BA 4700 MARKETING MANAGEMENT L.P CHEW ORAL PROJECT PRESENTATION

Company Overview XM Satellite Radio Inc., an emerging force in broadcasting, was incorporated in Prompted by technological change satellite radio quickly became the third choice for radio listeners. Prompted by technological change satellite radio quickly became the third choice for radio listeners.

Company Overview XM delivers its coast-to-coast, digital- quality service with more than 150 channels of music, news, talk, radio, sports, comedy and children's programming. 100% of XM's 67 music channels are commercial-free, while only some of the third party programming channels air commercials.

Company Overview What kind of business is this? -XM is a brand new way to listen to radio -It makes use of advanced satellite capabilities and novel receiver architecture to deliver a wide array of high audio programming worldwide -provides access of explicit opinion and open discussions What decisions will be made? -two business models to pursue: 1. Management needs to decide whether emphasis should be placed on charging end-customers a high monthly subscription fee or whether to rely more on the sale of airtime advertisers 2. Management has to consider the value XM radio creates for different consumer segments as compared with existing modes of radio, namely AM and FM, and in relation to its sole competitor in satellite radio, which is namely Sirius. 3. There is also a need to figure out how to explore how best to balance out the manufacturer and channel partners

Company Overview Who will make them? -Robert Acker and Hugh Panero, both President and CEO and Vice President, will make the most important decisions of the company -They need to develop a type of marketing strategy for the new radio service. -Other decisions that may influence decision of the two would be stakeholders, customer feedback, annual sales and his exec. Committee Why is this decision important? -The commercial success of any innovation will ultimately lie in its ability to create value for other segments. -Decisions need to be based around the fact that all of this new technology that is used needs to be in such a way that the consumers need to maintain to perceive and want to always know about -Every new idea or decision could be a new implication that takes XM radio to a higher lever of positioning in the industry

Company Overview What are the potential consequences? -XM radio needs to figure out which direction that they are going (they need to focus upon which type of media that they are going to cover) -Some consequences could be that they just are not going to be continually accepted in the public -Another consequence is that it may be legally difficult to reintroduce advertising in the future because of individuals who signed to the service early on. -Another consequence is that seeing as though there are not any commercials, consumers will have to pay more on the dollar for XM radio -Another consequence would also would simply be reaching out to the general crowd.

Problems Should emphasis should be placed on charging end-customers a high monthly subscription fee? –Or Should they rely on the sale of airtime to advertisers to cover costs?

Problems Should they offer price promotions to get customers interested? Should the units be geared toward household use or car? What kind of demographics and geographics should they target?

Problems How much should they charge for subscription? How much for the hardware? How should they generate interest and how should they penetrate the market? What about their competitors?

Reasons for Decision You do not want to alienate your customer base by charging to high a fee for use of this product, but you want to maintain your stance on commercial-free radio, while still covering the costs of the expensive operation.

Phase 2: Situation Analysis 1. Corporate Level Situation Analysis Corporate mission and objectives- To introduce a radical new way to listen to the radio Resources and Competencies- Nationwide coverage, high audio quality, and new satellite technology Environmental problems and opportunities- Demographics- -The gender and age matter for the welcoming of XM radio -Demand seems to peak at the receptive ages of and up age group would be less concerned about the costs and less risk to trying out XM radio. They are more secure in their financial status and have a regular cash flow. Socio-Cultural- -The year old group are a bunch of individuals that have a steady job, work mainly during the day, who commute to work and are heavily involved with “night life”

Situation Analysis Economy- -It’s a definite market to cater to thin in car listeners who mainly commute to work through automobile -The segment would typically be in the car in the morning hours and evening hours -Consumers who buy fancy cars that are fully loaded with the latest and most recent features may see XM radio as a true way too spice up their car. -Its less likely that there would be too much home usage of this material. The only true way that it might be relevant inside the actual household would be too true music listeners who would like too listen to a specific sound Technology- -Early adopters are the types of individuals that XM will believe too attract in the very first years. -Individuals that are very technological savvy and always have too have the latest thing -For example, to increase sales outside of the actual automobile, XM radio came up with a strategy of making a type of hand held radio that can plug into your home, office or even automobile

Situation Analysis Competition- -FM radio -AM radio -Sirius radio Product level situation analysis- Market analysis Who buys? Commuter and mobile technological savvy consumers Why do buyers buy? Long drives, XM offers more choices of various types of radio stations, higher quality, and no more commercials How do buyers make choices? 1. Price in comparison to competition 2. Number of different alternatives that other Satellite radios offer

Situation Analysis Determine the basis for Market Segmentation? -sales shifting to in-home -music appreciation -younger ages will definitely prefer the new trends Identify potential target markets? College undergraduates Recent graduates Commuters COMPETITIVE ANALYSIS Direct comp.- Sirius Satellite radio, AM/FM radio stations

Situation Analysis Likelihood of new competitors- -Considering pioneering advantages and the fierce competition between XM and Sirius -It would be tough for a new competitor to be a major player in the market Stage in Product life cycle- Rapid Growth Market Assess pioneer advantages- -Early acquisition of subscribers -Only a few would need two satellite radios -Establish brand recognition early Intensity of competition- -Competition is extremely fierce as XM enters a new market and competes directly with Sirius radio. -They also have to compete with regular radio being free

Situation Analysis Competitors advantages and disadvantages- -Regulars radio is free -Sirius is 100% commercial free, has lower marginal costs, and a lower pricing structure Market Measurement- Market Potential $24 per listener a year 900,849 X 24 = 21,620,376 Determine relative potential of each geographic area- -There seems to be more potential in rural areas due to lack of music selection and travel greater distances on a day to day basis. -Urban areas have greater music selection, commuters travel less and there is a great deal of more public transportation.

