Explain,how do the major carriers make money in this industry?

You work for a sales and pricing consultant who’s been retained by Virgin Mobile. Before the company pulls the trigger and becomes fully-committed to the U.S. market, Virgin Mobile wants your boss to review (i) Virgin Mobile’s decision to enter the U.S. wireless phone service market in the first place, and (ii) Virgin Mobile’s marketing and pricing strategy. In other words, Virgin Mobile is asking your boss to weigh in on the two essential strategy questions posed on pages 113-114 of the textbook: First, “how attractive is the industry?” And second, “how will the firm compete in the industry?” Your boss therefore has asked you to prepare a memorandum in which you do the following: 1. Provide an analysis of the industry applying Porter’s 5-Forces Model. 2. Conduct a SWOT (Strengths, Weakness, Opportunity, Threat) analysis in order to evaluate Virgin’s marketing and pricing strategy choices. 3. Based on your SWOT analysis, provide a recommendation as to which of the three pricing options Virgin should choose, focusing on (1) Virgin’s selection of a target market; (2) Virgin’s pricing structure given its target market selection; and (3) which option is most likely to create a sustainable competitive advantage. 4. Your recommendation and supporting analysis may include any applicable concepts from Chapters 4 and 5. ➢ In formulating your analysis, you may want to consider the following factors and questions: • The risks associated with Virgin Mobile’s target market selection, and why the major carriers have been so slow to target this segment. • The cellular industry is notorious for high customer dissatisfaction. Despite the existence of service contracts, the big carriers churn roughly 24% of their customers each year. Clearly, there is little loyalty in this market. • What is the source of all this dissatisfaction? • How have the various pricing variables (contracts, pricing buckets, hidden fees, off peak hours etc.) affected the pricing strategy? • Why haven’t the big carriers responded more aggressively to customer dissatisfaction? • How do the major carriers make money in this industry? Is there a financial logic underlying their pricing approach?

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