Virgin Mobile: Industry Analysis And Factors Affecting Growth

Question:

Discuss about the Business and Corporate Strategy of Virgin Mobiles UK.

The virgin mobile comes under the Virgin Group Limited. This conglomerate was started by the Bitish Business tycoon, Sir Richard Branson.Virgin has entered the United Kingdom market as a Mobile Virtual Network Operator and the company has also been the first company to introduce itself in the UK in the year 1999. The company had a tie-up with the T-Mobile company in the UK and used the latters technological infrastructure, cutting down on its initial capital investment. The company also didn’t developed its own network in the beginning and took the help of the long term contract which has entered into with T-Mobile. The Virgin Mobiles adopted strategy of niche marketing in the UK and has recognized people from 18-35 years of age as their targeted demographic segment. Additionally, the company has also focused a lot on the pre-paid customer segment, since the cost of administration and the risk is quite low. After gaining knowledge of the UK market, the organization Virgin eventually has started targeting the post-paid customer segment a swell. The Virgin company highly believe in employee and customer satisfaction (Virgin Mobile Team, 2017).

Political Factors

The political factors refers to the extent to which the political parties or the Govt. interferes with the activities of the industry. These factors can be the level of subsidy provided to the firms, tariffs, trade barriers, laws regarding labor and political stability. Since, the Virgin Mobile has focused on prepaid customers, the company benefitted from the mobile phone subsidy which was around a three month payback period versus three years long contracts. This has enhanced the profit of the company.

Economic Factors

Economic factors which may affect the mobile industry are recession, buying capacity of the consumers, the exchange rates and rate of interest. Higher disposable income has resulted in an increase in the number of mobile subscribers. This is a good sign for the Virgin Mobile since, it can widen the customer base. Also, the company is offering the better tariff plans along with simplified plans to attract a large number of the customers. Additionally, the telecom industry has provided jobs for a large pool of people which has helped the industry to win consumer confidence, which is finally resulting in rapid growth of the industry(Team, 2015).

Social Factors

The societal trends and customs are the social factors which affect the mobile industry. Due to the growing popularity of socialmedia networking sites such as Facebook, Twitter, Instagram, etc. and the number of people buying mobile phones has increased significantly. The main demographic composition which has formed the customer base for the mobile companies are “youngsters”. To get the attention of this category, the Virgin Mobile has adopted niche marketing. The outlets of the company were designed in a very trendy and creative way to attract maximum customers (Nyakudanga, 2013).

Technological Factors

The technological advancement is the biggest factor which has been affecting the mobile industry. As the technology is developing at a really fast pace, the companies are required to change their strategies and plans more frequently. The technology can assist in both cost reduction and product innovation method. The virgin mobile was initially a Mobile Virtual Network Operator, but due to the technological advancement, the company has joined hands with T-Mobiles technical infrastructure. Additionally, the Virgin company has introduced some innovative approaches to keep its customers updated with the company’s products and offerings. The Virgin Bites portal allowed the customers to access news around the world. Infact, the Virgin Mobile was the first company to offer free voicemail services. This has made Virgin gain competitive advantage over few other mobile companies(Frue, 2016).

Economic Factors

Legal Factors

The legal factors are very closely related to political factors. They include factors, such as law regarding labor, working conditions, Govt. intervention, etc. For instance, the laws against using a mobile phone while driving has gave a rise to the popularity of Bluetooth devices. This has helped the mobile companies to introduce a new product range and increase their profit simultaneously.

Also, the legal disputes between Virgin Mobile and T-Mobile has resulted in Virgin buying T-Mobile’s stake in its joint venture(Harvard College, 2017).

Environmental Factors

Due to an increase in the awareness of environment protection, the companies are required to be extra careful about being responsible towards the environment. There is a rapid change in climate and global warming domain which have affected the network quality of the mobile companies. To get into the positive books of the customers, the Virgin Mobile has organized and sponsored several events and programs regarding the environmental protection and awareness. The company has also been using recycled paper, ink, etc. for contributing towards environmental preservation(Arline, 2015).

In order to analyze the attractiveness of the mobile industry and its effect on the Virgin Mobiles, the Porter’s 5 Forces in the UK markets has been conducted. The UK’s mobile telephony industry forms a huge part of the overall economy of the country. The key players in the industry are the renowned telecom companies, namely Vodafone, O2, T-Mobile and Orange. The mobile industry in the country is highly competitive and it is essential to develop the strategies to sustain in the saturated market. The Porter’s 5 forces is proved as a popular and well analyzed framework which is being used to evaluate the competitive forces and judge the overall attractiveness of the industry. The framework evaluates four different aspects of industry which are driving forces; Threat of a new entrant, intensity of existing competition, threat of substitutes for products or services, bargaining power of buyers and bargaining power of suppliers(Abdul, 2016).

