1. Positioning & Customer Value Proposition IEOR 191 Positioning & Customer Value Proposition Class 5 Naeem Zafar IEOR 191All rights reserved © Naeem Zafar1

2. Topics Review of class 4 Class projects & team formation Customer value proposition & positioning Case: Virgin Mobile Speaker: Dave Whetstone or Rob Gray – Founding team members, Virgin Mobile USA IEOR 191All rights reserved © Naeem Zafar2

3. Who got funded? IEOR 191All rights reserved © Naeem Zafar3

4. Teams Formation & Market Research Must form (initial) teams now Update spreadsheet on team’s info Discuss with mentors to refine ideas IEOR 191All rights reserved © Naeem Zafar4

5. IEOR 191All rights reserved © Naeem Zafar5

6. IEOR 191All rights reserved © Naeem Zafar6

7. Students Wanted Tour guides Website or IT support Market research IEOR 191All rights reserved © Naeem Zafar7

8. Positioning: Customer Value Proposition IEOR 191 All rights reserved © Naeem Zafar 8

9. Do You Know Your Competition? IEOR 191All rights reserved © Naeem Zafar9

10. How to Do Competitive Analysis Google your own idea– pretend to be a user or a customer of your own product Methodically go through all ads and sponsored links See what your customers are likely to see Make sure that your offering looks better All rights reserved © Naeem Zafar 10 IEOR 191

11. Search As You Are the Customer All rights reserved © Naeem Zafar 11 IEOR 191

12. Customer Discovery Process You must understand & be clear on who is your customer – Age – Gender – Title – Income level – Buying habits – Decision making process ALL this before you have a product! All rights reserved © Naeem Zafar 12 IEOR 191

13. The Case: Positioning & Customer Value Proposition IEOR 191All rights reserved © Naeem Zafar13

14. What Bothers Cellular Customers? 1.Contracts 2.Buckets 3.Hidden fees 4.Off peak/ on-peak difference 5.Credit checks 6.Complex sales process 7.Privacy concerns 8.Poor service IEOR 191All rights reserved © Naeem Zafar14

15. Does Virgin Mobile Pass Filters? IEOR 191 All rights reserved © Naeem Zafar 15 Winning Idea! Unmet need Differentiated Positioning Market size Scalable Biz Model Why us & why now

16. 1) How should the Virgin team penetrate the US market? [what are the market dynamics?] IEOR 191All rights reserved © Naeem Zafar16

17. Market Segmentation By corporate vs. non-corporate By age- group By Income level Look for a big enough market that is being under-served & plays into your strengths Look for a big enough market that is being under-served & plays into your strengths IEOR 191All rights reserved © Naeem Zafar17

18. 2) Who Needs Them More & Why? [Segment the market & validate unmet need] IEOR 191All rights reserved © Naeem Zafar18

19. 3) How should Virgin Mobile address the needs of its target segment? [Refine product & business model] IEOR 191All rights reserved © Naeem Zafar19

20. Decision Tree Which segment is under served? Why are they underserved? What will delight this segment? How to reengineer the business model to make this profitable? How do they buy? – where do they look? What do we need to make this happen? – Partners?, Channel? Brands? Team? IEOR 191All rights reserved © Naeem Zafar20

21. Current Economics Mobile operator Cost to service Customer 21 $370 $30/mo. $52/mo. Customer Acquisition cost Year 1: $22 x 12 = $264 2 Year contract = $264 x 2 = $528 Adjusted for CAC = $528 - $370 = $158 IEOR 191All rights reserved © Naeem Zafar

22. Rewriting Telco Economics How do you change the rules to absorb high churn & still make money? IEOR 191All rights reserved © Naeem Zafar 22

23. Customer Lifetime Value Yearly Margin Contributed 1 - Annual Retention rate + Interest rate LTV = M 1 – r + i AC = Customer Acquisition Cost $22 x 12 1 - (1 – 12 x 0.02) + 0.05 $370 = $540 $370 = ($27.14) $22 x 12 1 - (1 – 12 x 0.06) + 0.05 IEOR 191All rights reserved © Naeem Zafar23

