Virgin Mobile: Pricing Options

1028 Words Feb 7th, 2018 4 Pages
The company plans to offer handsets for $30 at partner retailers, which will represent a loss of $30-$70 on the cost of the handset from Kyocera. The idea is that Virgin must make that money back with its rate plans. Also worth taking into consideration is that the company plans to make additional money from its consumers through its partnership with MTV, text messages, Virgin Xtras and other ancillary income. One of the company's fixed costs is the $60 million advertising budget.

Without real numbers to use, we can only estimate what the first pricing option will look like. The industry norms right now are $52 for 417 minutes. It is expected that the youth market will average the same usage as the adult market. They will use the phones both during business hours (while at school) and in the evenings, so the usage pattern may not differ that much. The contribution to fixed costs, based on service cost of $30, in $22 per customer. The fixed costs are the $60 million in advertising, and other unspecified costs. It will be assumed that the advertising is the only incremental fixed cost to this decision. The breakeven point would be $60 million / $22 = 2,727,273 customers. This would Virgin into the #8 market position, a goal that is not at all unattainable. Cellular penetration of the US market in the 15-19 age group is only around 16%,…

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