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LIVERPOOL JOHN MOORES UNIVERSITY

GROUP REPORT

VIRGIN MOBILE (UK)

MARKETING, OPERATIONAL AND FINANCIAL PERFORMANCE

MODULE NAME : IBT

MODULE CODE : FTKMIM002

SUBMISSION DATE : 27TH November 2009SUBMITTED TO : MR. TIM HARRIS

SUBMITTED BY : GROUP 1-A

STUDENT NAME KAPLAN ID

AHSAN ULLAH C0337405

MUHAMMAD AMJAD KHAN

C0331499

RAGHBIR SINGH MATTU C0323240

SYED HAMMAD ISHRAT C0050526

TANVIR YOUNUS C0265066

UMAIR SHAHZAD C0329185

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Table of contents

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CONTENTS Page No.

INTRODUCTION 4

MARKETING 5

PEST ANAYLSIS 5-7

SWOT ANALYSIS 7-8

OPERATION’S ANALYSIS 9

OPERATIONAL STRATEGY 9

OPERATIONAL POLICY 9-10

OPERATIONAL FLOW CHART 10

VIRTUAL SUPPLY CHAIN MANAGEMENT 10

PROBLEMS WITH CURRENT OPERATIONS 11

RECOMMENDATIONS: 11

FINANCE: 12

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INTRODUCTION:

Virgin Mobile launches its operations as a mobile virtual network operator (MVNO) in November 1999.VM provides a broad range of mobile communications services to customers over T-Mobile’s network under non-exclusive, minimum ten year term, telecommunication supply agreement with T-Mobile, signed in January 2004.

Since then VM have achieved a number of significant milestones. Within a year of launch VM had over 500,000 customers and at the end of 2005 VM has attracted more than 4 million customers which are 8% of the total UK customers.

VM benefits from the strength of the “Virgin” brand and the virgin brand has a broad appeal among the UK population; in 2005 virgin was the number one most admired brand in the UK. VM offer a broad range of mobile communication products and services, including mobile voice and non voice services, including SMS, MMS and 3G, and entertainment services over the virgin mobile bites portal including games, information and music services and international roaming services.

VM offer its products and services through approximately 5000 outlets including virgin mobile stores, specialist mobile stores and independent retailers including superstores and at www.virginmobile.com.

VM employs approximately 1400 staff and has an out sourced customer service centre having approximately 200 staff members.

According to the surveys VM customers were found to be the most satisfied mobile consumers in the pre pay sector. VM is also included in “The Sunday Times 100 Best Companies to Work For” and is the part of FTSE4 Good index.

VM is the first UK Company to offer mobile and fixed line telephone, broad band internet and television putting VM in an unrivalled position in the communication industry.

VM has a policy of no “hidden costs” so there is no peak rates, no hidden charges and voice mail retrieval is free in the UK. What you see is what you get from VM.

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MARKETING:

In our analysis of the telecommunications industry of which Virgin Mobile is a part of, the PEST model to examine the external environment in the UK, i.e. if its favourable. This is discussed as follows;

Political Environment:

Virgin Mobile group is involved in providing telecommunication solutions to the UK market of consumers and businesses, and is operating successfully more than 5000 outlets. Any further growth would rely on the company’s ability to meet the local regulations of the country they desire to expand into, as employment and other laws differ from country to country. Therefore this makes it absolutely crucial for us to examine the supportiveness of the UK political environment in examining the marketing strategy.

Consumer Protection ActAccording to the legislation regulated by the Act, Virgin should comply with it at all time and should not mislead the consumers in terms of the product or solution pricing and billing. E.g. if a mobile or a package is advertised for £150, it should not be sold for a different price.

Data Protection ActVirgin must comply with the regulations to safe guard its customer’s details safe by maintaining its confidentiality and updated at all times, and should disclose it to any third parties, unless allowed by the customer. On a customer’s demand to disclose the information that the company has on them, it must disclose this information to that specific customer only.

Trade Description ActVirgin has to make sure its advertising is authentic by making sure that the features of any product advertised are the same as available on the product offered, asfailure to do this would result in the breach of law. (e.g. any phone advertised with Wifi connectivity must have the feature ).

Sales of Goods ActThe products ( phones, accessories etc) must function accurately and not damaged in any manner. Similarly, the services (talk time, broadband etc) should also be of a satisfactory nature and have reasonable rates. These must fit the criteria of the purpose of customer’s reason to buy and described accurately.

