BA 4700BA 4700MARKETING MANAGEMENTMARKETING MANAGEMENT

L.P CHEWL.P CHEW

ORAL PROJECT PRESENTATIONORAL PROJECT PRESENTATION

Company OverviewCompany Overview

XM Satellite Radio Inc., an emerging force XM Satellite Radio Inc., an emerging force in broadcasting, was incorporated in 1992.in broadcasting, was incorporated in 1992.

Prompted by technological change Prompted by technological change satellite radio quickly became the third satellite radio quickly became the third choice for radio listeners.choice for radio listeners.

Company OverviewCompany Overview

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

Company OverviewCompany Overview

What kind of business is this?What kind of business is this?

-XM is a brand new way to listen to radio-XM is a brand new way to listen to radio

-It makes use of advanced satellite capabilities and novel receiver architecture to deliver -It makes use of advanced satellite capabilities and novel receiver architecture to deliver

a wide array of high audio programming worldwidea wide array of high audio programming worldwide

-provides access of explicit opinion and open discussions-provides access of explicit opinion and open discussions

What decisions will be made?What decisions will be made?

-two business models to pursue: -two business models to pursue:

1.1. Management needs to decide whether emphasis should be placed on charging 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 end-customers a high monthly subscription fee or whether to rely more on the sale of airtime advertisersof airtime advertisers

2.2. Management has to consider the value XM radio creates for different consumer 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 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.relation to its sole competitor in satellite radio, which is namely Sirius.

3.3. There is also a need to figure out how to explore how best to balance out the There is also a need to figure out how to explore how best to balance out the manufacturer and channel partnersmanufacturer and channel partners

Company OverviewCompany Overview

Who will make them?Who will make them?

-Robert Acker and Hugh Panero, both President and CEO and Vice President, will make -Robert Acker and Hugh Panero, both President and CEO and Vice President, will make the most important decisions of the companythe most important decisions of the company

-They need to develop a type of marketing strategy for the new radio service. -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 -Other decisions that may influence decision of the two would be stakeholders, customer feedback, annual sales and his exec. Committeefeedback, annual sales and his exec. Committee

Why is this decision important?Why is this decision important?

-The commercial success of any innovation will ultimately lie in its ability to create value -The commercial success of any innovation will ultimately lie in its ability to create value for other segments.for other segments.

-Decisions need to be based around the fact that all of this new technology that is used -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 needs to be in such a way that the consumers need to maintain to perceive and want to always know aboutto always know about

-Every new idea or decision could be a new implication that takes XM radio to a higher -Every new idea or decision could be a new implication that takes XM radio to a higher lever of positioning in the industrylever of positioning in the industry

Company OverviewCompany Overview

What are the potential consequences?What are the potential consequences?

-XM radio needs to figure out which direction that they are going-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)(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 -Some consequences could be that they just are not going to be continually accepted in the publicthe public

-Another consequence is that it may be legally difficult to reintroduce advertising in the -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.future because of individuals who signed to the service early on.

-Another consequence is that seeing as though there are not any commercials, -Another consequence is that seeing as though there are not any commercials, consumers will have to pay more on the dollar for XM radioconsumers will have to pay more on the dollar for XM radio

-Another consequence would also would simply be reaching out to the general crowd.-Another consequence would also would simply be reaching out to the general crowd.

ProblemsProblems

Should emphasis should be placed on Should emphasis should be placed on charging end-customers a high monthly charging end-customers a high monthly subscription fee?subscription fee?– OrOr

Should they rely on the sale of airtime to Should they rely on the sale of airtime to advertisers to cover costs?advertisers to cover costs?

ProblemsProblems

Should they offer price promotions to get Should they offer price promotions to get customers interested?customers interested?

Should the units be geared toward Should the units be geared toward household use or car?household use or car?

What kind of demographics and What kind of demographics and geographics should they target?geographics should they target?

ProblemsProblems

How much should they charge for How much should they charge for subscription?subscription?

How much for the hardware?How much for the hardware?

How should they generate interest and How should they generate interest and how should they penetrate the market?how should they penetrate the market?

What about their competitors?What about their competitors?