24. 4) Does the beachhead selection, channel choice & merchandizing strategy make sense? [Align resources, team composition to execute on strategy] IEOR 191All rights reserved © Naeem Zafar24

25. Analyze Virgin’s Strategy CAC – Lower phone subsidy ~$30 Current phone costs $150-$300 and subsidized by 2/3 Virgin buys at $60/$100 & can subsidize by 1/3 to match – Marketing budget per gross add ~$60 Current companies spend ~$75 to $100 per gross add Virgin planning to get 1m customer by spending $60M – Lower sales commissions /new channel ~$30 Current channel requires more time per sale person to explain plans & sign people up (costing ~$100) Virgin’s “pick it & activate” method reduces cost to $30 per phone IEOR 191All rights reserved © Naeem Zafar25

26. Virgin’s Game Plan Customer Acquisition cost Operational costs Startup costs Lower churn Lower phone subsidy, simpler channel/packaging, simpler plans, targeted advertising, no credit checks, no sales person No monthly billing (mail paper), no collection hassles (pre-pay), MVNO (lease fixed infrastructure from sprint) MTV alliance, exclusive content, hassle-free plans, no surprises, coolness factor (Virgin brand), unique features IEOR 191All rights reserved © Naeem Zafar26

27. What Happened? Launched with pre-paid plans No contract No peak/off peak No long distance charges 1-button access to minutes/balance Add $$ or top-up Low subsidies 25 cent for 1 st 10-min, then 10 cents/min per day No billing Reduced sales & support costs Earn loyalty (less resentment) IEOR 191All rights reserved © Naeem Zafar27

28. What Happened? Reached 1M users within 1 year $500M run rate after 18 months Lowest pre-paid churn rate IEOR 191All rights reserved © Naeem Zafar28

29. Success! IPO in 2007 raises $412M Virgin had 5.2 million subscribers spending ~$20 a month IEOR 191All rights reserved © Naeem Zafar29

30. Final Chapter On July 28, 2009, Sprint agreed to pay $483 million to purchase the rest of Virgin MobileSprint – Sprint owned 13.1% of Virgin before acquisition – Virgin Group owned ~ 28% IEOR 191All rights reserved © Naeem Zafar30

31. Customer Lifetime Value (LTV) LTV versus LTR (Life time revenue) IEOR 191All rights reserved © Naeem Zafar31

32. LTV is More Useful than LTR Gross profits matters Coffee example – LTR: $4 x total purchase (4-years = 750 cups) = $3000 – LTV: $3.15 x total purchase (4-years = 750 cups) = $2,362 PayPal – LTR: $100/transaction x 250 Tr.= $25,000 – LTV: $3/transaction gross profit x 250 trns. = $750 IEOR 191All rights reserved © Naeem Zafar32

33. Key Concepts CAC LTV Churn Market size All Rights Reserved (c) Naeem Zafar 201633

34. Take-Aways 1.Positioning requires intense customer & market knowledge 2.Immerse yourself in user experience to see positioning 3.Observe, not just ask users 4.Identify your user & your customer to a much finer level that you may have thought IEOR 191All rights reserved © Naeem Zafar34

35. Next Week Business Plan Deliverable: First draft of the Executive Summary (1-3 page WORD document) Gate 1 Class Activity: For the second half of the class, there will be breakout sessions to permit the groups to present to the mentors and instructors their business plan opportunity. Each team will present their business idea, market research and customer discovery results in a 5-6 minute PowerPoint presentation. IEOR 191All rights reserved © Naeem Zafar35

36. Guests: Founders Virgin Mobile Dave Whetstone, dwhetstone@brandmobility.com dwhetstone@brandmobility.com – Founder & CMO – Virgin Mobile – VP Global Marketing WebEx – CMO MobiTV Rob Gray, rgray@brandmobility.com rgray@brandmobility.com – VP Consumer marketing– Virgin Mobile – VP Visage Mobile – Head of marketing: Peek & Brand Mobility IEOR 191All rights reserved © Naeem Zafar36