Threat of new entrant

Every industry is threatened by both existing and new rivals. The new arrivals can intensify the competition in the industry. If the profit margin of an industry is high, it automatically becomes attractive to new entrants. Considering the UK mobile industry, since the market didn’t have any major entry barriers, it was very easy for the Virgin Mobile to penetrate into the country. It entered the country as a Virgin Mobile Network operator and hence, the amount of capital investment was also relatively low. Eventually, due to the high attractiveness of the industry, the Virgin has converted itself into Virgin Mobiles and changed the level of business and corporate strategy. The high competitiveness of the industry has led to revision of the policies and has forced the companies to revise their tariff plans in order to stay ahead of the competition (Jacobson, 2012).

Threat of Substitutes

Substitute products are the products which have similar features and can satisfy the needs of customers alternatively. These products tend to affect the pricing of the other related products in order to ensure that customers choose the company’s products over the substitutes available in the market. In case of the telecom industry, the voice over Internet Protocol such as SKYPE, Google Talk, etc. are the biggest substitute products available. In order to decrease the threat of substitutes, mobile companies are offering efficient data services such as 3G at good prices to the customers.

Social Factors

Bargaining Power of Buyers

The bargaining power of the buyers implies the degree to which the buyers can make or break the business. If the customers are few and the suppliers are more, then the customers have the power to switch different suppliers. This makes an industry experience more bargaining power of the buyers.The buyers in the UK telecom industry have high bargaining powers (Kim, 2015). As the customers have a large number of alternative options which are available to them, they can easily switch to another MNO or MVNO if they are not getting the expected product satisfaction and brand experience. The quality of service quality holds a great importance when it comes to keeping hold of an existing customer and establish a strong brand relationship between the brand and the customer. This can be attained by getting customers in long-term contract plans, offering service bundles and hence achieving competitive advantage over peers.

Bargaining Power of Suppliers

The suppliers in the industry are the firms which may provide raw materials to the industry. No industry can practically operate without the suppliers. In the UK telecom industry, the bargaining power of the suppliers is very low. This has helped the Virgin Mobile to attain raw materials at a reasonable lower price by negotiating with the suppliers (Chu, 2007).

Rivalry

Every industry gets affected by the competitors, who are constantly fighting to leave each other behind. The UK telecom industry is highly competitive as well. The two major reasons for this is that a large number of companies providing similar products and services and holds a very saturated market impossible to fetch new customers. The Mobile Virtual Network operators like Easymobile and Virgin mobile pose a huge threat to the Mobile Network operators as they offer tariff plans at a cheaper prices. The intense competition also gives rise to an extensive market campaigns by all companies.

In order to analyze the internal environment of the company, SWOT analysis and the current business and corporate strategy of the Virgin Mobiles is conducted in this section.

The Virgin Mobile has entered the UK market as a low cost Virtual Mobile Network operator with the low start-up capital investment. This has helped the company to earn profits quickly with a high return on investments. This low cost operating system was the biggest strength of the company. The Virgin mobile is a product range of the Virgin Group, which already holds a very strong image around the globe. The company has joined hands with T-Mobiles in UK, which has helped to gain brand recognition in the newly entered UK Telecom industry. The association with these two brands has increased the credibility of the company. Another strength of the Virgin Mobiles is their cheap tariff planning. Additionally, the company has maximized product line depth in compared to its competitors. The other strengths of the company are multiple channels of product distribution, very high employee satisfaction level and a provision of first class customer experience (Green, 2017).

Technological Factors

The operating strategy of Virgin Mobiles has targeted people with age between 18-35 years as its target customers, but after a few years the majority of its customers from the age of 40 years and above. This has implied the weakness in the operating strategy of the company. The company is also lacks in technological infrastructure and is dependent on T-Mobile because of which the customers face delays in getting the latest technology (Heunis, 2013). Also, the Virgin company has focused too much on the pre-paid customers because of which the company has lost the customer base of big postpaid corporate customers. The company generally lacks due to efficient pricing strategy in comparison to its competitors such as Tesco-Mobile, Easy-Mobile,etc.

Virgin mobile has an opportunity to exploit the post-paid customer segment rather than focusing on the pre-paid customers only. The company should identify the customers which may like the brand but can’t find a suitable plan options under the pre-paid tariff. Additionally, the company should clearly identify and target the right kind of demographic customer base in order to maximize their revenue. The Virgin Mobiles seize the opportunity to make use of the aggressive pricing strategies against tariffs as the UK telecom industry is highly competitive. The Virgin mobile can partnered with other popular retail outlets to further increase their advisement, distribution  and sales (Bransons, 2016).

