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October 2003

Hooking Up with Gen Y:
Boost and Virgin are Showing Major U.S. Wireless Carriers How to Tap One of the Last Big Cell-Phone Markets

Tim Girskis recently strolled into Jack's Surf Shop in Huntington Beach, Calif., looking for some Mr. Zog's surfboard wax. He came out ready to buy a new mobile phone from an upstart cell-phone provider called Boost Mobile. "Sprint PCS charged me for exceeding my minutes, so I switched," Girskis says. Girskis is every big wireless carrier's dream customer. A 21-year-old car salesman with some money to spend, he's a certified member of Generation Y, one of the only big pools of potential U.S. cell-phone users left. Unfortunately, a dream pretty much what people like Girskis remain for most carriers; in the waking world, they've had scant success landing Gen Yers, whose famed skepticism and media over-saturation make them one of the toughest groups marketers have ever wooed. AT&T, Cingular, Verizon, and others were late to target the youth market, and their scattershot marketing programs and cookie-cutter calling plans left the kids cold.

But now Boost Mobile and fellow youth enthusiast Virgin Mobile USA have begun to crack the code for marketing airtime to Gen Y. In just California and Nevada, Boost is adding an astounding 40,000 customers a month, almost all of them under 30. Virgin is signing up more than 2,000 mostly young subscribers a day. How the companies have transformed the ephemeral, intangible, and, let's face it, just plain dull cell-phone minute into a must-have symbol of hip is one of the hottest marketing success stories in business -- and provides some useful clues for growth-starved carriers. "Boost and Virgin have done a phenomenal job reaching Gen Y", says David Morrison, president of TWENTYSOMETHING Inc., a youth-marketing consulting firm. "They are just nailing it."

The companies' methods share some basic precepts. For one thing, the handsets themselves aren't the big sell; although some come in funky colors or are co-branded with edgy outfits like women's surf-gear maker Roxy, the phones aren't much different from any others. But both Boost and Virgin eschew traditional distribution channels, instead focusing on selling in surf shops, record stores, and other places where kids hang out. Credit checks and binding contracts are out: the average high school or college student has no credit history. The companies rely, therefore, on pay-as-you-go plans. Rather than receive a monthly bill, customers can purchase prepaid chunks of airtime, in increments ranging from $20 to $50, at places like 7-Eleven or Target.

Boost and Virgin are also responding to the same demographic imperative. Thirty years after the invention of the cell phone, two-thirds of U.S. adults own one , and, those who don't are expensive to attract. That's been rough on most carriers, but it has mean opportunity for Howard Handler, Virgin's chief marketing officer. Formerly head of marketing for the National Football League and MTV (where, among other claims to fame, he helped launch Beavis & Butthead), Handler has spent the last year developing a U.S. cell-phone service aimed solely at people between the ages of 15 and 24. The teen population alone is about 40 million, and with a whopping $170 million in annual disposable income, this group is a teeming sea of potential users -- in 2002, just over a third of teens owned a mobile phone. "Everyone is after them," Handler says.

Virgin was first on the case in July 2002, launching its service with a marketing slogan, posted on its website, attuned to Gen Y's antihype instincts: "Exposing young America to the joy of no bullsh_t cellular." Formed by a partnership between Richard Branson's Virgin Group and Sprint, the nation's fourth-largest wireless carrier, each of whom ponied up $150 million, Virgin's U.S. operation was modeled on its earlier push for young users in Europe. That campaign has been a smash: the European unit recently surpassed 3 million subscribers after less than four years in action, the fastest any British carrier has reached that milestone. By offloading infrastructure concerns [to Sprint], Virgin is able to stick to its forte: developing youth-focused services.

Boost Mobile takes a more lifestyle-oriented approach to reaching kids. Launched last fall, Boost advertises in print titles such as Surfer Magazine and skateboarding bible Thrasher. Most Boost subscribers in America likely don't realize that their calls are carried by Nextel, the nation's fifth-largest wireless operator and a company whose brand name, by its own admission, is a total loser with the young. "Kids see us as the brand their mom or dad uses," says Nextel COO, Tom Kelly.