Question 23

Richard Branson’s Virgin Group is expanding once again. Following on from his success in markets such as airlines, cosmetics, financial products and music, to name only a few, he has recently launched a mobile phone company, Virgin Mobile.

Branson believes that consumers have lost out through the existing mobile phone market because of high costs and overly complicated tariff systems. His new venture, set up in conjunction with One2One, sets out to change that. In contrast to many packages, Virgin Mobile has no monthly line-rental fee and call charging is straightforward (see Appendix). In terms of cost, the average phone user’s bill should fall by a third.

In addition to these benefits, Virgin Mobile is offering customers a number of other services. Going by the name Virgin Xtra, phone users will be able to book holidays, flights and train tickets, receive warnings about traffic jams, listen to and order music and get details about entertainment listings. They will also be able to use e-mail.

New customers can buy Virgin phones in Megastores, Our Price, over the Internet and by phone. Some may even be able to change over their existing phone for a cost of £12.50, which includes £10 worth of calls.

(Adapted from Ben Hammersley, The Times Interface, November 15 1999)

Appendix

Example Phone Tariffs for Virgin Mobile and BT Cellnet. (From Dixons Communication Buyer June 2000)

	Virgin Mobile	BT Cellnet 30	BT Cellnet 120	BT Cellnet 250
Subscription per month	Free	£17.50	£25.00	£40.00
Free calls per month	-	30	120	250
Call charges	1st 10 minutes 15p per minute 2nd 10 minutes 10p per minute After that 5p per minute	Daytime 30p per minute Evening 5p per minute Weekend 2p per minute	Daytime 25p per minute Evening 5p per minute Weekend 2p per minute	Daytime 18p per minute Evening 5p per minute Weekend 2p per minute

Question 3 continued

Questions

1. a) Explain what you understand by the term ‘market segmentation’. (2 marks)

b) Outline how BT Cellnet has segmented the mobile phone market. (4 marks)

c) Suggest reasons why BT Cellnet has chosen to segment the market. (6 marks)

2. a) Describe the differences between the services offered by Virgin Mobile and BT Cellnet.

(3 marks)

b) Evaluate the advantages and disadvantages of the approach taken by Virgin Mobile.

(10 marks)