Virgin Mobile Pricing for the very first time

Transcription

1 Virgin Mobile Pricing for the very first time Yeshna Ramessur 06 th March 2016

2 Virgin Mobile should penetrate the youth market aged to secure a 2.08% market share by July 2006 resulting in a 3M subscribers list. Mobile Penetration for Mobile by Age Group Segment (by age) Current Possession Potential for VM to penetrate % 83% % 55% % 48% This segment has unmet needs, and are looking for the phone that can meet their specific needs, which Virgin Mobile s plan has. Barriers to loyalty are the main reasons why they don t adhere to a phone. Virgin Values appeal to them: Fun, Honesty, and Value for Money, Entertainment, and Breakthrough Innovation. Characteristics of the segment that makes them Virgin Mobile s primary target Measurable Size of potential market: 83% out of 129M Financial capability to purchase service Potential to increase usage over time Accessible Virgin Mobile knows their hang-out spots better than the other segments and competitors Virgin Mobile speaks their language Highly important, so as to avoid repeating Singapore s failure Profitable NPV 49M in first year higher than other groups Market Responsiveness Will be responsive to Virgin Mobile s offer: exactly what they are looking for. A Pay-as-you-go phone service that is honest with no obligation that they feel trapped. 2

3 Virgin Mobile should focus on the age group to secure growth and improve retention based on its offer. Demographics (age in years) (The Young Texters) (The Inbetween) (The Callers) Behavior What do they want Is this the best target for Virgin Mobile s goals? Teenagers Mobile phones are more or Yes, High priority. Love Cool and Trendy less a fashion accessory for This is a segment that has potential things them. They can personalize growth. They represent a potential cash Adhere to many of Virgin s it. They want a phone they cow to Virgin Mobile. They are heavy Values can enjoy without any tricky users and will buy the Virgin Extras. Possess latest technology plans. They can pay for Virgin Group already targets youngsters, apparels what they use, but refuse to it knows them. Virgin Mobile and the have surprises at the end of youth share the same values. Low the month. acquisition cost - $90 Irregular Calls Usage High Data Usage High Text Usage Random Usage They are at a stage in their lives where they are moving out, getting their first jobs. Their use of a mobile phone is random. Medium Calls Usage Fluctuating Data Usage Low Text Usage Random Usage Uses the phones for business purposes High Calls Usage Low Data Usage Low Text Usage Mobile phones are still at an early stage. This segment will not be using a mobile phone to look for a job or lease a car or buy a house. They are more likely to use landlines rather than a cell phone. 3 Yes, Medium. They are in an unstable stage of life where they are busy creating their lives. They are more likely to be solitary, and focus on other things. A phone at this period is only complimentary, not a need. No, but they can adhere to it when they see that there is no bucket pricing. Much effort will have to be laid to convert them from their subscribers, if they have one. High acquisition cost - $235. Their behaviour is very much different from Virgin values. Rationale No other carrier in the market has products specified for them. This segment shows growth for the next 5 years. We are looking at those who will use between minutes per month. PRIMARY TARGET NPV = $49M Virgin Mobile should not concentrate on gaining them as a target audience. However, they may well purchase a Virgin Phone if so they wish. SECONDARY NPV = $22M Could be potential customers, but will come as a pull strategy, with the budget available, it is impossible to make them our primary target Maturity in Market reached. With NPV = $47M

4 Virgin Mobile s new plan exceeds the national carriers in many sectors in the Economic Business Model 100% 90% 80% 70% 60% 50% 40% $90 $370 A comparison between the Economics of the Business Model $50 $23 $330 69% $ The new phone plan will result in a CLTV of $314 which will be recovered in 11 Months, compared to a CLTV of $252 which will be recovered in 17 months. Industry RPM is somewhere between 10c to 70c making customers very unhappy. Virgin Mobile s RPM is constant at 20c when it should be 5c. But this price would be too low to generate profit in this new market. 30% 20% 10% 0% Total Acquisition Cost ($) $52 $30 ARPU ($) Cost to serve ($) $264 Annual Margin ($) 78% Annual Retention Rate (%) $ CLTV ($) 18 Breakeven (months) The cost to serve at Virgin Mobile is lower, as it is focused on providing a great customer service by keeping the sales process simple: no complicated plan = no need for long transactions= PAYG = little aftersales customer support National Carriers Virgin Mobile 4 Current projected churn rate with the same industry practice but no contract is 6%, however, with a superior customer focussed approach especially aiming at filling the gaps left by national carriers, Virgin Mobile can achieve a churn rate of 3%