OBJECTIVES MAINTANE POSITION AS MARKET LEADER MAINTANE PRESENT CUSTOMER GAIN NEW CUSTOMERS

ALTERNATIVE COURSES OF ACTION 1. STATUS QUO 2. INCREASE ALL ADVERTISING 3. INCREASE ADVERTISING TO XM RADIO’S SPECIFIC TARGET MARKETS 4. TARGET SIRIUS’S CUTOMERS 5. DECRASE PRICES 6. CHANGE PRODUCT (REDUCE ADVRTISING, OFFER MORE CHANNELS)

ALTERNATIVE COURSES OF ACTION 6.OFFER PROMOTIONS 7. GAIN & CEMENT REALTIONS WITH KEY PLAYERS: 1. PIONEER 2. ALPINE 3. SONY 8.BUILD IN SWITCHING COSTS

Recommendation: COURSE OF ACTION 1) INCREASSE ALL ADVERTISING A GEOGRAPHICAL INCREASE INCREASE ADVERTISING ALL OVER THE COUNTRY NOT ONLY IN SPECIFIC TARGET MARKETS SUCH AS SAN DIEGO AND DALLAS/FORT WORTH. A PRODUCT LIFE CYCEL INCREASE BEGIN ADVERTISING NOT ONLY TO THE PEOPLE WHO ARE ADVENTUROUS AND WILLING TO BUY A NEW PRODUCT BUT TO THE FOLLOWERS WHO ARE A MUCH LARGER TARGET MARKET.

4)TARGET SIRIUS’S CUSTOMERS DEVELOP ADS THAT ATTRACT SIRIUS’S CUSTOMERS –XM’S ADVERTISING IS VERY LIMITED THIS IS A BIG DEAL BECAUSE IT IS SIRIUS’S COMPETITIVE ADVANTAGE THE FACT THAT XM HAS MORE CHANNELS (100 COMPARED TO 60), THE PRICE DIFFERENCE ($3 LESS FOR XM)

4) REDUCE THE PRICE REDUCE THE MONTHLY FEE OF $9.95 –THIS WOULD BE POSSIBLE BECAUSE THE UNIT VARIABLE COST IS VERY LOW AND THERE HAS BEEN SUBSTANTIAL GROWTH. –THE GROWTH CAUSES THE FIXED COSTS TO BE SPREAD MORE WIDELY. WHICH INCREASES THE CONTIRBUTION MARGIN AND ALLOWS XM TO REDUCE THE PRICE.

9) BUILD IN SWITCHING COSTS OFFER DISCOUNTS FOR RETURNING CUSTOMERS –EACH TIME YOU RESUBSCRIBE YOU CAN SUBSCRIBE FOR LESS THAN YOUR ORIGINAL SUBSCRIPTION –THE MORE YEARS YOU SIGN UP FOR THE LESS THE SUBSCRIPTION SHOULD BE.

KEY ASSUMPTIONS FIXED COSTS ARE A HIGH PERCENTAGE OF COSTS VARIABLE COSTS ARE A SMALL PERCENTAGE OF COSTS IT IS 2003 THE COMPANY HAS BEEN IN BUSINESS FOR 2 YEARS THE HIGHER THE NUMBER OF CUSTOMERS THE MORE XM CAN CHARGE FOR ADVERTISING

THE ACTION PLAN To increase the number of users by 100 each month and achieve market leadership over Sirius. –Start focus groups in other regions to find out what people want and expect from a satellite radio in those regions. –Offer a promotional price break in those regions to take some of Sirius's customers and peak the interest of new buyers without lessening the value of the radio.

Alternatives Create new channels that sir music that most radio stations do not play due to lack of popularity. Positive – Gain more subscribers interested in hearing the music offered and become known as the place to go to get your music heard. Negative – Not enough demand to support the channel, then XM will lose money on marketing a failed channel.

Become completely commercial free on all music channels. Positive – Allows them to compete with Sirius Radio and people will switch from regular radio to avoid the commercials. Negative – It will be hard to add commercials in the future. Most people don’t mind a few commercials, rates charged to consumers may raise to make up for the lost revenue from the commercials.

Continue to put commercials on some stations. Positive – Allows the price charged to consumers to stay lower, allowing some stations to remain commercial free. Negative – Some people want a commercial free listening experience for the money they pay. Sirius doesn’t put commercials on its music channels.

Industry Sales Trends: Hardware will cost $ to manufacture The retailers want to make a 30% margin The manufacturers set the price to the retailer and the retailersets the price to the consumer Wholesale cost from manufacturer to retailer: 270/.7 = $ Retail cost from retailer to consumer: 386/.7 = $550.00

Forecasts 1-5 years: Satellite radio will continue to be successful with XM radio being at the forefront 5-10 years: New barriers to entry will begin to develop and produce alternative ways in which satellite radio will become way more advanced. Some are already here. For example, the I-Pod will almost certainly be a force to deal with. In addition to that, more and more advances in technology period.