The  mobile network operators poses a huge threat to Virging Mobiles such as T-Mobile. It can lead to unforeseen situations, such as legal debacles. The Other Mobile Virtual Network Operators also creates a threat to the Virgin company. There are more than 30 MNVOs in the UK and offers highly competitive tariff plans. Internet calling is also a threat to Virgin Mobile and the telecom industry. The telecom operators lose billions of sales due to the gaining popularity of internet calling which costs lesser to the customers and are also accessible easily.

The corporate and business strategy of Virgin Mobiles in the UK can be categorized in four main aspects:

Cost Leadership: -Under this strategy, the company focuses to become the lowest cost operator in the market. It has already been discussed that how the Virgin company has entered UK as a Mobile Virtual Network Operator which may require very less capital investment.The company offer tariff plans which were almost 22% less costly than the other competitors in market. It has also offered flat rates and has discontinued the peak time rates. It has introduced recharge coupons which were available to be used anytime without the customers having trouble regarding the expiry of the plan or its renwal. The company is also offering Prepay bundles which were offered at 75% cheaper rates to the customers and it holds package for the users of a high usage of calls or messages. This has helped the company to become a cost leader in the telecom industry and has attracted not only the targeted young customers, but additionally the other demographic composition to the company’s customer base as well(VIRGIN media, 2015).

Legal Factors

Product Differentiation: - Product differentiation helped the company to develop its products and services with distinctive features which are not possessed by other companies offering different products. Differentiation can be attained through improvising Sales Channel, Distribution Channels, Marketing and using Innovation. Virgin Mobile has incorporated product differentiation in its operations using the following methods:

Distribution: - Virgin Mobile has been handling products distribution channel in a very efficient manner. The company has opened almost 6515 sales outlets in the smally period of only 7 years.

Virgin took the help of Virgin Megastores in order to open the stores within existing stores in order to increase the sales and has also also hired well qualified and experienced sales representatives who possess the complete product knowledge. The stores were designed in a very innovative way to attract the customers and provide them with a relaxing shopping experience. The in-store representatives were given proper training about how to deal with the customers in a flawless manner and the best key to gain product knowledge. The products of Virgin Mobile has also bought a number of famous retail store chain such as Comet, Argos, ASDA, Tesco and Sainsbury’s. Virgin Mobile’s own stores has made only 30% of its sales, which shows the effectiveness of the distribution channel incorporated by the company. Virgin Mobile only had a share of  28% through their own retail channels which clearly stated reagrding the successfulness of Virgin Mobile distribution channel (Virgin, 2015).

Marketing: - Virgin has always been associated with the latest style and authenticity. The company strongly believes that nothing is impossible and has used creative marketing strategy to get the attention of the customers. Virgin Mobile didn’t spent a large  percentage of its sales revenue on advertisements, but the advertisements created by the company were very innovative and has targeted music and sports by using high profile sponsorships. Virgin Mobile has sponsored various sports and music events, which has added to its marketing objectives. Virgin Mobiles television commercials were continuously rated best among the top advertisements and won many awards in the advertisement sector(Warren, 2016).

Virgin was the first company to introduce flat rate tariff plans with no hidden costs, discontinued peak rates and has also started offering free voice mail service. The customers were offered with various methods of payments like cash, debit cards and credit cards. The mobile phones offered by the company were very stylish in the way they looked and also were high-end in terms of quality. The product range of Virgin Mobiles was the largest in comparison to the competitors. The company additionally offered its customers a separate monthly payment scheme just in case the customers were reluctant to get a phone on the contract/EMI basis. Virgin also used stylish and trendy packages such as including bright colored boxes which includes a full starter pack in order to not cause any complication to the customers. Virgin also introduced an information services portal with the name of Virgin Mobile Bites which has offered access to the latest news and gossips to its mobile phone owners(Donell, 2017).

Environmental Factors

The virgin Mobile has attained a stronghold in the telecom industry in the UK soon after their launch. The company has developed a number of short term and long term strategy framework to stand out in the industry and attract the customers of other competitors as well. After recognizing its target market segment, Virgin Mobiles has developed various methods to become best cost leader in the industry. In order to do so, the company aimed for providing the cheapest tariff plans and services to their customers. This would make the company as customers’ favorite in the industry. The company highly focused on the pre-paid customer segment initially and captured most of that segment easily.  Prepaid sectors had a number of benefits over post-paid segment like lower cost of administration, higher average per minute charges and lower credit risk. All these factors has helped Virgin to earn higher income(Tidd & Hull, 2003).

