Richard Branson enlisted Dan Schulman to become the CEO of Virgin Mobile USA, a newly formed start-up in highly competitive and mature industry.

One of the first tasks that Dan had to accomplish was to choose his target market. After getting loads of data from IDC and Salomon Smith Barney, and studying it for several weeks, he noticed that among consumers aged 15-29 penetration rate was around 45% versus about 50% for general population. Also the growth rate for this particular group was predicted to be strong in the next 5 years.

“Why haven’t the big players targeted this market?” Dan asked himself. One reason was that young consumers often didn’t have good credit history and didn’t pass the credit checks required by cell phone contracts. Another reason was that the cell phone companies were wary to acquire low value subscribers, because their average cost of acquiring customers was about $370 per customer and they were afraid that this group would be unprofitable for them.

Despite these challenges, Dan’s team decided that this segment of the market represented the greatest opportunity. Schulman explained: “This is a market that has been underserved by the existing carriers. They have specific needs that haven’t been met.”

After more marketing research, Dan’s team was able to compile an average profile of their target customer:

A lot of the consumers in this age group are in flux in their lives. They are either in college, they are just leaving their home, or they may be getting their first cell phone. Their usage is probably inconsistent. One month, they may not use the phone at all, and another month, they may use it quite a bit, depending on whether they are on vacation or in school.

Their calling patterns are different from the typical businessperson. They are more open to new things, like text messaging and downloading information using their phones. And they are more likely to use ring tones, faceplates, and graphics. Phones are more than a tool for these young people; they are a fashion accessory and a personal statement.

Questions:

1. What factors did Dan’s team use to choose a target segment?

2. Did they consider the ‘fit’ factor? Why?