Virgin Mobile Usa: Pricing for the Very First Time

Virgin Mobile USA: Pricing for the Very First Time

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 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.,)

When Virgin Mobile enters the market, it is an emerging market, and with lots of barriers upon entry, where we can use the share price P×(1-β⁄ε_d )=MC to estimate. The target customers are students, extending from this point the price elasticity to price patterns are considered in pricing, thus will increase revenuedTE⁄dP=Q(1-ε_p^d ). Therefore, when the market share is low, or too much competition in the business, should be adopted than the market price of the pricing strategy.

In the beginning, pricing cannot be too complicated (EX: two pricing, price discrimination the second stage, a sharp off-peak price discrimination, etc.), should be allowed to program streamlined, enabling consumers to adapt to their needs, so that consumers can understand more of their diverse needs thus making the data more efficient, making promotion more precise.

Option one, because students relative to white-collar workers, are more idle and high price elasticity. Therefore, although the project can effectively increase the consumer's degree of rationality, but the price is rising.

Option two, price-cutting strategy for the students is a boon , projects shows that consumers do not know the value pricing , on behalf of these pricing models are too complex and complicated, thus simple easy to understand pricing will highlight the advantages.

LTV= (ARPU-CCPU)/(1-r+i)-AC

Contracts duration, affecting retention rate, where r is the variable.

Size of the subsidies is a type for consumers' acquisition cost, where AC is the variable.

Hidden is a cost, the variable is CCPU.

Average per-minute charges as a source of income, so ARPU is the variable.

How confident are you that the plan you have designed will be profitable? Provide evidence of the financial viability of your pricing strategy.

dTE⁄dP=Q(1-ε_p^d )

To determine whether this scheme makes money, we must first determine whether the magnitude of increase in revenue exceed costs.

In Exhibit 9b. Shows consumers are not aware of their best strategy, it is difficult to assess their needs, and whether consumers are rational of their income therefore accounts for a considerable impact.

Thus, we have in ARPU set up a multi-variable V, Let V be rational consumer level. Where we let n be the number of consumers, when n is higher, the average fixed costs will be significantly reduced

LTV= (ARPU(V)-CCPU(n))/(1-r+i)-AC

dARPU⁄dV>0， dCCPU⁄dn<0

Short-term , consumers in complex pricing schemes under the low level of rationality (V_1), but it is generally a simple rational price level to calculate (V_0), V_0 »V_1 down , ARPU will rise more . The price reduction will enhance the number of customers, so that CCPU will rise. Therefore, if project is executed in theory this will increase the LTV, we are confident that this program to be put into practice is very high.

The size of TA flexibility is the key. While the general student flexibility is high relative to other customers, but students are categorized into many different kind of flexibility, difficult to assess whether they flexibility are much larger than or just slightly greater than 1. This figure will affect ARPU and CCPU's volatility, and thus affect the success rate.

The second key point is the customer base for our awareness of this program is to be successful after the price increase in the number of consumers, in accordance with Exhibit 3 shows that customer base will rise, but the number of consumption does not necessarily will rise, although this scenario have their effect but the effect is difficult to estimate, or the need to reach with other marketing tactics to ensure success.

Therefore, a more accurate understanding of the TA is the price elasticity, and improve the promotion, we can better estimate and set a price reduction of prices, so that the success rate rises.

The cellular industry is notorious for high customer dissatisfaction. Despite the existence of service contracts, the big carriers churn roughly 24% of their customer each year. Clearly,