Health and SafetyThe company’s employees must be a part of a healthy environment and should not be expose to any harm whilst at work.

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Economical EnvironmentAlthough the consumer confidence is substantially affected by the recent economic downturn, this may have resulted in adversely effecting Virgin’s ability to gain new customers. On the other hand, the situation does open doors for it to acquire any distressed rival companies.

CompetitionMobile telecommunication market is saturated with many solution providers, each has their own customer base. Virgin Mobile’s major competitors include Tesco Mobile, BT Mobile, 3, Carphonewarehouse Fresh and many others. This makes it crucial to adopt a strategy that favours Virgin in attracting more customer to it than it competitors to establish and sustain its competitive advantage. However, London Olympic 2012 proposes huge prospects for the new payg users as vast population would be coming to London mainly as tourists and would require payg services, and depends on the ability of the service provide to be more attractive.

Unwanted MessagesThere has been an increased trend customers receiving unwanted messages from third party companies promoting their product through message that would be stated in a manner that the customer has won a gift and would put an un usual charge to the customer. Correct filter process must be applied to safeguard customer from receiving messages of this nature from other companies.

RadiationQuality of handsets sold must be checked by the specialised team, to avoid any bad reputation that may be caused through a mobile that contain high radiation element.

Social Environment

Younger CustomersYounger generation is more inclined toward purchasing flashy phones and are easier target of robbery and theft. This may lead to an increase in national robbery figure with the growing number of young consumers. Also a study suggests that use of mobile phones damages the health of younger genration.

Customer TastesDue to the changing nature of technology the customer would always prefer to have the latest technology and the newest design of their phone and this would place Virgin to offer new and upgraded phone.

Technological Environment

Pay as You GoMajority of consumers prefer to pay for the bill as they utilise the services including talk time, mobile internet use, games etc., for this purposes Virgin has introduced various tariffs on payg. services to suit customer demands and needs and re-address these

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services on periodical basis. Due to the advancement in technology they would also have to introduce new phones to go with the payg so that the consumer could purchase them.

Mobile AccessoriesLatest accessories ( hands free devices, blue tooth earpieces, cameras, portable car kits etc.) should be accompanied with the updated technology to meet customer demands and requirements. Since its illegal to use mobile phone while driving the need for a blue tooth compatible handset or a car kit accessory is a crucial requirement for consumers in possession of car.

Phone InternetThis compliments the day to day life of all consumers all through a device in palm. Virgin allows for this luxury through the latest handset devices.

3G PhonesThird generation technology has made it possible to video talk and faster internet browsing and many other internet features are aided through this technology, this includes watching the TV on phone.

SWOT ANALYSIS:

SWOT is a useful tool in examining the company’s strengths and weakness in comparison to the competitors specific to the market its seeing to operate in.

Strengths

Being the part of the Virgin group enjoys the benefit of having a strong brand name Seeking to the new range of well demanded smart phones (i.e. Nokia, LG etc.) with

its exceptional tariffs would attract new customers. Growth in the new sim only offers would help stimulating its market attraction. Being one of the oldest service providers has a significant customers base and is well

reputed amongst the big networks and its customer. Other than the funding from the holding company, its services and products are the

main source of its income generation. Their unique advertising campaigns and involvement in spots and music places the

company in position different to its competitors. The customer satisfaction is evident from the service they receive from the well

trained customer services and technical team at the call centre.

Weaknesses

Compared to its competitors, the range of Virgin Mobile products and services are very narrow

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Does not have it own operating network, hence it may affect the company’s self esteem

Lacks in providing the whole solution, its only restricted to its own products and services.

Only the branding and its marketing remains its main strengths

Opportunities

Innovations in new internet and technology advancement opens new door to Virgin to expand its operations

Its efficient and proven business model reflects its success in new markets If Virgin chose to broaden the portfolio of its products and services it would

prove to be an effective approach to attracting new customers

Threats

There would always remain the threat of a new entrant (e.g. Tesco, Asda) Innovations of new substitutes for communication poses a strong future threat

(VoIP, IM etc.)

