1. Given Virgin Mobile’s 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 the various elements under considerations (e. g. , contracts, the size of the subsidies, hidden fees, average per-minute charges, etc. ). I believe Virgin Mobile has two options.
The first option is the obvious for their target market and any new product entering a saturated market, the pricing should be low if not the cheapest product out in the market. This age group (14-24 year olds) does not have a lot of spending money, if it is their own, or the parents’ do not want to pay a huge phone bill. The second pricing structure that would appeal to Virgin Mobile is pricing their product in the middle or average of the industry standard. For example, if the industry low is $50 to a high of $250 then Virgin Mobile should price itself around $150.
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Option three is titled “A Whole New Plan. ” The idea behind it is starting afresh and coming up a different pricing structure that is different from everything out on the market now. Some specifics Dan Schulman discussed that would be incorporated into this option would be: no contracts, prepaid compared to post-paid, no hidden fees, and off-peak hours. Prepaid vs. post-paid minutes is another important variable when considering option three. The consumers might be occasional users and this quality would be ideal for them.
Virgin Mobile’s solution to hidden fees is simple, eliminate all hidden fees. This will create the image of “what you see is what you get,” which will help attain more of the youth market and even some unhappy customers of their competitors. 2. How confident are you that the plan you have designed will be profitable? Provide evidence of the financial viability of your pricing strategy. I am very confident the plan I have designed will be profitable. The evidence is in the stock reports. Virgin Mobile entered the New York Stock Exchange and showed moderate growth.
According to Yahoo. com, Virgin Mobile, or VM (NYSE symbol), has a 25. 40% quarterly revenue growth. This figure shows that the company is profitable that grows each quarter. This statistic is also telling due to the industry percentage, 19. 20%. The real test will be time, whether or not this company can continue to be innovative enough to compete with the industry while continuing to earn a profit. 3. The cellular industry is notorious for high customer dissatisfaction. Despite the existence of service contracts, the big carriers churn roughly 24% of their customers each year.
Clearly, there is very little loyalty in this market. What is the source of all this dissatisfaction? How have the various pricing variables (contracts, pricing, buckets, hidden fees, off peak hours, etc. ) affected the consumer experience? Why haven’t the big carriers responded more aggressively to customer dissatisfaction? Most consumers do not trust the industry pricing plans. Young people know that there are many different hidden charges, and they resent this. Consumers these days are savvy, and they hate feeling like they are being used.
Other factors include contracts, pricing, buckets, hidden fees, and off peak hours. People don’t like being “tied down” to a cellular provider or the strenuous credit check. Hidden prices play another factor in this dissatisfaction. These include taxes, universal service charges, and many one-time costs. Many plans also have established “buckets” of minutes. Customers then sign-up for a bucket of minutes. However, if the customer exceeds their allotted bucket of minutes they are penalized with extremely high rates.
On and off peak hours are also concerns. Originally, off-peak hours began at 6:00pm, and then it gradually changed to 9:00pm. All of these various pricing strategies have led to the dissatisfaction of the consumer’s experience. The big carriers including AT&T, Cingular, and Verizon carry so much of the market share. The big carriers have such a monopoly on the cell phone industry that it is not necessary for them to try to improve their customer dissatisfaction rates.