1 ) ) Given Virgin Mobile’s target market (14 – 24-year-olds), how ought it to structure it is pricing? The truth lays away three prices options. Which in turn options might you choose and why? End up being as particular as possible with respect to the various factors under considerations (e. g., contracts, the size of the financial aid, hidden fees, average per-minute charges, etc . )Given Virgin mobile Mobile’s (VM) target market (14 – 24-year olds), I recommend the company to structure the pricing based upon the version presented in Option several. This option, even though appearing to be quite significant and intense, would allow VM to create a unique pricing structure when fixing a number of the problems that are so common inside the cell phone industry.
The goal of VM’s pricing strategy was to make sure that they were able to offer competitive prices, while at the same time remain profitable and one step prior to the competition. Simply by going with Option 3, VM would be able to get in touch with a wider range of buyers and fulfill their specific cell phone consumption needs.
By eliminating the long-term agreements altogether, it might be a big benefits for VM from a customer buy standpoint.
For example , for those people under the age of 18, they can now be able to purchase their particular cell phone through VM and never have to ask their very own parents or guardian to sign a contract on their behalf. This would open up the doors into a huge possible client base and generate even more profits intended for the company. Since seen in Exhibit 2, there was clearly a huge market penetration distance between the U. S. and also other countries particularly in the “Ages 15 to 19” group. The word “no contracts” does have mass appeal, especially in the cell phone industry. Although deals do offer a safety net and provided carriers with a hedge against client turnover (along with using a guaranteed annuity stream), I do think it is wise for VM to think out of your box in this instance. The risk of a heightened churn price would be minimal, as VM is able to attract more customers and generate more profits due to customer satisfaction resulting from different pricing alternatives being offered. Customers in the U. S. tended to have a negative view of pre-paid cellphone plans, with its typical high costs/per small as well as limited usage.
I really believe that VM should take up a pre-paid pricing structure a lot like that of Finland and the UK. Although there is a risk of bigger churn rates among pre-paid consumers, VM could easily maintain its consumer acquisition costs if stored below $22.99 per new gross add. This can be done by allowing it is customers to choose the plan that best fits the requirements, and give them the option to pay by minute, month, etc . With out contracts, VM can also provide a reduced entry cost for month to month offers and give their customers more freedom and flexibility. This “pay as you go” would be a major selling point with regards to its promoting message. VM would in that case be able to create a positive brand image among teenagers and the younger age groups. This should lead to increased client loyalty and acquisition based on word-of-mouth, instead of having to fork out a lot of money on advertising. VM could after that afford to take lower margins on their plans and price prepay minutes very well below the sector average of 35 cents/minute.
Regarding the handset subsidies, most of the major companies offered a subsidy with their end-users, which usually resulted in one more $100 to $200 as part of their customer acquisition price. This large was due to the fact the carriers purchased the handsets by big name produces such as Nokia and Motorola. By purchasing cellular phones at a lower cost via Kyocera, VM would be able to continue to keep prices less expensive than it is competitors’. Despite this, teenagers might nevertheless be attracted to the “free phone” offers from the other providers. Hence, VM should certainly still make an effort to subsidize a number of its cellphone cost. VM’s pricing structure must be kept straightforward by eliminating all the hidden charges and taxation that often confound (and upset) customer’s when they see their bill every month.
With a prepaid plan, teens would not be able to go over their particular minutes and generate an expensive cell phone costs. Minutes can be used at any time that best fit every single user’s way of life, without the be concerned of overages and invisible fees. 1 With this approach, parents could also monitor all their child’s cell phone usage monthly and help to recharge the minutes on the phone as needed. VM did not have large fixed costs since it leased space around the Sprint PCS network. VM also had a less expensive circulation system when compared with its competition, by making its phones easily available in major retail stores as a great off-the-shelf item. This type of create would almost certainly work well which has a pre-paid program. By having a much more clear-cut payment and pricing structure, VM could create better value for its consumers.
2 . )How confident will you be that the charges strategy you might have chosen will be profitable? Provide evidence of the financial viability.
I believe which the pricing strategy I’ve picked will be extremely profitable for VM. By targeting young customers and providing them with good value, VM could be successful in such a competitive and saturated cell phone marketplace. As noticed in Exhibit 3, revenue intended for mobile entertainment was expected to increase over the next few years. By simply analyzing the LTV info presented in Exhibit 14 and the market penetration info from Exhibit 2, it is clear that VM provides the potential to acquire most (if not all) of their customers using a positive life time value. For instance , the penetration of the “15-29” age group inside the U. T. was way below those of Japan as well as the U. E. Thus, it is essential for VM to think of creative ways about how precisely it can make it is service exceptional and in a position to cater to the needs of any younger consumer bottom. Just taking a look at today’s world in the U. S., you will see how teenagers and the young generation are likely to be extremely tech-savvy focused enough to adopt new technologies.
Today, teens inside the U. S i9000. have better access to funds (i. e. through their parents, part-time jobs, and so forth ), and are also willing to put money into the latest gadgets and technology such as the ipod device, Playstation, etc . So , in the event VM offers the flexible costs plans along with added features including VirginXtras, texting and downloadable content, it ought to be very appealing to the younger group. This would make a large amount of earnings for VM, in addition to its frequent usage plans. Also, fashionable nowadays is the fact many father and mother tend to look at cell phones because an easy way in which to stay touch using their children and they are more happy to spend money on a cell phone as being a safety assess.
At the same time, these parents business lead busy lifestyles and could appreciate the “no contracts or hidden fees” pricing offered by VM. Father and mother could conveniently “recharge” their child’s cellular phone minutes through the use of cash or perhaps debit greeting card. Also, VM did not need commissioned product sales reps to sell its phones and strategies. This would save the company a good deal of money in terms of salary and rental costs. VM could also reduce advertising costs, since its mobile phones are placed in mass merchandisers and significant retailers since an off-the-shelf item. Their very own phones will be easily obvious and available for purchase. By offering a simple pricing strategy and better flexibility, VM would be able to acquire customers more readily with spend less.
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