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OPERATION’S ANALYSIS:

Virgin mobile UK operates as a (MVNO) and provides telecommunication services without owing a base station physical infrastructure .Being a (MVNO) virgin mobile operates a virtual network providing a broad range of mobile communications services to customers over T-Mobile’s network under a non-exclusive, minimum ten year term, telecommunication supply agreement, signed in January 2004. Virgin mobile offer a broad range of mobile communication products and services, including voice and non-voice services, SMS, MMS, 3G and entertainment services over the virgin mobile Bites portal including games, information and music services, and international roaming. These products and services are offered through approximately 5000 outlets in UK, including virgin mobile stores within virgin megastores, independent retailers including supermarkets and at www.virginmobile.com.

Virgin mobile was acquired by virgin media formally known as NTL for 962.4 million, in 2006. As a result of the acquisition, virgin mobile started operating as a subsidiary of virgin media. After the completion of this deal virgin mobile become the first UK Company to offer a “quadruple play” to customers by offering mobile and fixed telephone lines, broadband internet and television to customers.

OPERATIONAL STRATEGY:

VM’s business model was designed for a very specific group of customers. They targeted the young generation and many surveys and awards highlighted the attractiveness of VM brand and service to these customers. The success of the virgin’s MVNO model depends:

To enhance existing customer base to get more customers at a lower cost and virgin is acquiring these customer through prepaid customer base.

To reduce churn rate through brand loyalty, excellent customer services and new entertainment bites.

To introduce more distribution channels to generate more revenue. Main comparative advantage of VM operational strategy is reduced cost and brand

loyalty and this is coherent to the business strategy of the VM business strategy.

OPERATIONAL POLICY:

Although VM has its own store but the main focus is to sell through web site and through other independent retailers including superstores and specialized third party mobile outlets. Mobile store specialists accounted for approximately 42% of new VM customers. An essential component of VM’s brand strategy was to provide superior customer services.VM consistently received the highest ratings in the UK mobile market for its customer care.

The drawback of being adopting this sales distribution network except website, call centre, own retail store and specialised mobile store is that it can be more complicated to manage and even in worst case can damage the company brand through bad customer service.

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If for any reason group lost the right to use the virgin brand, it would also lost the right to use the T-Mobile’s network and trigger a default, which could result to cease the business. At the same time, the group is also under an obligation to use the virgin brand, restricting the group ability to operate other than under the virgin brand.

OPERATIONAL FLOW CHART:

Revenue Stream

Physical or information Stream

The operational flow chart shows the revenue stream and physical and information stream between VM, T-Mobile and the others.

VIRTUAL SUPPLY CHAIN MANAGEMENT:

Currently VM is using a “virtual supply chain management system” which provides solutions focused on the customers, business to business communication, integration and collaboration complexities faced by VM in planning, buying, payment and tracking of their purchasing, inventory, money and information across thousands of stores, distribution centres and suppliers.

This new virtual supply chain management allows the VM to integrate and automate its former web based portals, VM enterprise resource planning (ERP) platform with its chain retail trading partners thus allowing true B2B collaboration between VM and its retail community. Chain retailers generally require supply chain data such as purchase orders, advance shipment notices and payment information’s be exchanged electronically with the supplier.

In this ever changing and fast pace wireless industry quick turnaround of customer related data is crucial and VSCMS has helped VM to keep customer service levels up to very high “virgin” standards.

VIRGIN MOBILE NETWORK (MVNO)

CONTENT PROVIDER

APPLICATION PROVIDER

T-MOBILE CUSTOMER

DISTRIBUTOR-WEB SITE, OWN OUTLETS SPECIALIZED OUTLETS, IND RETAILER

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But along these benefit there is always a risk of “Hollow corporations” or shell companies so again there is a need for VM to have its own infrastructure.

PROBLEMS WITH CURRENT OPERATIONS:

Being a MVNO Virgin Mobile requires less capital as it does not have to invest in hardware because of its partnership with T-Mobile which has a state of the art mobile network and Virgin Mobile enjoys the same scale of benefits without going into any technological risks. To set up an infrastructure involves a huge cost but the benefits and advantages having own infrastructure are tremendous.VM is dependent on the T-mobile technology and also has to pay a certain sum of money per minute to T-Mobile which can squeeze the profits for the VM. Also VM cannot operate beyond the territory where T- Mobile or any other physical infrastructure is not available.

