Virgin Mobile USA: Pricing for the very First Time

Problem Statement –
The main problem Virgin Mobile faces with entering the Cell phone industry in the US is a crowded market with several well established providers who have essentially taught the consumers how to use their systems. In order to have any success in the market, Virgin Mobile’s main objective is to create value and profitability in an already saturated cell phone service industry. In order to achieve this goal, Virgin will strive to target the market of consumers aged 15-29 due to the large opportunity for growth within this market segment. Furthermore, Virgin hopes to acquire 1 million subscribers by year 1 and 3 million by year 4.
Strategic Situation –
Target customers-
Virgin Mobile hopes to create value where other providers haven’t looked for it. By targeting Consumers aged 15-29, Virgin focuses on a segment that has yet to be targeted, and a market that has a robust growth rate for the next 5 years. These customers aren’t used to being considered for phones because of poor credit or lifestyle, and that is how Virgin plans on differentiating itself. Their calling pattern is different from a typical business person (which is the target of other providers). The opportunity Virgin is pursuing here is this age group uses phone calls for pleasure as opposed to emergencies or business. Also, they are more open to new things like: Text messaging, downloading information using cell phones, and more likely to use ringtones, faceplates and graphics. A phone to this segment is a fashion accessory and a personal style statement.
Competition-
Competitors in this industry make their money off hidden fees while making the customer think he or she is getting the best price for their specific amount of cell phone use. However, if the customers were actually using the optimal plan for them they would be spending far less money. These companies also hit their consumers hard with hidden fees. They think they are paying one price when they sign up for a ‘bucket’ plan, but after hidden fees that aren’t discussed up front are added on they are really paying much more. While other providers have made a decent living off this style of business, it leaves an opening for Virgin. Only adults and business people have been targeted for cell phone use. Those who keep phones in their cars for emergencies or only use it for work related calls. Thus, established providers are leaving a very large untapped market open for targeting.
Virgin Mobile-
Virgin’s major weakness here is that it has little to no brand awareness in the US as a phone company so making any headway into that industry will be very difficult. To help Virgin make an easier entry, they 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, and because Sprint was already in the process of updating its network and increasing its capacity, Virgin does not have to worry about network capacity. Virgin plans on buying minutes from Sprint on an as-used basis. Its current market strategy is to appeal to the hip and trendy younger generation. They hope to achieve this through signing an exclusive, multiyear, content & marketing agreement with MTV networks to deliver music, games and other MTV, VH1 and Nickelodeon based content to Virgin Mobile Subscribers. This Deal with MTV also ensured airtime on MTV’s channel and web site.
Market Environment-
The industry as a whole is moving forward with technological advances such as texting and information downloading through phones. Furthermore, more people are using phones for personal use instead of business or emergency use. Current market characteristics include things like: customers under contract generate monthly churn rates of2% while customers without contracts generate a churn rate of 6%, along with consumers overpaying for minutes. For example customers using 700 minutes