Virgin Mobile – Pricing for the Very First Time

Frequently Asked Questions, Hints & Tips

Virgin Mobile Business Meeting Guidance

Here are some general guidelines for the meeting:

 You are to plan to do your presentation in no more than 25 minutes
 With professor questions, your presentation must run no longer than 35
minutes
 Do NOT read from your slides - cover the highlights only. Remember that
the professor can read much faster than you can talk.
 Be early for your meeting. If we are having the meeting on Zoom, you
should be in the "waiting room" about 5 minutes before your scheduled
start time.
 If you are having your meeting in person, bring a hard (paper) copy of your
deck for you to present from and a copy for the professor. You will NOT be
presenting from your laptop nor will you be using your laptop at any time if
you are presenting in person. If we need to look at your spreadsheet, we
will do so using the one that was emailed to the professor.
 In business decision meetings, which is what this is, experienced presenters
will make reference notes on their hard copy of the deck with any back-up
information or details that they think they may need. I encourage you to
do the same.
 For those of you presenting in person, please do not plan to have a long
conversation after we've completed the Virgin business meeting. With
back to back meetings being held each day, if the professor gets off
schedule, it becomes problematic for other students.

You Must Clearly Explain Your Proposed Pricing Strategies BEFORE

You Start Analyzing Them & Evaluating Them

There should be a separate slide in your Virgin Mobile deck that clearly explains
the alternative pricing strategies that you will be evaluating before your
qualitative (with a comprehensive criteria table) and quantitative analysis (which
must be a summary of your detailed financial models that will be in your
appendix).

This should include the key information required for the reader to understand
each pricing alternative:
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Frequently Asked Questions, Hints & Tips

 Is it prepaid or post-paid?
 Are there credit checks?
 Are there hidden fees (e.g. for going over your minutes, different fees for
different times of day)
 What is the price per minute, with and without hidden fees if that is
relevant to the alternative?
 What will the consumer pay for the phone? Note that this can (and likely
should) be different between your alternatives.

This is an ideal place to provide the required rationale for what we are going to
charge consumers for the phone, for explaining your choice of discount to the
competitive rate per minute in Alternative #2 and for providing your rationale for
the "Whole New Plan" alternatives.

This section should NOT include your CLTV, break-even and other forecasts for
your different pricing alternatives.

Presenting The Analysis of Your Pricing Alternatives

In the past, about 1/3 of students have decided to present their pricing
alternatives on separate slides. This would mean that they would have a slide for
each alternative for Virgin Mobile that contains the financial analysis (CLTV) and
the qualitative assessment.

Please, do NOT do this! You end up doing more work as you are creating 6 slides
if you have six alternatives plus your slide which describes and explains all of your
alternatives. It is also harder for the reader to compare alternatives because they
end up having to flip pages back and forth.

The best way to present your analysis of your pricing alternatives is to do this:
 First slide - describe your alternatives with supporting rationale
 Second slide - qualitative analysis with a thorough set of close-ended
criteria
 Third slide - your financial analysis (CLTV & other key metrics)) which is a
condensed and focused version of the detailed models that you present as
one of your appendices

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Frequently Asked Questions, Hints & Tips

Also remember that you state your decision after you have completed both the
qualitative and quantitative analysis.

“Why Are We Here” – Problem Statement

Remember that you are given the problem as part of your mandate for this case.
You need to state on your very first content slide what the problem is and why we
are having this meeting.

In fact, it MUST be your very first headline.

Sensitivity Analysis Hint

You need to do a sensitivity analysis. The reason why I have asked you to do this
in the case is to help you understand what variables have the biggest effect on
CLTV and you can't just guess at it.

My suggestion is that you pick the 4, 5 or 6 key variables (there aren't many of
them) and increase them by an amount and decrease them by an amount to see
how they impact CLTV and then draw your conclusions from there. You can just
use the model that you have developed for the competition, toggle the variables
up and down individually and manually record the numbers. It shouldn't take
more than 10 minutes.

Only do this for the first scenario for the competition - with contracts. The
insight from this one scenario will apply to all scenarios.

Churn & Retention Rate Calculations

You are provided with the monthly churn rates for the competition and Virgin
Mobile for both the prepaid (no contract) and postpaid (with contract) scenarios.

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Frequently Asked Questions, Hints & Tips

You need to calculate the annul churn rate for your CLTV calculations. Taking the
monthly churn rate and multiplying it by 12 is an INCORRECT approach as it
ignores that each month has an ever-decreasing number of customers.

Also remember that there is no churn in the first month because they just got
their phone that month.

Credit Checks – What If We Want To Have A Plan Without Credit

Checks?

Given the target audience in this case, you MUST have an alternative that has no
credit checks and contracts (post-paid).
For your financial model of this option, you need to factor in the cost of customer
unpaid bills into your customer acquisition cost. You are not given enough
information in the case to determine the $ impact of getting rid of credit checks
so you may have to make some assumptions as follows:

 What % of the population will not pay their bills? You can assume that
people are generally honest and they also don't want the public
embarrassment of having their phone cut off. Choose a reasonable % (5%,
10% or 15%, for example).
 How long would you allow them to not pay their bill before you cut them
off? Is it two months? Three months? Four months?
 What is their monthly bill? This will be based on the rate plan that you
come up with.

The impact on customer acquisition cost then becomes % of customers that don't
pay their bill TIMES the number of months you allow them to not pay their bill
TIMES their monthly bill.

Handset Subsidy Hints

When calculating the handset subsidy, I suggest that you approach it as follows:

1. Decide the price that you want to sell the handset at.
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Frequently Asked Questions, Hints & Tips

 You can set a different handset selling price for your various pricing
alternatives.
 You are required to provide a rationale for the handset price that you
have chosen BUT you do NOT and should NOT do a criteria table to
assess different handset prices unless you really want to do this and
it helps you make your decision.
 Remember to think about some of the psychological pricing
techniques that we talked about earlier this semester.
2. You are given Virgin Mobile's handset acquisition cost.
3. Calculate the $ amount of the subsidy.

Note that using the competition's subsidy rate as a % of handset cost is a BAD,
BAD, BAD approach (three bads so I hope that is clear that you must not do
this). The customer doesn't know what the level of subsidy is and, more
importantly, they don't care what the level of subsidy is.

NO FREE PHONE

Do not create an alternative that involves giving the handset away to the
customer at no charge.

This is not executable by our retailers and would also lead to "unproductive"
behaviour by our target audience (i.e. they will acquire many, many phones).

The Number Of Minutes Used Is Fixed Both for Virgin Mobile & Our
Competitors

Please consider the number of minutes as fixed. You have been given the
average requirement for minutes by the target consumer instead of what we
have decided to offer.

The other reason for this is that it simplifies the number of decisions you have to

make (and I have to evaluate 😊 ) and focuses the decision making on the critical
elements of the consumer offering which is the price level and price structure.
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Frequently Asked Questions, Hints & Tips

Perceptual Map Requirement With Respect To Competition

Remember that your perceptual maps for the Virgin Mobile case MUST show:
 Virgin Mobile - proposed based on your pricing recommendation
 Competitors - based on their price per minute with contracts and hidden
fees
 Competitors - based on prepaid (no contract) with hidden fees and a price
per minute between $0.35 and $0.50 (this is not the price that you are to
use in your CLTV models – in your CLTV models for competition, you are to
use the prices given in the case instructions)

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