5 Virgin Mobile New Pay-As-You-Go Offer Business Model has aligned all issues that prevented the youth segment from owning a phone, while making sure its channel are satisfied in terms of exposure and revenue. Customer Profile Virgin Mobile Revenue Streams Virgin Mobile Infrastructure Teenagers Young Adults What do they want? -Factors affecting their loyalty No Hidden Charges No Contracts No Overage cost No Confusing Plan Constant Innovation A l i g n m e n t Virgin Mobile Value Proposition One price/ Data One Price/Minute One Price / Text Plan named Pay As You Go No Contracts Virgin Extras Prepaid Costs 5 A l i g n m e n t One time subscription fee- Buying the phone -Buying the phone Usages Fees -Calls, Texts, Data Virgin Mobile Goals Competitive Pricing -YES Are We Making Money? -YES Triggering Competitive Reactions? -NO Core Competence -Understanding its customers Core Competence -Breakthrough Innovation Partner Network - Deutsche Telecom as MVNO - Sprint s PC Network - Kyocera Phone Manufacturing -The Complex, Vibe, XXL -Target, Best Buy, Virgin Megastores as Distribution Channel

6 Having a No-contract Phone plan is the best solution for Virgin Mobile to achieve goal Option 1: Current Industry Practice Option 2: Current Practice Discounted Option 3: Current Industry Practice without contracts Option 4: No contract - Prepaid + PAYG Total Acquisition Cost Annual Margin CLTV $ $ $ $ years 3 months 8 years 2 years 1 month 11 months Breakeven Contract Yes Yes Yes No High Phone Subsidy Yes Yes Yes No Credit Check Yes Yes Yes No Prepaid Plan No No No Yes Complex Sales Process Yes Yes Yes No Hidden Costs Yes Yes Yes No Peak/Off-Peak Pricing Yes Yes Yes No Rate Per Minute 5c 10c-70c 35c-50c 20c Consistent with Delivery Strategy? No No No Yes Consistent with Virgin Target Market? No No No Yes Competitive Yes Yes Yes Not yet Profitable Yes - limited No No Yes Provokes price war Yes Yes Yes No Likely to hit growth targets? No No No Yes Pay as you go is most consistent with the target audience. It will only take 11 months to breakeven, considering the advertising budget available. Virgin Mobile is the only carrier that can offer this plan. It will even attract other segments through word of mouth about the transparency of transaction. The acquisition cost is lower than following industry practice. If we had followed industry practice, RPM should have been 5c which would have left money on the table. It is consistent with what the target market is looking for. 6

7 By naming the new plan as Pay As You Go, Virgin Mobile can eliminate the perception normally accompanied with prepaid plans. Price Level Customer comes in touch with the Virgin Mobile across the various touchpoints He has to buy a phone, from 2 models o Party Animal worth $60 o Super Model worth $100 This fits both the light and heavy users After that, the only thing they have to pay, the monthly fee They can do so via Virgin Mobile s Website, or visit their local retail spots 3000 where Virgin Mobile s product will be available They already go there to consume their music entertainment. Demand for the Young Texter is elastic, and their lifestyle is radically different compared to other people, they need a phone plan that matches their phone usage at a complete and clear price. NPV before Investment cost $49,646,330 Investment Cost $3,497, Sprint 50% Investment $24,823,165 NPV After Investment Cost $21,325, Price Structure Pay As You Go Recharge- Monthly How to ensure renewal Standard Calls to other carriers Interstate Calls International Calls Standard text Voic Data Rechargeable Rates $25 or $50 (or any value online) Soft-commitment 20c/min 25c/min 30c/min 7c Free 15c/MB Instore/Online 7

