Virgin Mobile Usa Analysis

Virgin Mobile USA Analysis [pic] August 08, 2009 Table of Contents Table of Contents2 Introduction3 Internal Factor Evaluation (IFE Matrix)4 External Factor Evaluation (EFE Matrix)5 Porter’s Five Forces6 Porters Generic Forces6 Financial Analysis7 Competitive Profile Matrix8 The Marketing Mix-The 5 P's9 Key Issues10 Boston Consulting Group (BCG Matrix)11 GE / McKinsey Matrix12 Space Matrix14 Recommendations16 Introduction Virgin Mobile is a great company that has been successful based in the U. K. The company is well known for its brand extension and was the first company to introduce the Mobile Virtual Network Operator (MVNO) in the U. K. , where they leased network space form another firm instead of running a network in-house and as a result avoiding infrastructure and large fixed cost. The company was well known for its hip and trendy position in the U. K. , and catered to the youth market. Although they have had a couple failures in the past including launching the MVNO in Singapore, the company decided to venture into the U. S. Virgin Mobile positions itself 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 not well 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, and based on school and, vacation periods. Virgin customers are attracted to the products and services because of the flexible monthly terms, easy to understand pricing structures, stylish handsets offered at affordable prices and relevant mobile data and entertainment content. Virgin offers products and services on a flat per-minute basis and on a monthly basis for specified quantities, or â€Å"buckets†, of minutes purchased in advance in each case, without requiring customers to enter into long-term contracts or commitments (Virgin Mobile USA). Internal Factor Evaluation (IFE Matrix) Internal Factor Evaluation | |Matrix (IFE Matrix) | |CRITICAL SUCCESS FACTORS |Weight |Rating |Weighted Score | |What are those factors in the internal environment which are critical to the future success of the |Relative |How well has the firm, | ; 2. 50 = the firm and | |organization? Importance of that|or its strategies, |its strategies are not | |Does management have control over them? (The answer should be yes) |factor in the |res ponded to the |capitalizing on | | |firm's industry |factor? |opportunities or avoiding| | |0=Not Important; |1 = poor response |threats. | | |1=Very Important |2 = average response |> 2. 0 = the firm, and/or| | |or Critical |3 = above average |its strategies, is/are | | | |response |responding well to | | | |4 = superior response |threats and opportunities| | | | |in its industry. |STRENGTHS |   |   |   | |Virgin brand name [Globally recognized brand name] |0. 25 |4 |1 | |Competitive Price of Phone Package |0. 03 |2 |0. 06 | |On-line Store 24/7 |0. 2 |2 |0. 04 | |Excellent Sales Promotions |0. 1 |3 |0. 3 | |Pro-active and quick to act |0. 12 |3 |0. 36 | |Friendly staff – Good at understanding and meeting customer needs |0. 04 |3 |0. 2 | |Targeting a narrow target market [less advertising costs] |0. 02 |4 |0. 08 | |50-50 joint venture with Sprint no worry for fixed costs or physical structure |0. 1 |4 |0. 4 | |An exclusive multiyear content and marketing agreement with MTV networks to deliver music, games and|0. 05 |4 |0. | |other MTV-, VH1-, and Nickelodeon based content to Virgin Mobile subscribers | | | | |Unique mobile features and extras |0. 02 |3 |0. 06 | |Channel strategy that is more closely aligned to its target market selection. |0. 02 |3 |0. 06 | |Unique image youth oriented other providers focus on business people. 0. 02 |3 |0. 06 | |Unique advertising strategy |0. 02 |4 |0. 08 | |WEAKNESSES |   |   |   | |Limited [Low] advertising budget |0. 3 |4 |0. 52 | |No contract option means that there is a chance of having higher churn rates. |0. 01 |3 |0. 03 | |New Foreign Brand associated with Music/Travel |0. 01 |2 |0. 02 | |CBD Location is busy/inconvenient for Suburb Customers |0. 02 |1 |0. 2 | |Mobile Coverage |0. 01 |1 |0. 01 | |Separate Billing/Account information (More Direct Mail) |0. 01 |2 |0. 02 | |Total |1 |   |3. 