Virgin Mobile: Pricing for the First Time
Young people are critical to many markets including mobile, fashion, technology, and entertainment. Other than forming a key component of the current market, young consumers are potential markets for the future. A business that captures their interest and commitment today has high possibilities of securing a lifetime relationship with them (Mitchell, 2012). However, marketers have not clearly identified the exact tastes and preferences of the young people as a unique market segment. The recent developments in information technology and the use of social media have complicated the marketing equation for this group. The requirement for transparency, relevance, and communication in pricing strategies is higher among the young people than in the older generations. Additionally, they are clear about what they want from a brand, and if they do not get it, they have no hesitation but to move to the next one that they feel would meet their needs and expectations (The Chief Outsider, 2013). Thus, the level of their brand loyalty is very low, and they will jump to companies that are offering free products, huge discounts, and low prices. They are looking for something that will entertain them and meet their needs at the same time. However, they have less disposable income than the older generations because they are either students or have just landed their first job. Furthermore, their creditworthiness is still low as they are still depending on their parents or repaying their education loans.
It is evident that the mobile market in the United States was highly competitive and saturated, and the entrance of Virgin Mobile was not going to have any significant impact in the pricing of the existing service providers. Additionally, Virgin Mobile had to come up with unique services to attract subscribers to the new network. Developing an excellent pricing structure was mandatory for the company if it wanted to succeed in the U.S. market and attract the young people (Mitchell, 2012). Other than developing a competitive pricing strategy, the company should ensure that the prices of its products and services generate sufficient revenue for the sustainability of its business. Before creating the pricing structure, Virgin Mobile needed to understand explicitly its buyer personas, the fictional attribute representing the ideal customers. Understanding buyer personas help in refining the marketing efforts and the consumers’ willingness to purchase an individual product at a given price (The Chief Outsider, 2013). Knowing the tastes and interests of the young people in the U.S. would help the company customize and set prices for products and services according to their expectations.
After identifying the buyer personas, the company should figure out the amount the customers are willing to pay for the products and services that the firm plans to offer. The most appropriate technique for creating optimal pricing and assessing the value being provided by the company is to carry out a survey and collect data from the targeted customers. The study should involve talking to customers about everything, including the company’s pricing. The study should include asking them how much they could be willing to pay for the product or service. Subsequently, the marketers should analyze the data collected from the survey and set prices and packages (The Chief Outsider, 2013). The data collected should be compared with costs and competitors’ prices before setting the final prices. The final prices being offered by the company should be discrete and exhaustive.
Furthermore, Virgin Mobile should communicate its costs and value to its customers. Having accurate pricing data helps to determine reasonable prices and provide good customer service. The price structure should help the company to develop relationships with customers and assure them that the enterprise is providing them with the value placed in the prices. Virgin Mobile should communicate the value, pricing model and how they can get the products and services. It would be better if the company published the prices on its website and other communication media with features available in various packages. The pricing structure should enable customers to understand the exact item they are paying for when they make payment (The Chief Outsider, 2013). The mobile industry is known for hidden charges, and the new company has an opportunity to set itself apart from the rest by making it easy for customers to predict their cost of services and identify the value they are getting.
Virgin Mobile can quickly get engrossed in acquiring a market share in the United States and ignore the need to include a profit element in its pricing structure. The company needs to communicate the value of its products to the members of the team. The management and employees have the same power over the company’s profitability as the customers. The company needs to unify its culture around the value and pricing of its products and services to ensure that the efforts of generating data, analyzing it or choosing price points maximize revenue and support business growth and sustainability. Creating a culture that will strengthen the pricing strategy is imperative for Virgin Mobile as it will ensure that costs, pricing and margins are visible by the members of the team (The Chief Outsider, 2013). Transparency is useful in bringing the team together, and this will make them perform better in coming up with marketing strategies for the targeted market segment.
The Preferable Pricing Option
The most appropriate pricing strategy for Virgin Mobile is setting its price below the competition, which is commonly known as penetration pricing. Pricing for market penetration is vital for the company considering that it is new in the mobile industry of the U.S. (Maguire, 2016). The primary goal of penetration strategy is to attract as many buyers as possible by offering them lower prices than competitors. Even though the strategy will likely lead to losses in the first few years of operations, it will draw attention away from the competition. Additionally, setting lower prices than its competitors will convey a message to the potential customers that its products are cheaper, simple and plain which is very important for the target market.
Young people look for the best prices in the market and are likely to embrace the new company if they establish that it is offering lower prices for the same products and services being offered by other telecoms (Mitchell, 2012). Penetration pricing will enable the company to grow its subscriber base faster, which is very important to the company’s success. Additionally, it will lead to cost advantages for the company if the company manages to generate high volumes of sales within a short time after the launch. If the company sells large quantities of a mobile phone, it will be able to renegotiate discounts with its suppliers of handsets, which will lead to lower cost per unit (Maguire, 2016). Hence, the company will make profits even with low prices. Moreover, penetration pricing will appeal to customers from a wider demographic than other strategies because it will attract people with different levels of income, education, and occupation. A diverse and broad audience increases the company’s potential for future stability.
Causes of Dissatisfaction in the Cellular Market
The churn rate in the cellular market is about 24 percent in the United States. Subscribers move out of one provider to the other due to dissatisfaction with the services and products that they get. A study done by Nokia identified five primary reasons for subscribers to churn. First, mobile subscribers look for more transparency in contract terms, price structures, and data charges. Price is a major factor in customer attraction and retention, but customers tend to be more sensitive to calling plans and cost structures. Many customers are confused by different packages being offered by telecoms which tend to trigger them to move to packages that they feel that are easy to understand (Nimako, 2012). Thus, Virgin Mobile should ensure that the packages it will offer to its customers are straightforward and clear. Secondly, subscribers, churn to look for better general services, self-service options, and complaint handling. Thirdly, customers are moving out to find other services more than voice and text-messaging services. Fourthly, mobile security is becoming a big issue, and customers are moving out of a network if they experience a security breach. Finally, consumers are moving out to look for services that can improve their lives through the use of mobile phone (Aptantech, 2016). Thus, Virgin Mobile can reduce its churn rate, if it can ensure transparency in its pricing, provide better services, offer additional services and guarantee security of its network.
Lifetime Value for Virgin Mobile
References
Aptantech (2016). 5 emerging reasons mobile subscribers churn – Nokia study. Retrieved July 8, 2016, from http://aptantech.com/2016/06/5-emerging-reasons-mobile-subscribers-churn-nokia-study/
Maguire, A. (2016). Six different pricing strategies: which is right for your business? Retrieved July 8, 2016, from http://quickbooks.intuit.com/r/pricing-strategy/6-different-pricing-strategies-which-is-right-for-your-business/#sm.0001eh0dav13grf2auk68546xujzf
Mitchell, L. (2012). The future of marketing according to youth: what 16-24s want from brands. Retrieved July 8, 2016, from https://www.theguardian.com/media-network/media-network-blog/2012/oct/25/future-marketing-youth
Nimako, S. G. (2012). Customer Dissatisfaction and complaining responses towards mobile telephony services. The African Journal of Information Systems, 4 (3), 84-99.
The Chief Outsider (2013). Five steps to create and implement a killer pricing strategy. Retrieved July 8, 2016, from https://www.chiefoutsiders.com/blog/bid/96867/Five-Steps-to-Create-and-Implement-a-Killer-Pricing-Strategy