8 Virgin Mobile New Pay-As-You-Go Offer Service Model shows alignment with target market touchpoints. The Young texter comes in touch with the Virgin Mobile through MTV heavy exposure or Popular Magazine - Expressing all reasons why they need a phone Searches for information - Stays tuned to MTV - Visits Virgin Mobile s website - Reads advertorial - Discusses with friends Goes directly to Target, Sam Goody, Virgin Megastores, etc - Picks up a brochure - Or simply talks to any sales associate at those points of purchases plan is really easy to understand therefore no need for lengthy or high touch sales person. Assess alternatives to owning a phone Other carriers: - No lengthy contracts - No credit checks - No parental control - Budget - Easy purchase Decides to try And realises the ease of owning a phone with Virgin Mobile without any hassles stays with VM for fulfilment Recommends others- Segment 2 and 3 alike Virgin Mobile is 8 the Best Solution

9 Virgin Mobile should adopt a customer focussed approach towards creating a rewarding fulfilment for the customer where other have failed at doing so. Factors Importance to Target Audience How will Virgin Deliver that? Purchase Process Important Having a powerful message on the first touchpoint that is MTV programmes, Virgin should direct prospects to their local Best Buy or other store. So they can purchase the clamshelled-packaged phone Billing Process Important No billing. Customers have to buy scratch cards at retail spots or bill online through the website. Although, at this point, online billing is not yet popularised. Account Management Not Yet. Virgin Mobile will start keeping a database of Customer Information. Customer Support Important Virgin Mobile will provide customer support at its Megastore, Target and Best Buy. Value for Money Very. The new plan is based on what you see is what you get. They pay for their usage at a constant rate, which satisfies both the company and the customers. Handset Subsidy Indifferent. Compared to competitors, Kyocera phone proposal are much cheaper and can be bought at one go. Giving a subsidy on such a low-cost phone will just increase the acquisition cost. Price Plan options Very important Virgin Mobile s offer doesn t include any additional fees that they will have to discover as a surprise. The new design is truly a transparent honest plan. Contracts Not important Eliminating contracts will not affect Virgin Mobile s success but instead it is a customer-focussed approach that suits them. More customers can become members. Communication Limited Youngsters do not like to be bothered every time with communications from companies. They just want a phone that they can use when and where they want at their expense. Loyalty Rewards Not yet. Virgin Mobile is a relatively new product that has the potential of increasing its offer to suit customer s need and reward them, but this will happen at a later stage when information is available for purchase. Innovation Important Virgin Group is great at creating innovation that appeals to the youth. With this new plan, it differentiates them from everyone else. Youngsters in the target age bracket like breakthrough innovation that sets them apart. 9

10 For Virgin Mobile to maintain a high retention rate of 70%, it should spread out its offering in a manner to stay relevant to the youth and not make them feel overwhelmed right at the beginning Virgin Extras Weighting Activation Period Rationale Virgin Mobile Community Community is what youngsters enjoy, but it should come at a later stage, since Virgin Mobile is relatively new. It needs to create a brand equity first. Total Request Live Requires much investment in improving phone infrastructure Text Messaging 0.5 July 2002 Youth are heavy texters. Online Real-Time Billing Needs improvement in website for real-time billing for such big number of 0.3 January 2004 consumers. VM should use a part of its revenue to improve its e-commerce website Rescue Ring Perfect time to activate the escape plan reminding them they are not locked 0.2 February 2003 with Virgin Mobile as well. They are free to choose the best the one that fulfills their needs ie Virgin Mobile Games 0.5 July 2002 Easy to implement on current infrastructure Wake-up Call 0.4 July 2002 Not difficult to implement on current infrastructure Ring Tones 0.5 July 2002 Easy to implement on current infrastructure Fun-Clips Gifs, animated emoticons, small videos can be mounted on current 0.4 Dec 2002 infrastructure can be leveraged to high quality video in the future. The Hit List Need a better phone for that. However, because of MTV s collaboration, Virgin Mobile will have to work on that. Music Messenger 0.2 June 2004 Will drive sales for partners Movies Not anytime soon. This requires much advanced development. * With 0.0 being moderately important, and 0.5 very important 10

