What is causing the problem?
Virgin is a U.K based company which was one of the top three most recognized brands in Britain. It’s cellular operations in U.K had been among the top stories, but in Singapore the company had run into difficulties with hardly 30,000 subscribers and having a very low penetration with consumers aged 15-29. As far as the U.S industry, the mobile market was very overcrowded and saturated. Virgin Mobile did not have a large advertising budget as the other carriers in its competitive field. This results in less awareness and a narrower audience scope to reach.
● Porter’s Five Forces Analysis:
● A) Threat of New Entrants: The threat of new entrants for the mobile phone industry is very high. The initial cost of production …show more content…
The role of contracts which involves two options: either shortening the term of the subscription contracts, or perhaps even eliminating the contracts altogether. It has been indicated that if Virgin Mobile were to shorten or eliminate such contracts, the risk would be that it's churn rate would skyrocket. In fact, it was estimated that churn would climb to 6% each month.
● It is difficult for Schulman to choose between the two options because both options have their advantage in which eliminating the contracts would be beneficial to the company from a customer-acquisition standpoint. However, contracts provide carriers with a hedge against churn and a guaranteed annuity system so shortening them rather than eliminating them is considered a safety net in terms of retention.
● Another point to mention is that eliminating the contracts will result in a negative lifetime value (LTV) for the customers since the company would lose money on the average customer given current acquisition costs if it abandons the practice of requiring contracts from its customers. Hence, it’s not feasible for the company to have a no annual-contract …show more content…
Cons for Option 3:
❏ The riskiness of shortening or eliminating the contracts,
❏ The riskiness of the pre-paid service and its consequences on other U.S. Carriers.
❏ Concerns over the recovery of the cost of the handset.
● After evaluating the pros and cons for the three options, the best pricing strategy that Virgin Mobile should use would be option 3 which is “A Whole New Plan”.
● Virgin Mobile should use the third option in their pricing plan which involves coming up with an entirely different pricing structure, one that was significantly different from anything offered by the competition.
● Using a pre-paid strategy will be very beneficial to the company especially for its target market in the following ways:
1. Most young people do not have strong credit scores and this plan will help counter that issue.
2. The target market uses phones sporadically depending on the circumstances.
3. This plan is transparent from the beginning because it doesn’t include any hidden fees.
4. This plan is very flexible and customized to each individual’s needs.
● Another approach to go by is lowering acquisition costs such as sales commissions, advertising costs, and handset
Virgin is a U.K based company which was one of the top three most recognized brands in Britain. It’s cellular operations in U.K had been among the top stories, but in Singapore the company had run into difficulties with hardly 30,000 subscribers and having a very low penetration with consumers aged 15-29. As far as the U.S industry, the mobile market was very overcrowded and saturated. Virgin Mobile did not have a large advertising budget as the other carriers in its competitive field. This results in less awareness and a narrower audience scope to reach.
● Porter’s Five Forces Analysis:
● A) Threat of New Entrants: The threat of new entrants for the mobile phone industry is very high. The initial cost of production …show more content…
The role of contracts which involves two options: either shortening the term of the subscription contracts, or perhaps even eliminating the contracts altogether. It has been indicated that if Virgin Mobile were to shorten or eliminate such contracts, the risk would be that it's churn rate would skyrocket. In fact, it was estimated that churn would climb to 6% each month.
● It is difficult for Schulman to choose between the two options because both options have their advantage in which eliminating the contracts would be beneficial to the company from a customer-acquisition standpoint. However, contracts provide carriers with a hedge against churn and a guaranteed annuity system so shortening them rather than eliminating them is considered a safety net in terms of retention.
● Another point to mention is that eliminating the contracts will result in a negative lifetime value (LTV) for the customers since the company would lose money on the average customer given current acquisition costs if it abandons the practice of requiring contracts from its customers. Hence, it’s not feasible for the company to have a no annual-contract …show more content…
Cons for Option 3:
❏ The riskiness of shortening or eliminating the contracts,
❏ The riskiness of the pre-paid service and its consequences on other U.S. Carriers.
❏ Concerns over the recovery of the cost of the handset.
● After evaluating the pros and cons for the three options, the best pricing strategy that Virgin Mobile should use would be option 3 which is “A Whole New Plan”.
● Virgin Mobile should use the third option in their pricing plan which involves coming up with an entirely different pricing structure, one that was significantly different from anything offered by the competition.
● Using a pre-paid strategy will be very beneficial to the company especially for its target market in the following ways:
1. Most young people do not have strong credit scores and this plan will help counter that issue.
2. The target market uses phones sporadically depending on the circumstances.
3. This plan is transparent from the beginning because it doesn’t include any hidden fees.
4. This plan is very flexible and customized to each individual’s needs.
● Another approach to go by is lowering acquisition costs such as sales commissions, advertising costs, and handset