The key issue for Virgin Mobile USA is to select a pricing strategy that will both attract and

retrain subscribers. Basic facts of the case: Virgin is a U.K-based company led by Sir Richard Branson and is one of the three most recognized brands in Britain. The company has a vast history of brand extensions one of which is their launch of a wireless phone service in the USA. Dan Schulman has been appointed CEO of the Virgin Mobile USA branch and is now trying to determine what pricing strategy would be most efficient in attracting and sustaining customers in the USA. There are several other decisions which also need to be made, such as who the target market will be, what unique features Virgin mobile can offer to differentiate from their competition, which channels to use in order to sell their product and how to advertise their product most efficiently.

Alternatives: There are 3 alternatives in regards to the key decision: (1) Clone Industry Prices: clone existing price structure priced competitively with a few key advantages like differentiated applications and superior customer service. (2) Price Below the Competition: adopt similar pricing structure as that of the rest of the industry with actual prices slightly below those of the competition. (3) A Whole New Plan: start from scratch and come up with an entirely different pricing structure, one that is significantly different from anything offered by the competition. [For example: No contracts, Pre-paid (no credit check needed), No hidden fees and more satisfactory off-peak hours for the target market. Your chosen alternative: After reviewing the case I would suggest... Polyphonic HMI: Mixing Music and Math So few songs actually become hitsLas Vegas gives you better odds than the music industry! You might as well just put a million dollars on red and spin the wheel . . . Ric Wake, Independent Music Producer In late 2003, the management team of Barcelona-based Polyphonic HMI was preparing to launch an artificial intelligence tool that they believed had the potential to create tremendous value for the music industry. The technology, referred to as Hit Song Science (HSS), analyzed the mathematical characteristics of music (by isolating aspects such as melody, tempo, pitch, rhythm, and chord progression) and compared them with characteristics of past music hits, making it possible to determine a songs hit potential. Mike McCready, the CEO of Polyphonic, explained: The music industry has always used two criteria to determine if a song will be a success. One is that it sounds like a hit. They have professionals at the music labels who are paid to determine if a song sounds like a hit. And two is that they have an idea how they can bring the artist and the song to the market. The problem is that the industry has about a 10% success rate: only one in 10 songs that get promoted ever charts. We add a third criterionthat it has to have optimal mathematical patternsand significantly increase success rates. This piece of technology is truly special, he raved. In one of our early tests, HSS generated unusually high scores for Norah Jones, a jazz singer who most industry insiders expected to have limited commercial impact but whose album later rose to the top of the charts. We also correctly predicted each of the hits of rock band Maroon 5. Nevertheless, Polyphonic was having its share of problems. Initial sales pitches had met with resistance. When we tell music executives about the concept, they typically look at us with glazed eyes, check... What we are analyzing here is pricing of a service in a market which is saturated, as it has reached maturity, is highly capital intensive and in which a large amount of competition prevails. Virgin however is a known brand name with an extremely diversified portfolio. It has experimented successfully with the telecom business in the UK but failed in Singapore. It now targets the USA market; the problems before it are to: come up with an appealing offer and ensure a run rate of 1million subscribers in the first year and three million by the fourth year. Keeping with the brand strategy and philosophy of making a difference, it enters areas which are unserved or poorly served which in this case is the age group of 15-29 due to their low frequency of usage and poor credit rating. While

targeting this segment lifestyle and psychographic factors are important as usage is inconsistent and based on school and vacation periods. Virgin tie ups consist of collaborations with MTV an iconic youth brand which would feature in and provide some of the Virgin Xtras, Its services would be hosted on Sprint's network, Kyocera for handsets, Target and best buy as retailers and youth magazine editors for promotions. The channel they are targeting would be point of sale displays at retailers, targeting 3000 outlets, with commissions lower than industry average. Advertising budget was far less than competitors and consisted of TV and print ads and a huge launch event. Pricing in the industry involved contractual agreements and buckets' of minutes. Under and over utilization would lead to penalization in terms of high price/minute. Complicating the pricing issue were peak and off peak charges and hidden costs.Problem for virgin was to come up with a pricing structure which was competitive, profitable and did not trigger off competitive reactions, keeping with the run rate they had set for themselves.

