Marketing Strategy of Virgin Mobiles

Virgin Mobile Retail strategy for entering the Indian Handset market

An Update On 1st March 2008, Virgin Mobile has entered the Indian Market, tying up with Tata Tele-services.

Virgin is primarily an MVNO company, and retail distribution is only a part of the overall strategy.

However, it is a very important piece.

Even for an MVNO like Virgin, having a finely crafted retail strategy can mean the difference between a strong subscriber uptake rate or a mediocre showing among the target audience.

Agenda Virgin Mobile - Company Brief The Indian Opportunity Competition and Positioning The Indian Consumer VM’s Entry Strategy Review Analysis and Recommendations

Virgin Mobile The Company

Global Reach

Virgin Mobile Charter To add a personal touch to our customer experience: the little extras….

As a customer, there’s nothing more frustrating than dealing with a faceless bureaucracy or a member of staff who tows the party line. A little something extra can really go a long way to improve a their experience and their opinion of Virgin. E.g. A Virgin Trains manager took all the placemats from First class and folded them into fans for the passengers caught in an unpleasantly hot carriage when the air-conditioning failed.

Virgin Mobile Charter

To offer an experience that’s 100% human, treating customers with respect.

Speak from the heart, not a script. Talk to people the way they prefer to be talked to – with warmth and humanity. When Virgin Money sends people letters about their financial services they recognise it’s the customer’s money, not theirs. They don’t write in jargon but as one human being to another

Organizational Mission Keep it simple Do what you say Take the leap of faith Keep on checking Stay true to your values Love the locals

Virgin’s New Venture Strategy When we start a new venture, we base it on hard research and analysis. Typically, we review the industry and put ourselves in the customer's shoes to see what could make it better. We ask fundamental questions: Is this an opportunity for restructuring a market and creating competitive advantage? What are the competitors doing? Is the customer confused or badly served? Is this an opportunity for building the Virgin brand? Can we add value? Will it interact with our other businesses? Is there an appropriate trade-off between risk and reward?

The Indian Opportunity Market Size, Structure and Segments for Handset Retail

Mobile Retail - The Numbers New Connections per month = 60,00,000 Handset Retail = 3,50,00,00,00,000 Airtime + Accessories + Handset = 7,50,00,00,00,000

The Demographics

50%

What Virgin Needs To Know No Bundling - Handsets sold directly so far, not by operators. This works in the favor of retailers, though it has begun to change. 7-9 Models added every month. Replacement sales account for as much as 60%. People are replacing handsets every 18-24 months

Organized Retail There are 95000 retail outlets in all

Only 1% of these are organized retailers

By Sales, organized retail has a share of 7%

The Future - Growth Rates Handset retail market has been growing at a CAGR of 60%

Overall, the Mobile retail market is growing at 20%

According to Gartner figures for Sep 07, India recorded the fastest growth in mobile handset sales

The Future - Volumes 600 500 400 300 200 100 R e t0a i l S i z e ( R s . C r o r e )

S ubscriber

2 0 0 42 0 0 52 0 0 62 0 0 72 0 0 82 0 0 92 0 1 0 H a n d s e t s Year

The Potential - Handset Retail H a ndset R e ta il G ro w th 100000 80000 60000 40000 20000 R e t a i l 0S i z e ( R s . C r o r e )

O rganized

2 0 0 42 0 0 5 2006 2 0 0 72 0 0 8 2 0 0 92 0 1 0 U n o r g a n i z e Year

The Future - Trends Saturation in the urban market

Rural India will drive growth, accounting for 35-38% of total handset market.

Aggressive promotions to get more common

Low priced handsets and handset bundle offers.

PEST – Politico-Legal Environment Politically stable country. However, there are certain parties with vested interests that act as bottlenecks. FDI allowed upto 24% for foreign players w.e.f. April, 2008 Availability of cheap as well as professional labour Weak consumer protection laws Increasing recognition of the potential in the retail space by the government.

PEST - Economic Environment 7-9% growth rate; mobile retail growing at 20%. Credit Sales have started, and Cell Phones are being sold on EMI. The Monetary policy aims to contain inflation close to 5.0% in 2007-08 while conditioning expectations in the range of 4.0-4.5%. Indirect taxes like service tax on immovable property adds to the costs. The retailers want to move the service tax on rent, telephone, etc to sales tax. Consumer

confidence

encouraging.

in

the

organized

retail

format

is

high

and

PEST - Social Environment 21.5 crore people between the ages of 14 – 25 years Demographics - A lot of demand is coming from Rural India, as as much as half of the newly added subscriber are from rural areas. Growing middle class and youth with an increasing propensity to save. Changing attitude- live for today

PEST - Technological Environment The mobile sector has grown more than tenfold from 2001 to around 6 crore subscribers by mid2005.

