Virgin Mobile USA: Pricing Essay
Virgin Mobile USA: Pricing
As part of the Sprint prepaid brands, Virgin Mobile USA is a mobile phone service that offers Android-powered smartphones and pre-paid web access phone service. Virgin Mobile-branded phones are widely available in over 40,000 stores nationwide, including Target, Walmart, Best Buy and Radioshack. Virgin Mobile USA’s service is based on a non-contract basis, offering a freedom of service to their customers compared to other major-brand mobile phone service (Business Wire, 2012). Virgin Mobile USA is the leader of no-contract mobile service since its debut in the U.S. market in 2001. Their leading promotional feature includes their Unlimited Web, Data, Messaging, and email starting at $35 per month. Their value brand, called payLo, is a pay-as-you-go plan, with the options of talk and texting plans or just a talk plan (Virginmobileusa.com).
Music is also a large makeup of Virgin Mobile’s service, including sponsorships with major television networks and events, including Lady Gaga’s Monster Ball Tour and the FreeFest Music festival. In addition, Virgin Mobile Live is a service that offers continuous music streams of songs of any genre to its customers (Virginmobileusa.com). Virgin Mobile USA’s no-contract and no-credit checks directives opens up to their targeted youth market because their no obligation approach opens up to a customer base that traditional mobile phone companies do not offer.
Issues Facing Virgin Mobile
Virgin Mobile USA’s need to differentiate from the current mobile service market has to look at the available options in getting their pricing strategy a priority to determine which works best for the niche market they are targeting. Solely looking at the pricing analysis does not guarantee brand loyalty, satisfaction nor meet the customers’ needs. Virgin Mobile USA contains a combination of both a good and service, where the good is their selection of mobile devices and their service, which includes customer service and the telecommunication phone and texting service. Virgin Mobile USA’s phone service is highly competitive within their market and is the first expectation of customers to receive phone service anywhere they go.
Provider GAP 1
The first Provider Gap, The Listening Gap, is the gap between what customers’ expectations are of the service versus the company’s understanding of these expectations (Zeithaml, Bitner, & Gremler, 2009). As mentioned, Virgin Mobile USA had determined a niche market in the youth and college-aged demographic group, aged 15-29, who had a desire to find a service that suited their day-to-day habits. This included text messaging, phone service and music features that can be purchased without the qualifying factor of credit and background checks. Virgin Mobile USA conducted research on this niche group and saw that none of the major contracted mobile service providers offered any calling or texting plans that were for these users. The belief is that the company’s investment would not have high worth per individual customer.
However, Virgin Mobile USA observed their customers, identifying and offering the same quality service and affordability in mobile service. Solution. In order to meet the expectations of the customers, Virgin Mobile USA had to build a relationship of reliability and trust for its service through different offering, or packaging, of services. This would go beyond just the voice and text plans, into music and using the popularity of the internet as a method for viewing billing and accessing additional features of their mobile services. Course of Action. Virgin Mobile USA looked into this market niche and created non-contracted reasonable phone plans that included text messaging option for their customers.
They made the service and the mobile phones available at stores where the desired demographic would shop, including major retail stores including Virgin Music, Target, Wal-Mart and at major mobile phone outlets. The packaging for each of the phones was attractive to these young consumers and offered them a freedom of purchasing the phone with a flat one-time fee. The expectation was met through the offering of the mobile service at an affordable price range without an obligation.
Provider GAP 2
The second Provider Gap, The Service Design and Standards Gap, is finding the middle ground, or understanding, of the customers’ expectations and meeting that with service quality specifications that employees can execute (Zeithaml et al, 2009). Virgin Mobile USA had to be able to provide uninterrupted phone service and tangible items that provided recognition of their brand to customers. Their phone service should be reviewed and compared with competitors’ services to ensure relevancy of their services to potential customers. The physical evidence includes their selection of phones and objects that represent the Virgin Mobile brand. Virgin Mobile USA would need to keep up with the available mobile technologies, including service speed and the geography of service. Contracts with appropriate phone devices that would support these technologies would maintain the brand’s presence.
In addition, the offering of customer service should be promoted and provided as customer-driven service. Solution. Virgin Mobile USA needs to evaluate their suppliers of the mobile phones to ensure these devices are both physically appealing and have the capacity for the services that would be used on them. The evaluation of its phone service coverage across most metropolitan and rural areas in the U.S. and Canada will also need to be examined for as much coverage as possible for their consumers. Course of action. Virgin Mobile USA looked at purchasing their phones from Nokia, Motorola, Samsung and Lucky Goldstar. There was also a contract with Kyocera (Zeithaml et al, 2009).