Virgin Mobile also focused hugely on the marketing strategy. The company has paid high attention to the way its products and services were presented to its customers. The company joined hands with a number of popular retail chains and stores to promote their products. This has resulted in higher visibility of the product and consequently, a higher sales. Since the telecom industry in the UK was already saturated, the company has decided to convert the customers of its competitors. In order to do so, the Virgin has devised strategies like lower churn rates.

Like every strategy, the strategies used by Virgin Mobiles in the UK had some pros and cons. Considering the pros first, Virgin’s strategy to enter the UK market in association with T-Mobile was very successful. It gave the brand high recognition as T-Mobiles was one of the biggest players in the UK Telecom sector. Virgin’s strategy enabled them to use the brand image of T-Mobiles to get the attention of the customers. The company had then made huge investments in opening the Megastores and other retail chains to advertise their products to a relatively larger customer base which has turned out to be a blessing for the company. Additionally, innovating its products and services acted as a boon for the Virgin Mobiles. The development of Virgin Bites has helped the company to stand out among its competitors. The company has moved quickly with the fast pacing social trend and always kept its products and services updated accordingly. Lastly, the company gave priority to first class customer experience. The company believed that customer satisfaction is one of the key objectives of the business. For this purpose, it opened well designed stylish as well as comfortable stores to make the brand experience outstanding.

There were a number of flaws in Virgin’s strategy as well. Firstly, the company follows a niche marketing strategy and focus on the small sections of prospective buyers. The identified customer target was people from 18 to 35 years of age, but eventually it was found that most of the customers of Virgin aare aged over 40 years. The company did not initially develop its own telecom expertise and stayed dependent on T-Mobile. After a number of conflicts with T-mobile, Virgin had to buy the stakes of joint venture of T-Mobiles in order to settle the legal dispute. The company has kept too much focus on providing other intangible services to the customer and did not take into consideration competition offered by new entrants like Tesco Mobile and Easy Mobile who offered voice and messaging services at a cheaper tariff than Virgin Mobile. As a result, these new entrants were able to gain a fair amount of market share.

Porter's 5 Forces Analysis of the UK Mobile Industry

There are certain suggestions for Virgin Mobile to improvise the strategy. After identifying the demographic contradiction the organization should have made changes in the existing strategy to serve the demands and expectations of this newly identified customer segment Also, after gaining the required knowledge and experience about the telecom industry in the UK, Virgin mobile should have invested capital to acquire license of the spectrum and developed its own Technical infrastructure. This would have helped Virgin Mobile to become a part of the major key players in the top telecom operators in the UK. This would has additionally helped the company to gain a differentiation competitive advantage and also to decrease the company’s dependency on Mobile Network Operators for technical assistance and infrastructure (Kris, 2017). Lastly, entering the UK telecom market as a Mobile Virtual Network Operator allowed Virgin to attain cost leadership in the industry. Virgin Mobile should have revised its pricing strategies after observing the entrance of new service providers in order to retain its existing customers and also widen its customer base. Virgin Mobile’s cheaper tariff plans would have resulted in intense competition among the existing MVNOs and hence it would discourage the entrance of new companies in the industry.

The recommendations provided in the above section are based on three areas which are target market recognition, technical advancement and pricing strategy. The company has clearly witnessed a faulty segmentation, targeting and positioning strategy. This has led to the company’s inability for exploiting all the potential customers. Two major flaws in the target market recognition were demographic and has put too much focus on the pre-paid segment. The demographic flaw was related to the fault in only considering 18-35 years old people as the target customers. This was majorly based on the company’s belief of the fact that youngsters are more inclined towards stylish and trend phones. Secondly, the company has overlooked the potential of post-paid corporate segment. This has led to the corporate segments’ joining hands with other mobile networks in the UK. Secondly as the company entered UK as a Mobile Virtual Network Operator, it did not invest much on the technological aspect of the business. Rather, Virgin has stayed highly dependent on the T-Mobile, the company’s partner for the provision of technological infrastructure and expertise. This has resulted in the delay from the company’s end in providing its customers with the latest technology in terms of products and services. Also, due to high dependence on the T-Mobile, the clash of opinions between the two companies has started occurring which has soon turned into the legal dispute. If the Virgin company would have developed their own technical infrastructure bit sooner, then this dispute could have been avoided and consequently, Virgin would not have been forced to buy the stakes of T-Mobile’s joint venture. The last recommendation is based on the failure of Virgin’s ability to revise their pricing strategy. As the new entrants like TESCO and Easy mobile entered the UK market with relatively cheaper tariffs, the company didn’t reconsider its existing pricing strategy for any such improvement. This has led to intensification of the competition and as a result of this, these new players has got hold of the market share, which could have been captured by Virgin Mobiles otherwise.

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