Virgin mobile business model focuses on youth, which restricts the market for VM. Number of own operated store are also very less as compared to other competitors. There customer services are no doubt superior but they don’t have technical human resource which is also considered as a capital for organizations.

They don’t have entire control of their customers as they are in contacts with other third parties resellers.

As they are using T-Mobile infrastructure so T-mobile can track VM customers and VM churn can be increased because of those customers which are not loyal to VM.

RECOMMENDATIONS:

VM should review its business strategy and plan to have its own infrastructure because once the capital cost has recovered then it’s nothing like to have own infrastructure. They also should focus on other segments of market and plan to have more own stores in which they can sell their services.

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FINANCE:

Finance is mainly concerned with the allocation of resources acquisition and investments, it’s simply deal with matters relating to money and market.

PROFITABILITY

PARTICULARS 2005 2004 2003

Return on capital employed 75.6% 115% 140.73%

Operating Profit/EBIT £45.54m £35.72m £39.6m

Gross profit £109m £116m £97m

Gross profit ratio 39.85% 41.14% 47.54%

Expense Ratio 23.27% 29.16% 32%

Return on capital employed is a measure of the returns a company makes from its capital employed. It indicates the efficiency of a company’s capital investment and is useful to compare performance between businesses. ROCE should always be higher than the cost of capital. As VM is a MVNO so the company does not have to invest more for capital investment so the return on capital is consistently increasing through the years as the VM is getting almost 76% on yearly basis of his capital employed. As his capital expenditures are less during early years so it shows good results as above table shows.

Operating profit measures operating efficiency, it also includes VM price strategy, wage policy, control on overhead cost etc. Operating profit figures for VM shows a consistent increase as it shows the operational efficiency of the VM.

Gross profit figure is increasing through the years which also shows the operational efficiency but during 2005 there is a decrease of 7M and its because of high churn rate during the year.

Gross profit ratio is decreasing as the sales are increasing and the gross profit is not changing as compared to the sales so there is a decrease in gross profit ratio which shows the operational efficiency of the business.

Expense ratio shows a decreasing trend in expenses which shows that the company successfully control expenses as the sales are increasing and on the other hand expenses are decreasing so this also shows the operational performance of VM.

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GEARING RATIOS:

PARTICULARS 2005 2004 2003

TOTAL LOAN TO EQUITY 0.94% 1.32% 3.74%

INTEREST COVER RATIO 5.83% 4.65% 7.89%

These ratios show the financial risks to the VM. Total loan to equity ratio decreases from 2003 to 2005 for VM which shows that the financial strength of the VM is very good because VM equity is getting higher than the loans he has to pay.

Interest cover ratio shows that how easily company can pay his interest out of his profit. In 2003 company has to pay more for interest out of his profit but this ratio decreases in 2004 and again increases in 2005 which shows that the VM is not efficient in getting loans or may be the management has to change his strategy to get long term loans instead of short term loans.

LIQUIDITY RATIO:

PARTICULARS 2005 2004 2003

CURRENT RATIO 0.37 0.43 0.61

ACID TEST RATIO 0.33 0.39 0.56

Current ratio is commonly used to measure the short term solvency of the company. The higher the ratio, more liquid the company is. Moreover an excess of current assets over current liabilities does not mean that the debts can be paid easily, if current assets contains a high proportion of bad debts or doubtful accounts or unsalable inventories there will be a slowdown in cash flows. So this ratio should always be analysed in conjunction with the

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nature of the current assets and current liabilities and also the balance between short term loans and short term debts be considered.

Quick ratio measures a company’s ability to meet its short term financial obligations with its liquid short term assets. Both above ratios for VM in year 2005 shows that the VM liquidity is adverse but it may be due to the purchase decision of T-Mobile share by VM.

WORKING CAPITAL

PARTICULARS 2005 2004 2003

STOCK TURNOVER PERIOD 11.4days 7.2days 15.4days

DEBTOR COLLECTION TURNOVER 48.2days 16.9days 29.8days

CREDITORS PAYMENT TURNOVER 111days 170days 292days

Stock turnover period shows that how much an inventory take time to be sold. Fewer days means that the supply chain management is working properly. VM is an MVNO and is selling services so stock turnover ratio should be within limits.