The strategy of selecting these phones is to build a contract with these manufacturers in order to set a fixed price for Virgin Mobile USA. These phones would include various face plates that can be used to customize the look of the phone. The selection of the devices would also have an impact on the network coverage for the phone. Virgin Mobile USA would need to work with network services to ensure adequate coverage for users who are in most parts of the country. This means identifying the top cities and states and purchasing the network accessibility for those regions.
Provider GAP 3
The third Provider Gap, The Service Performance Gap, represents the discrepancy between the development of customer-driven service standards and actual service performance by the company employees (Zeithaml et al, 2009). One approach to make this gap as narrow as possible is for organizations to ensure that their employees and intermediaries are motivated and empowered to make decisions that support the service promise while maintaining high consumer-centric standards. Solutions. To remove potential service performance issues with intermediaries, while also reducing commission costs, Virgin’s approach was to change the distribution process that was currently used in the industry. Phones at the time were packaged in boxes behind locked cabinets and sold through a high pressured sales force.
Course of Action. Virgin Mobile USA sought to develop a completely new product delivery system in the industry, designed at attracting their target market. They removed intermediary sales staff by placing phones packaged in clear plastic on highly visible kiosks located in retailers such as Target, Best Buy and Sam Goody. This allowed the youth target market to freely examine the phones without interference from high pressured sales. On the other hand, this distribution strategy removed the personal contact between product experts and the consumer which could lead to lost opportunities. To compliment this strategy, Virgin Mobile USA should consider providing a phone at these various sale locations that would connect the consumer to a Virgin Mobile phone expert. This would also provide potential customers with a hands-on experience.
Provider GAP 4
The last Provider Gap, The Communication Gap, describes the difference between service delivery and the service provider’s external communications (Zeithaml et al, 2009). More than the marketing department, all employees in contact with customers must thoroughly understand the service delivery process so that they avoid the pitfall of communicating exaggerated promises of the service delivery process. In short, the greater the company’s promise surrounding their provided service, the greater the consumer’s expectations will be in regard to the service they receive. Solutions. To avoid the problem of “over promising and under delivering,” Virgin Mobile USA sought to develop an advertising campaign and pricing structure that supported their value proposition; which was a simple, low priced mobile phone plan offering innovative product choices for their target market, which had the greatest potential for growth.
Course of Action. They developed communications to clearly promote their differentiation from other carriers by highlighting their innovative new services. Although Product was at the forefront of this communication strategy, to differentiate themselves in the market place, Virgin Mobile USA created a service that would appeal to the youth market. Referred to as “VirginXtras,” the phone service included exclusive content from MTV and other features such as: text and music messaging, movie information, song hit lists and ring tones to name a few.
Pricing for the service was also an important part of their value proposition. In an industry where pricing typically included credit checks, hidden charges and varying pricing for off-peak and on-peak times, Virgin Mobile USA introduced an easy to understand plan hailed as a “what you see is what you get” form of pricing. Through their innovation, Virgin Mobile USA changed the mobile phone industry by causing competitors to develop similar features as “VirginExtras” into their own products, revolutionizing the mobile handset.
Through careful market research, Virgin Mobile USA’s value proposition included simple to understand low priced mobile phone plans offering product choices tailored for their youth target market. To provide a unique service that captured a share of a market already saturated with competitors, Virgin Mobile USA needed to ensure that their internal Provider Gaps where as narrow as possible. They needed to fully understand their customer’s service needs (Listening Gap) while providing a product and service design (Service Design and Standards Gap) that met those needs. This was accomplished with service plans void of the existing negative attributes in competitor plans such as surcharges and start-up fees, while offering plans geared toward texting and entertainment.
Throughout the design phase, Virgin Mobile USA was able to ensure high quality customer service on an existing reliable network (Service Performance GAP) while implementing advertising campaigns (Communication GAP) that successful reached their target market. Virgin Mobile USA launched service in mid-2002 as part of their strategy to capture the 2002 back to school and upcoming holiday seasons. Their service base quickly grew to over 500,000 users by April of the following year, and in early November of 2003 they had 1 million customers in the US. As of the most recent analysis of market share of 15 national carriers listed by the CTIA Wireless Association, Virgin Mobile USA is the nation’s 8th largest service provider with 5.1 million customers.
Boost Mobile and Virgin Mobile USA Recognized as J.D. Power and Associates 2012 Customer Service Champions By: Boost Mobile and Virgin Mobile USA, Business Wire (English), 03/15/2012 Regional Business News.
Virgin Mobile. (2012). Retrieved from http://www.virginmobileusa.com/about-virgin-mobile
Zeithaml, V. A., Bitner, M. J. & Gremler, D. D. (2009) Services Marketing (5th ed.).