44 | |   |   |   |3. 4 > 2. 5 | Virgin Mobile exhibited internal weaknesses and strengths wit hin its environment rated above weighted score of 3. 44 on a scale of 1 to 4. This can be attributed to the good leadership that includes friendly staff, the market niche that is image youth oriented, unique advertising strategy, channel strategy on the other hand limited advertising budget, potential higher churn rates and poor mobile coverage expose Virgin Mobile’s weaknesses that must be addressed. External Factor Evaluation (EFE Matrix) |External Factor Evaluation |Matrix (EFE Matrix) | |CRITICAL SUCCESS FACTORS |Weight |Rating |Weighted Score | |What are those factors in the internal environment which are critical to the future success of|Relative Importance of|How well has the firm, or| < 2. 50 = the firm and its| |the organization? |that factor in the |its strategies, responded|strategies are not | |Does management have control over them? The answer should be no) |firm's industry |to the factor? |capitalizing on | | |0=Not Important; |1 = poor response |opportunities or avoiding | | |1=Very Important or |2 = average response |threats. | | |Critical |3 = above average |; 2. 0 = the firm, and/or | | | |response |its strategies, is/are | | | |4 = superior response |responding well to threats| | | | |and opportunities in its | | | | |industry. |OPPORTUNITIES |   |   |   | |Penetration among consumers 15-29 is significantly lower and the growth rate among this |0. 12 |4 |0. 8 | |demographic is projected to be robust in the next 5 years [this segment hasn’t been targeted | | | | |yet] | | | | |Revenue for mobile entertainment projected to increase steadily over the next few years. |0. 1 |4 |0. | |Open more Virgin Mobile Stores across Capital Cities/Regional Markets |0. 05 |3 |0. 15 | |Integrate into Music/Travel packages |0. 25 |4 |1 | |Wider Mobile Phone Coverage-National & International |0. 1 |3 |0. | |THREATS |   |   |   | |Market seems to have reached maturity |0. 14 |3 |0. 42 | |Market is overcrowded |0. 15 |2 |0. 3 | |Customers ages 15-29 are low value subscribers [don’t use their cell phone regularly] |0. 3 |2 |0. 06 | |Limited National Coverage |0. 01 |2 |0. 02 | |The age group targeted tends to have poor credit quality |0. 03 |3 |0. 09 | |Competition from A T & T, T-Mobile USA, Cellco and Verizon etc |0. 02 |2 |0. 4 | |Total |1 |   |3. 26 | |   |   |   |3. 26 ; 2. 5 | Virgin Mobile’s response to external opportunities and threats within its environment is rated above weighted score of 3. 26 on a scale of 1 to 4. There are wide opportunities for Virgin Mobile to open more Virgin Mobile Stores across Capital Cities/Regional Markets. Make the offers more attractive by Integrating Music/Travel packages. Provide wider Mobile Phone coverage-National & International. On the other hand there are threats that are looming due to the market that seems to have reached maturity and overcrowded. There is limited National coverage which needs to be expanded. There is also Competition from A T & T, T-Mobile USA, Cellco and Verizon etc. These threats must be countered effectively. Porter’s Five Forces Supplier power (Weak) – Lots of cell phone providers, therefore companies like Kyocera lower prices to contract with service providers. Buyer power (Strong) Current cell phone service providers are numerous, which allows for many options for buyers. Barriers to Entry (Weak) – There is nothing that will prevent Virgin from competing to an untapped market. The threat of substitutes (Weak) – There are very few substitutes available that offer mobile and immediate communication. Alternative like pagers are outdated & this target market cannot afford sophisticated PDA service. Degree of Rivalry (Strong) – Competitors have brand recognition in the US and have the majority of the market share. Porters Generic Forces Virgin Mobile applies the three generic strategies. Cost leadership strategy that seeks to minimize costs and maximize profits. For example the company had entered into distribution agreements with Target and Best Buy, both of which charged lower commissions than traditional industry channels $30 per phone, versus an industry average of $100. 