11 By partnering with the correct collaborators, Virgin Mobile has improved its visibility to its target audience without a huge advertising budget. MTV 91 M viewers strong and growing Age: Rated World s Most Valuable Media Brand four years in a row MTV speaks their language They spend $21.6Bn in technology No other channel can deliver to young adults like MTV Source: Nielsen Fall 98 The Vibe 200,000 circulation quarterly-focused on youth culture Age: Price : $2.50/mag $459 full page ad. XXL 140,000, Focused on youth music culture Age: % monthly page views $35CPM full page wallpaper. Target, Best Buy and Other Retails Virgin Megastores Aligns with the Youth top purchasing spots Frequent purchases of electronic good denotes ability of buying power The Complex Men median age ,0000 Circulation Monthly $ 26,000 full page Virgin Mobile can easily capture 650,000 youngsters in the first year, with an advertising budget of 60M and resulting in a revenue of $49M. The Youth are known to influence purchase decision to others. A satisfied youth will recommend up to 5 other people to purchase the same product. Alignment is most important in driving sales. 11

12 Virgin Mobile Communications Plan Virgin Mobile needs to reach 650,000 in the first year through 3000 retail stores available Virgin Mobile will have to leverage its relationship with MTV so as to exploit the maximum exposure. It is a win-win venture. They will both benefit from the engagement of the youth. They both speak the youth language. Positioning Strategy For the teenagers aged between 15 and 19, Virgin Mobile proposes a zero-contract phone that you can use anytime, anywhere without parental supervision, promising to constantly innovate to high value proposition, better than any other carrier on the market. Creative Objective: 1. To communicate that Virgin Mobile is launching its new phone plan in USA after successful penetration in UK 2. To communicate that the phone is for the youth usage pattern 3. To communicate that Virgin Mobile s plan is a clear transparent phone plan with no hidden or extra charges Creative Execution: 1. Spots on MTV channels and Virgin Broadcast media showing cool trendy teens enjoying sending picture messages while communicating in their jargon 2. Every time a Virgin Extra is activated, the same spot will be modified to communicate the new application. Creative Strategy: Tone: Fun, eccentric, provocative Style: Lifestyle hip and trendy Appeal Technique: Positive, humorous 12 Budget Available for Advertising $ 60,000,000 The Complex Cost 12 months $ 2,631,804 The Vibe - Quarterly $ 4,131 XXL - Monthly $48,000 Target/Best Buy etc Borchure on POD $1,012,500 MTV - daily $12,000,000 Experiential Marketing once in New York City s Time Square $500,000

13 Appendix Choosing the RPM Industry RPM lies between 10c 70c Calculating the RPM based on the time to breakeven no. of minutes used 200 Declaring unknown price P Monthly ARPU 200P Virgin Mobile Acquisition Cost 90 Industry breakeven in month 17 Cost to serve (45%of R) 0.45*200P Monthly Margin 200P-90P=110P RPM 90/110P= c Deciding on the price - solely based on the number and length calls made by the target market p = 5c p=10c p=15c p=20c Market Size Retention Rate 69% 69% 69% 69% Effective no. of customers Service Revenue Cost Margin Profit Expected Profit CLTV before Acquisition Cost $43.37 $86.74 $ $ Acquisition Cost CLTV After Acquisition Cost -$ $3.26 $40.11 $