Debtor’s collection turnover is the time after which the VM receives money from its debtors. As more than 65% of the total revenue of VM is coming from monthly contracts and payments from the customers came after one month so a debtor turnover within 30 days is feasible for VM. In 2003 and 04 this turnover was quite good but in 2005 it is around 50 days which may lead to liquidity crisis for the VM. So the management should recommend and implement solid policies for the collection of the debts.

Creditor’s payment turnover shows that after how much time average creditors are paid. Being an MVNO, VM doesn’t have to deliver any stock except contracted mobile phones to its customers and mostly the contract for receiving services from the vendors are on annual basis. A decrease in time period in 2005 from 292 days to 111 days shows that the company has enough liquid assets to clear its debts and may be this is the reason for VM weak liquidity ratios.

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APPENDIX

Virgin Mobile’s 7 P’s of Marketing:

1. Product

Virgin offers various services to its customers. Its Flex can be topped up with e-voucher or through a debit or credit card over the phone or internet. It was one of first networks to offer free voicemail services, and rollover minutes facitity. A few of its successful products include the Bites.

Virgin has a reputation for pushing its internet operations and through this enjoys the reputation of offering cheaper rates by cutting the costs associated with retail outlets. However, with this it also lack on the value creation through customer interaction. It has always used T-Mobile platform, this model can be copied by anyone.

2. Price

The tariffs are structured in such a way that the price charges decrease as the call usage increases, and have adopted a fairly simple model that totally follows the transparency. This maintains customer loyalty and makes the network more attractive towards other users. Also the texts between the same network is £0.03 compared to the cross network charge of £0.10, hence promoting the use of it network among larger group.

3. Place

The focus on the visual merchandising in its stores and monthly change to its outlet looks makes the outlet more attractive for the customer to aid their shopping experience. Another factor that complements its success is its efficient distribution network that is structured on around six thousand outlets and the other more than fifty thousand outlets selling its airtime.

4. Promotion

Virgin Mobile allocated one third of its annual budged towards marketing, and uses all the marketing channels involving the internet, television, radio, door to door advertising etc. ‘Vfestival’ is one of the form of its innovative advertising and has proved to successful. However the recent market condition does not place Virgin in a position to have the same advertising budget as it has in the past and the areas of innovative and cost effective marketing still need to be explored.

5. People

Virgin invests heavily on training and developing its staff, so the customer receive excellent customer services experience. However, the point of contact for the customer

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still remains its café’s or its call centres. But the staff is only allowed to go live with a customer only after a certain specialised training.

6. Process

Its customer benefits from its cost efficient structure, as most of it is automated and does not require any human involvement. Its internet website may be efficient of not involving the usual queues and delivers an excellent service; However, this lack of interaction may lead to people not experiencing the service of personal care.

7. Physical Evidence

Virgin has been involved in implementing the business strategy based on the targeting the market niche during the first few years of starting its operations and remained highly focus on its targeted market segment.

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REFERENCES

Justus Haucap, June 2006, “Competition Policy and MVNOs”, ITU/BnetzA JointWorkshop Mainz

Malcolm Alder and Dominic P Arena, January 2006, “Jumping on the MVNO brandwagon : How niche can you get?”, KPMG Whitepaper

Peter Falshaw, December 2006, “MVNO Business Model and Market Opportunities”, presented in 3G World Congress, Singapore.

http://investors.ntl.com/phoenix.zhtml?c=135485&p=irol-reportsAnnualVirgin http://www.ntltelewestbusiness.co.uk/news__events/case_studies1.aspx http://www.fmsukltd.co.uk/case-studies/virgin-mobile-retail/ http://www.virginmobile.com/vm/home.do http://www.virgin.com/company/virgin-mobile-uk/ http://en.wikipedia.org/wiki/Virgin_Mobile http://mobileweb.virginmobile.com/virgin.mobileweb/ http://www.mobileshop.com/mobile-phones/virgin-mobile/contract-mobile-

phones/index.php http://www.qlogitek.com/en/resources-and-community/news/08-11-06/

QLogitek_integrates_and_automates_trading_partner_processes_for_Virgin_Mobile.aspx

http://www.retail-week.com/virgin-mobile-unveils-high-street-offensive/ 103994.article

http://telwares.wordpress.com/2009/07/30/sprint-and-virgin-mobile/ http://www.mobile-weblog.com/50226711/

virgin_mobile_releases_two_very_budgetfriendly_phones.php http://production.investis.com/about/us/management/