10% of the ISPs have 90% of the subscribers

The country’s mobile market stands at Rs. 35,000 crores and is growing at an annual rate of 60%.

Porter’s Five Forces Th reat from New En trants: High Rising cos t of retail real estate mak es nat ionwid e comp etition diff icult, but numerous n ation al and foreign p layers ar e interested to e nter

Supplier Power

Supp lier Pow er: Mo derate Supplier s hav e strong brands and ofte n hav e a prese nce in ret ai l the mselves Network O perators are ab le to push chea per brand s (e. g. Reliance Clas sic)

Ne w Entra nts

Compe titiv e Rivalry: Moderate Margins ar e thin at me re 4%. Pressur e from Second hand sales ma kes i t wors e.

Comp etitive Rivalry

Buyer Power

Buy er Pow er: Buyers De manding gr eater variety at lowe r pr ices

Threat of Substitution

Th reat of Substitu tion: Second hand phon e marke t and unorganized retail is strong. Mo st demand i s from rur al are as Ð where orga nized retailers donÕt have a pre sence.

Porter’s Five Forces Threat from New Entrants: High

Rising cost of retail real estate makes nationwide

competition

difficult,

but

numerous national and foreign players are interested to enter

Porter’s Five Forces Competitive Rivalry: Moderate

Margins are thin at mere 4%. Pressure from Second hand sales makes it worse.

Buyer Power: High

Buyers Demanding greater variety at lower prices

Porter’s Five Forces Supplier Power: Moderate Suppliers have strong brands and often have a presence in retail themselves Network Operators are able to push cheaper brands (e.g. Reliance Classic)

Porter’s Five Forces Threat of Substitution: High Second

hand

phone

market

and

unorganized retail is strong. Most demand is from rural areas – where organized retailers don’t have a presence.

Competitive Landscape Players, Positioning and Strength

Existing Players

Nokia Samsung Sony World ConvergeM (Future Group) Mobile Store (JV between Essar and Virgin) MobileNxt Univercell Hotspot (Spice Telecom) RPG Cellucom Subhiksha M Bazaar

Nokia Around 50% market share in Indian mobile market Focus on “Mother Brand” than on “Another Brand” Addressed all five needs “REAPS” of Indian Consumer Strong focus on distribution network Reduced their prices to counter the grey market

Mobile Store Essar Group venture - entered Jan 2007 Target Segment - 18 to 45 years Eyeing 10% market share, 2500 stores, 600 cities, and breakeven by 2010 Plans to invest 1250 cr by 2010 3 Formats - large medium and compact, in 20:60:20 ratio Against Franchising - dilutes brand value

Positioning Map

Consumer Need Analysis Segments, Buyer Behavior and Gaps

Consumer Segments Pioneer Youth

Mainstream Youth

In-touch Organizers Mainstream Materialists

I want everything from my mobile and I want it now

To stay ahead of the game you need the best tools

My phone means I belong amongst my peers

New experiences, new possessions, new technologies – that’s what I want

My life is a juggling act – my mobile keeps me connected

I’ll adopt new technologies if you show me a good reason

I want a phone that makes me look good - even when I can’t afford it

I’ll carry a mobile if I need to…

Careerist

Experiencers

Family Phoners

Basic Phoners

The Indian CellPhone Buyer Replace handsets every 18-24 months High demand from upgraders Price Sensitive - bulk of demand from sub 5000 price range VAS such as Texting very popular among Urban, Young customers

The Opportunity Urban youth: Distinct mobile needs More and longer out-bound voice calls Large calling circles for both making and receiving calls Large users of SMS Both the earliest adopters and highest users of valueadded services Higher usage for both voice and SMS at weekends

Urban Youth: More Than Just A Segment

India has 21.5 crore people between the ages of 14 – 25 years old. Incremental urban youth subscribers between 2008 and 2010 will be more than 5 crores. Urban youth mobile service revenues > Rs. 35,000 crores by 2010 Mobile as a badge of self-expression: brand and style very important

Indian Market Entry Strategy Target

Segment,

Objectives

Positioning

and

Virgin India Strategy Target Segment - Urban Youth Sales Objectives Revenues of Rs. 35000 Crores by 2011 (including connections, handsets and accessories) Image Objectives Establish the brand name Market Share Objectives 10% of the market in 3 years

Positioning - Seeking Youngistan

Mainstream Youth and Materialists 14-25 years Young executives / students / Youthful Adults

Virgin India Strategy - Differentiation Win a 10% share of the urban youth market by… Delivering imaginative solutions that offer Value for money & flexible tariffs that reflect their unique needs Innovative, game-changing value-added services

Great handsets at great prices Personalized customer care

Virgin India Strategy - Cost Whilst achieving a low operating cost per customer through Sharp focus on India’s top youth markets Fewer, stable propositions with low support and service costs Imaginative, eye-catching advertising & PR that gets youth talking A lean, enthusiastic team supported by simple processes

Differentiation Strategy Customer Care Taking the hassle out of buying a cell phone Try before you buy Real conversations: no scripts End-to-end ownership of problems: same Champ call-back Champ empowerment: authorized to resolve issues on the spot Welcome calls: all customers are personally welcomed to Virgin Mobile A real returns policy

Returns Policy q.