14 Appendix- NPV per segment NPV for July 2002-July 2003 Segment 1 - The Young Texters Segment 2 - The Inbetween Segment 3 - The Callers Mobile Penetration 128,384, ,384, ,384,784 Market Share 0.51% 0.51% Market Share 654, , ,802 Market Size Retention Rate 72% 69% 0.69 Effective no. of customers Revenue/Customers Service Cost/Customers Service Revenue Cost Margin Fixed Cost Profit Expected Profit CLTV before Acquisition Cost $ $ Acquisition Cost CLTV After Acquisition Cost $82.81 $ NPV $49,144,271 22,326, ,620, NPV for year Segment 1 ( ) Segment 2 (20-29) Segment 3 (30-55) 49M 22M 47M 14

15 Appendix Teen Usage Pattern over a year period Rationale Usage Calls Cost Text Cost Data Cost School starts January V-day February March Break March Exams April May Holidays June July School starts August September Halloween October School November Exams & Break December Total Total Usage Cost / year $

16 Appendix for CLTV of Virgin Mobile Pay As You Go Option 1 : Current Industry Practice Option 2: Current Practice Discounted Option 3: Current Industry Practice without contracts Option 4: No contracts + Prepaid Option 4 : With a 70% Retention Rate DESIRED POSITION Acquisition Cost Advertising Sales Commission Subsidy (phone+distribution) Total Margin ARPU (Avg. revenue per unit) Cost to serve Monthly Margin Annual Margin Factors Churn Rate 2% 2% 6% 6% 3% Retention Rate 78% 78% 78% 51% 70% Discount Rate 5% 5% 5% 5% 5% CLTV $ $ $ $ Breakeven 2 years 3 months 8 years 2 years 1 month 11 months 16

17 Appendix: CLTV comparison between National Carriers and Virgin Mobile Competitive Comparison - CLTV National Carriers Virgin Mobile Acquisition Cost Advertising Sales Commission Subsidy (Phone + Channel) Total Margin ARPU Cost to serve Monthly Margin Annual Margin Factors Churn Rate 2% 6% Annual Retention Rate 78% 51% Discount Rate 5% 5% CLTV $ $ Breakeven Months 11 Months 17

18 Appendix: Projected Revenue Model for Virgin Mobile Mobile Penetration 128,384, ,637, ,313, ,412, ,372,159 Market Share 0.51% 0.87% 1.19% 1.17% 2.08% Market Share 650,000 1,235,000 1,914,250 2,163, ,230,141 Market Size Retention Rate 69% 69% 69% 69% 69% Effective no. of customers Service Cost/Customers $30.00 $30.00 $30.00 $30.00 $30.00 Service Revenue $ $ $ $ $ Cost $ $ $ $ $ Margin $ $ $ $ $ Fixed Cost $ - $ - $ - $ - $ - Profit $ $ $ $ $ Expected Profit $ $ $ $ $ CLTV before Acquisition Cost $ $ $ $ $ Acquisition Cost $90.00 $90.00 $90.00 $90.00 $90.00 CLTV After Acquisition Cost $75.61 $75.61 $75.61 $75.61 $75.61 n 650,000 1,235,000 1,914,250 2,163,103 4,230,141 NPV $49,144,271 $93,374,116 $144,729,879 $163,544,764 $319,826,451 * Potential no. of subscribers calculated based on what UK achieved- UK subscribers are more homogeneous to USA subscribers than Singapore * Growth Rate was calculated based on projected growth rate of mobile Entertainment Services revenue from 2002 throughout 2005 *Mobile penetration Size Source: 18

19 Appendix: Cost of Investment for Prepaid Plan Unit cost no. of units Total Cost $ Cost of Sim card ,250,000 $ no. of cards to manufacture ,714, ,857 Additional margin to retailers $ $15, Cost of Website $ 250,000 1 $ 250,000 Cost of Maintaining website twice a year $ 45,000 2 $ 90,000 Replenishment by Virgin Mobile $ 1,500,000 Total Investment Cost $ 3,497, NPV before Investment cost $49,646,330 $ Investment Cost 3,497, Sprint 50% Investment $24,823,165 NPV After Investment Cost $21,325,