6. They also sought to hire talented staff that is friendly and good at understanding and meeting customer needs. In terms of differentiation, the team decided that a key part of the Virgin Mobile service would involve the delivery of content, features, and entertainment, which they called â€Å"VirginXtras. To this end, the company signed an exclusive, multiyear content and marketing agreement with MTV networks to deliver music, games, and other MTV-, VH1-, and Nickelodeon based content to Virgin Mobile subscribers. Therefore Virgin Mobile focuses on unique image that is youth oriented while other providers focus on business people. Virgin Mobile also differentiated it’s service by good customer care. There are advantages and risks exhibited with each strategic option. Virgin Mobile’s opportunities in this market were based on determining the unmet needs and creating new ways or means for satisfying these unmet needs. And it had to be based on buyer types, buyers’ needs and the technological means of satisfying those needs. Virgin Mobile used a more concentrated approached; they identified buyers’ needs by focusing on the age group 15 to 29 with specifically those with no credit and may not have usage or a lot of minutes; The Company put an emphasis on usage of minutes, style, fashion, fun, honesty and great value for money. This segment represented a possible opportunities for market penetration. It identified two attitudinal and lifestyle markets in their chosen segment; those that had no credit and wanted a phone with no contracts but can indulge in text messaging, downloading information into the cell phone and they were more likely to use ring tones, faceplates and graphic and those that wanted a phone as a fashion statement. Even people with similar usage needs, often have differing lifestyles representing various value sets. For example some people have an active lifestyle in which sports and fitness play an important role, while for others, art, fashion and trends may be very important. Financial Analysis Virgin Mobile USA, Inc. Key numbers for fiscal year ending December, 2008: Sales: $1,323. 5M One year growth: 0. 8% Net income: $7. 9M Income growth: 88. 4% AT Mobility Key numbers for fiscal year ending December, 2008: Sales: $124,028. 0M One year growth: 4. 3% Net income: $12,867. 0M Income growth: 7. 7% Cellco Key numbers for fiscal year ending December, 2007: Sales: $43,900. 0M One year growth: 15. 5% T-Mobile USA Key numbers for fiscal year ending December, 2008: Sales: $1,323. 5M One year growth: 0. 8% Net income: $7. 9M Income growth: 88. 4% Verizon Key numbers for fiscal year ending December, 2008: Sales: $97,354. M One year growth: 4. 2% Net income: $6,428. 0M Income growth: 13. 7% Reference: http://www. hoovers. com/virgin-mobile-usa/–ID__156760–/free-co-competitors. xhtml The main competitors are AT&T, Cello, T-Mobile USA and Verizon. Initially, Virgin may have no great profits since they are trying to be the low cost provider. Although they were profitable i n the UK, they have no brand recognition in the US to fall back on. Based data, Virgin Mobile is able to compete effectively with their major competitors as far as sales are concerned. They are also able to do this will less employees, meaning low operating cost. The company’s ability to compete effectively gives a good indication on their ability to keep their current market share and expand operations into new target markets. Competitive Profile Matrix |Competitive Profile Analysis | |Competitive Profile Matrix | | |Virgin Mobile |AT & T |Cingular |Verizon |Sprint | |Critical Success factors |Weight |Rating |W. T. Score | |Overall Market Size |0. 20 |5 |1 | |Annual Market Growth Rate |0. 20 |5 |1 | |Sector Profitability |0. 12 |4 |0. 48 | |Competitive Intensity |0. 14 |1 |0. 4 | |Global Opportunities |0. 12 |4 |0. 48 | |Regulatory Regime |0. 05 |3 |0. 15 | |Opportunity to Differentiate |0. 04 |5 |0. 2 | |Technological Requirements |0. 5 |1 |0. 05 | |Entry Barriers |0. 02 |1 |0. 