Virgin Company Background: Virgin, a leading branded venture capital organization, is one of the world's most recognized and respected brands. Conceived in 1970 by Sir Richard Branson, the Virgin Group has gone on to grow very successful business in sectors ranging from mobile telephony, to transportation, travel, financial services, leisure, music, holidays, publishing and retailing. Virgin has created more than 200 branded companies worldwide, employing approximately 50,000 people, in 29 countries.

Virgin Group: Company Values We believe in making a difference. In our customers' eyes, Virgin stands for value for money, quality, innovation, fun and a sense of competitive challenge. We deliver a quality service by empowering our employees and we facilitate and monitor customer feedback to continually improve the customer's experience through innovation.

Virgin Mobile USA: Dan Schulman was appointed CEO. The company entered into a 50-50 joint venture with Sprint in which Virgin Mobile USAs services would be hosted on Sprints PCS network. Under the agreement, Virgin Mobile would purchase minutes from Sprint on an as-used basis. The goal of Virgin Mobile USA is: to have 1 million total subscribers by the end of 2002 and 3 million by year 2006.

VirginXtras - Focus on Youth The first to offer m-commerce services to all customers via VirginXtras, irrespective of their handsets. Access to MTV-branded accessories and phones Text messaging Rescue Ring Online Real-time Billing Wake up Call Ring tones Fun Clips The Hit List Music Messenger Movies

Overall Goal in Choosing Pricing Structure: Must reach our target market: Youth! Create a positive Lifetime Value (LTV) for every customer

Three Main Options for pricing: 1. Clone the Industry Prices 2. Price Below Competition 3. A Whole New plan

Option 1: Benefits and Shortcomings (Clone the Industry Prices) Pros: Easy to promote. Consumers are used to buckets and peak/off-peak distinctions. Savings on advertising budget costs. Simple packaging could save costs on high commissioned salespeople.

Cons: The target youth market is not stressed.

Hard for a new entrant to the market. No flexibility in calling habits; always paying the same high price. With no real price distinction, consumers are not willing to switch over just for the Virgin Extras features.

Option 2: Benefits and Shortcomings (Price Below Competition):

Pros: Cons: Earnings from each consumer will be less. Sales growth does not necessarily mean big profits. Risk of being regarded as low-quality service, thus an unfavorable image. May trigger off competitive reactions. Maintain the buckets and volume discounts with price per minute set below industry average.and competitior Offer best off-peak hours and few hidden fees so consumers will know Virgin Mobile is cheaper, plain and simple. Expand the size of the market and result in greater sales and profits

Price Elasticity of Demand: The Business Customer TWO DISTINCTIONS: Make calls during office hours Rarely worry about the cost of calls (Finance Dept can deal with it)

PRICE INSENSITIVE! Demand is INELASTIC A percentage decrease in price will have a smaller percentage increase in Quantity Demanded (Calls made)

Price and Demand: The student customer TWO DISTINCTIONS You make calls whenever necessary and can seek to avoid calls that come with a higher pricetag Students CARE about the price of calls

PRICE SENSITIVE Demand is ELASTIC

A percentage decrease in price will result in a larger percentage increase in quantity demanded (calls made)

Demand-based Pricing: Mobile phone company revenue: The revenue gain from increased quantity must be greater than the revenue loss from dropping the price Since our target market is Youth, whose demand is relatively elastic, downward adjustment in price is relevant!

Assumptions: Year 1 is the immediate target - Customer with us 1 year for prepaid - Target average minute per month is 200 - Target average charge per minute is 15 cent

Level of subscribers Option 1: same industry pricing -> less attractive -> 500,000 out of 1 million subscribers Option 2: lower cost -> attractive -> 750,000 out of 1 million Option 3: new pricing structure and features -> most attractive -> 1 million out of 1 million

Conclusion: What we are analyzing here is pricing of a service in a market, which is saturated, as it has reached maturity, is highly capital intensive and in which a large amount of competition prevails. Virgin however is a known brand name with an extremely diversified portfolio. It has experimented successfully with the telecom business in the UK but failed in Singapore. It now targets the USA market; the problems before it are, to come up with an appealing offer and ensure a run rate of one million subscribers in the first year and three million by the fourth year. Keeping with the brand strategy and philosophy of making a difference, it enters areas, which are unserved or poorly served which in this case is the age group of 15-29 due to their low frequency of usage and poor credit rating. While targeting this segment lifestyle and psychographics factors are important as usage is inconsistent