minute for the rest of the day
• No exact numbers, but churn rate lower than 6%
41. Conclusion
• Virgin correctly identified service gaps in telecom industry and what
customers needed.
• Virgin identify inflexibility in calling plans and in other plans.
• Provided extra services than current mobile carriers.
• Provided a medium of entertainment on go.
• Offered customized services at a relatively low cost.
42.
43. References
• HBR case study “Virgin Mobile USA:
Pricing for the Very First Time”
• Wikipedia.com