02 | |Distribution Structure |0. 06 |5 |0. 3 | |Total |1 |   |3. 82 | | | | | | | | | | | | | | | | | | |Business Unit Strength Factors |Factor Weighting |Business Unit Rating |Value | |Market Share |0. 2 |1 |0. 2 | |Share Growth |0. 2 |4 |0. | |Product Quality |0. 05 |2 |0. 1 | |Brand Reputation |0. 1 |1 |0. 1 | |Distribution Network |0. 31 |5 |1. 55 | |Promotional Effectiveness |0. 05 |5 |0. 25 | |Production Capacity |0. 2 |4 |0. 08 | |Cost Management |0. 01 |5 |0. 05 | |R Performance |0. 02 |5 |0. 1 | |Management |0. 04 |4 |0. 16 | |Total |1 |   |3. 39 | [pic] McKinsey model above shows us strong business attractiveness and that the business strength for Virgin Mobile is fairly low. The fact of the matter is that competition in the cellular phone business is strong with many competitors. Currently the top providers operate to benefit themselves and not the consumer with high prices and limited features for the money. Consumers have various choices as far as provider is concerned, but no company has differentiated themselves to benefit the consumer’s pocket. Virgin Mobile must strive to excel. Space Matrix Strategic Position & Action Evaluation [pic]    |   |   |   |   |   | |   |Internal Strategic Position |External Strategic Position | |   |Competitive Advantage |Industry Attractiveness | |   |Ratings |   |   |Ratings |   | | |(-6 worst, -1 Best) | | |(+1 worst, +6 Best) | | |   |-5 |Market share |   |5 |Market Growth potential | |   |-4 |Product quality |   |2 |Profit potential | |   |-3 |Produc t life cycle |   |4 |Financial stability | |   |-5 |Brand & Image |   |5 |Resource utilization | |   |-3 |Customer loyalty |   |2 |Capital intensity | |   |-3 |Technological know-how |   |2 |Barriers to entry | |  Total |-23 |   |  Ã‚  Total |20 |   | |Avg |   |AVG 3. 33|   | |-3. 83 | | | | |   |   |Total axis X score: |-0. 0 |   |   | |Financial Strength |Environmental Stability | |   |Ratings |   |   |Ratings |   | | |(+1 worst, +6 Best) | | |(-6 worst, -1 Best) | | |   |4 |ROI |   |-3 |Technological changes | |   |2 |Leverage |   |-5 |Demand Elasticity | |   |3 |Liquidity |   |-3 |Price range of competition | |   |3 |Capital required/available |   |-6 |Barriers to entry | |   |3 |Ease of market exit |   |-6 |Competitive pressure | |   |2 |Risk involved in business |   |-5 |Price elasticity | |  Ã‚  Total |16 |   |  Ã‚  Total |-28 |   | |Avg |   |Avg |   | |2. 67 | |-4. 67 | | |   |   |Total axi s Y score: |-2. 00 |   |   | With the given the Space Matrix data we realize that the company should pursue a defensive strategy. The implication is that the firm is operating within a market that is experiencing negative to stable growth and that Virgin Mobile is experiencing severe financial constraints. Virgin Mobile knows that the market is saturated and very competitive they went ahead and positioned themselves to pursue their niche in the market share. I recommend applying a combination of retrenchment, divestiture, liquidation and concentric diversification. Recommendations Virgin Mobile wants to compete within a new market and not have the competition beat them in this game. Several options as far as pricing were developed by the company. They can either clone existing prices, price below the competition, or create their own unique pricing strategy. Cloning the industry, will not allow them to differentiate themselves in order to stand out from the competition, although, it would be easy to promote. Pricing below the competition would still be copying the competitor’s strategy, but just offering a lower price. Their only differentiating factor would be that they were cheaper. I recommend a different strategy. Creating the new plan would bring about the changes that consumers want such as eliminating contracts, offering pre-paid services, lower priced phones, and eliminating hidden fees. Although this strategy could be risky, they will ultimately do what they set out do which was to gain the market share of the under-30 crowd. With the options that MTV, VH1 and Nickelodeon networks will offer, I believe consumers will see the added value in the product as opposed