Aleksandr Kazakov
MKTG 489
02/05/14
Virgin Mobile Case The Virgin Mobile USA case exemplifies a challenging dilemma faced by CEO Dan Schulman when faced with the task of introducing Virgin Group’s mobile service to the American public. The Virgin Group led by Richard Branson, is a British based company with Virgin branded products extending into industries from apparel to airplanes. In 2001, the Branson led Virgin Group made the decision to extend their mobile service into North America: a market dominated by companies such as Verizon, At&t, and Sprint. In order to better distinguish themselves as a brand and to appeal to an emerging youth market, Virgin Mobile needed a pricing strategy that served the needs of their target market while being profitable. In In 2001, the mobile phone market in the U.S. was entering the maturity stage with a 50% industry penetration rate. However, the penetration rate for consumers age 15-19 was much lower. The main factor preventing this age group from being active mobile phone users was poor credit. Most mobile carriers overlooked this market due to high customer acquisition costs of about $370 per customer. However, Virgin Mobile USA CEO Dan Schulman was determine to reach the fast growing youth market stating that “By focusing exclusively on the youth market from the ground up, we’re putting ourselves in a position to serve these customers in a way that they’ve never been served before”. Schulman positioned the Virgin Mobile brand as a hip, fun, honest, and entertaining. By introducing VirginXtras, fun and entertaining features and accessories, and collaborating with entertainment providers MTV and Nickelodeon Virgin Mobile sought to provide value that would generate loyalty and help expand their customer base. When entering a competitive market, a firm needs to make sure that it has the means to compete within the industry. Virgin Mobile’s competitive advantages included the ability to avoid high wireless network costs, the ability to sell in retail stores, and their relationships with the entertainment industry. Rather than having to manage and upgrade their own wireless network, Virgin Mobile entered into a partnership with Sprint to share their PCS network 50-50. In addition, unlike traditional carriers who sold their phones at high prices in specialty outlet stores, Virgin packaged their affordable phones into clear packages and sold them through retailers such as Sam Goody and Circuit City. Strategic moves like these saved Virgin Mobile considerable sums of money.
Before introducing Virgin Mobile to the American public, Dan Schulman was faced with a difficult question. Before him were three ways by which he could price his product. First, he could mirror the rest of the mobile phone industry that locked their customers into two-year contracts, offered “buckets” of minutes, had numerous hidden fees, and had terrible customer service. This strategy would not benefit Virgin’s young target market due to the credit check required prior to signing a contract. Mirroring the competition would not help Virgin Mobile differentiate itself from other service providers. Schulman’s second option was to follow the standard industry practices, but offer a lower price. This strategy is even worse than the first one because it would position Virgin Mobile as a budget brand as well as include all the negative aspects of mobile phone service such as hidden fees and buckets. His third option was to develop an entire new pricing plan that would bring value to the customer yet still be profitable.
After thoroughly analyzing this case, I believe that the best option for Virgin Mobile would be to forego the contracts, hidden fees, and buckets and instead offer a prepaid pricing option with no hidden fees and increasing subsidies. Although there is a 6% a month churn rate for providers without contracts, this will attract more of the growing youth cell phone market. By selling their service directly through retailers and spending roughly 10% of what Verizon spends on advertising, Virgin Mobile would significantly decrease customer acquisition costs allowing themselves to absorb the costs associated with the high churn rate. By being transparent and offering a single price for their monthly service, Virgin Mobile may actually retain more customers by reducing the negativity associated with hidden fees. Most importantly, this pricing plan would attract the exact consumer that Virgin is trying to reach: young people who cannot afford to pay extra charges on their bill or those who are denied traditional service contracts.
In conclusion, Virgin Mobile should stay true to its original positioning and differentiation strategy while avoiding the negativity associated with traditional contracts. By providing young people with affordable and stylish phones containing features that provide value to them and offering them simple, affordable, and easy to understand service plans; Virgin Mobile can attract and retain more contracts without having dissatisfied customers. With a growing youth mobile phone market and the increase of available content for cell phones, targeting young users will set Virgin Mobile USA on a path to successful future.

You have some rewriting to do. You need to proofread your paper before you turn it in. I found a few wrong word choice or left out words. Also, see comments for other feedback. Your conclusion also didn’t quite match up with your recommendation. 790/1000