Lost my charger, battery fell off and someone threw my phone…gasp!

a. Tension nahin leneka. Whatever your problem you can walk into any service center and get replacements for faulty* items in your pack. Here’s a list of our service center . *conditions apply. But don’t get scared about it.

Differentiation Strategy Value for Money and Flexible Service Offerings

Differentiation Strategy - First Time In India Get paid to receive calls 50 paise to any local network TGI the weekend Bolt-on One Touch access to V-Bytes Unlimited access to V-Bytes for a simple daily charge ‘100% colour, 100% FM’ handsets Easy Handset upgrades Personalised Care Safe Secrets

Virgin India Strategy Promotions Think Hatke Campaign 10 paise every minutes on incoming

Virgin India Strategy - Location And Ownership

“You have to be in front of the right people.” Howard Handler CMO, Virgin Mobile

Virgin India Strategy - Location Shop in Shop and Kiosks Non exclusive, extensive coverage, lower costs The one commonality all of the retailers share is they are places where teens shop, because that's Virgin's core market.

A Virgin Kiosk

Virgin India Strategy - Expansion Plans To begin with, Virgin Mobile services were launched in 50 cities with 15,000 handsets & 40,000 top-up outlets. Also, with 55 Virgin Mobile kiosks & Shop-in-Shops. Plan to expand to 1000 cities by 2008-end Aims to acquire 50 lakh subscribers over the next 3 years, by when it would be profitable. By the end of 2008, when the new GSM players start rolling out their services, Virgin Mobile aims to offer similar services on GSM as well.

Virgin Mobile Analysis and Recommendations

South African Experience

Virgin entered as a 50-50 partnership with Cell C, H1, 2006 Classified itself as an ESP, since MVNO’s are illegal in SA Premium Pricing, supported by a strong brand, superior simplicity

customer

service

and

pricing

plan

Singapore Experience Entered through a tie-up with SingTel Exited the market - citing premium pricing and crowded market Customers placed more premium on Price SingTel

tariffs

expensive

too

high

-

texting

too

High

Strategic Choices for Mobile Retailers

Volume

Low Cost StrategyViable

Not sustainable

Premium PositioningViable

Low Cost StrategyUnviable

Low

Price

High

Positioning Virgin OFFER

SIMILAR ACROSS RETAILERS

ASSORTMENT

EXPECTED

CONSUMER PRICE COMPETIVENESS

MORE EVOLVED

SHORT LIVED

BRAND ENGAGEMENT CAN BE THE ONLY DIFFERENTIATOR

….one of the most exciting brands in the wo 200 companies worldwide, employing 48 500 people, an annual Virgin Group turnover of £10.8bn/US$20.4bn

SWOT Opportunities

Threats

India a growth story - 20-30% CAGR,

highest

handset

volumes.

sales

Lack

of

number

portability

-

switching barriers

Organized Retail mere 7% by revenue, 1% by outlets. Most

Rising Retail Costs

entrants

are

established competitors

Unclear Government Policy on

MVNO new,

few

Falling Handset prices - lower

margins Saturation - Mobile penetration in excess of 40%.

SWOT

Strengths Strong Global Brand

Weaknesses Dependent

on

Partners

for

pricing, capacity Limited overlap with Tata’s Non serious image may not go existing customers well with conservative Indian Very low fixed costs as it consumer. leases Network Time Limited understanding of India Not tied to a particular Market Technology

Capitalizing On Strengths

Into retailing + service provider If the GoI allows MVNOs

then after tying

up with GSM players, can beat Reliance Good brand recall Structured pricing of airtime serves as a loyalty incentive, encouraging active use

Making Weaknesses Irrelevant

People not familiar with the MVNO concept Tata Teleservices does not have a good brand image Confusion in the minds of consumer about the Virgin-Tata deal- a re-branding exercise by Tata Teleservices?

Recommendations Key advantage over other (non-operator) retailers - presence in both retailing and airtime Key advantage over operators - not tied to technology (as an MVNO)

Recommendations Forge deal with a GSM player Offer bundled plans - subsidize handset costs with Airtime Offer for both CDMA and GSM - greater assortment Offer plans for 2 years, with upgrade options

Recommendations VM is moving in the right direction but time is still not ripe for a big bang entry into handset retailing

Need to see the response to Airtime and expand in other cities

Continue tie-ups with existing Mobile retailers like Univercell, Hotspot, M Bazaar, M Port, Vishal, etc.

Thank You !!