Reasons for DecisionReasons for Decision

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

Phase 2: Situation AnalysisPhase 2: Situation Analysis1.1. Corporate Level Situation AnalysisCorporate Level Situation Analysis

Corporate mission and objectives- To introduce a radical new way to Corporate mission and objectives- To introduce a radical new way to listen to the radiolisten to the radio

Resources and Competencies- Nationwide coverage, high audio Resources and Competencies- Nationwide coverage, high audio quality, and new satellite technologyquality, and new satellite technology

Environmental problems and opportunities- Environmental problems and opportunities-

Demographics- Demographics-

-The gender and age matter for the welcoming of XM radio-The gender and age matter for the welcoming of XM radio

-Demand seems to peak at the receptive ages of 25-34-Demand seems to peak at the receptive ages of 25-34

-35 and up age group would be less concerned about the costs and -35 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 less risk to trying out XM radio. They are more secure in their financial status and have a regular cash flow.financial status and have a regular cash flow.

Socio-Cultural-Socio-Cultural-

-The 25-34 year old group are a bunch of individuals that have a -The 25-34 year old group are a bunch of individuals that have a steady job, work mainly during the day, who commute to work steady job, work mainly during the day, who commute to work and are heavily involved with “night life”and are heavily involved with “night life”

Situation AnalysisSituation Analysis

Economy-Economy-

-It’s a definite market to cater to thin in car listeners who mainly commute to work through -It’s a definite market to cater to thin in car listeners who mainly commute to work through automobileautomobile

-The segment would typically be in the car in the morning hours and evening hours-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 -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.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 -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 way that it might be relevant inside the actual household would be too true music listeners who would like too listen to a specific soundlisteners who would like too listen to a specific sound

Technology-Technology-

-Early adopters are the types of individuals that XM will believe too attract in the very first -Early adopters are the types of individuals that XM will believe too attract in the very first years.years.

-Individuals that are very technological savvy and always have too have the latest thing-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 -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 a strategy of making a type of hand held radio that can plug into your home, office or even automobileeven automobile

Situation AnalysisSituation Analysis

Competition-Competition-

-FM radio-FM radio

-AM radio-AM radio

-Sirius radio-Sirius radio

Product level situation analysis-Product level situation analysis-

Market analysisMarket analysis

Who buys? Commuter and mobile technological savvy consumersWho buys? Commuter and mobile technological savvy consumers

Why do buyers buy? Long drives, XM offers more choices of various types of radio Why do buyers buy? Long drives, XM offers more choices of various types of radio stations, higher quality, and no more commercialsstations, higher quality, and no more commercials

How do buyers make choices?How do buyers make choices?

1.1. Price in comparison to competitionPrice in comparison to competition

2.2. Number of different alternatives that other Satellite radios offerNumber of different alternatives that other Satellite radios offer

Situation AnalysisSituation Analysis

Determine the basis for Market Segmentation?Determine the basis for Market Segmentation?

-sales shifting to in-home-sales shifting to in-home

-music appreciation-music appreciation

-younger ages will definitely prefer the new trends-younger ages will definitely prefer the new trends

Identify potential target markets?Identify potential target markets?

College undergraduatesCollege undergraduates

Recent graduatesRecent graduates

CommutersCommuters

COMPETITIVE ANALYSISCOMPETITIVE ANALYSIS

Direct comp.-Direct comp.-

Sirius Satellite radio, AM/FM radio stationsSirius Satellite radio, AM/FM radio stations

Situation AnalysisSituation AnalysisLikelihood of new competitors-Likelihood of new competitors--Considering pioneering advantages and the fierce competition between XM and Sirius-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-It would be tough for a new competitor to be a major player in the market

Stage in Product life cycle-Stage in Product life cycle-Rapid Growth MarketRapid Growth Market

Assess pioneer advantages-Assess pioneer advantages--Early acquisition of subscribers-Early acquisition of subscribers-Only a few would need two satellite radios-Only a few would need two satellite radios-Establish brand recognition early-Establish brand recognition early

Intensity of competition-Intensity of competition--Competition is extremely fierce as XM enters a new market and competes directly with -Competition is extremely fierce as XM enters a new market and competes directly with

Sirius radio.Sirius radio.-They also have to compete with regular radio being free-They also have to compete with regular radio being free

Situation AnalysisSituation Analysis

Competitors advantages and disadvantages-Competitors advantages and disadvantages-

-Regulars radio is free-Regulars radio is free

-Sirius is 100% commercial free, has lower marginal costs, and a lower pricing structure-Sirius is 100% commercial free, has lower marginal costs, and a lower pricing structure

Market Measurement-Market Measurement-

Market PotentialMarket Potential

$24 per listener a year$24 per listener a year

900,849 X 24 = 21,620,376900,849 X 24 = 21,620,376

Determine relative potential of each geographic area-Determine relative potential of each geographic area-

-There seems to be more potential in rural areas due to lack of music selection and travel -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.greater distances on a day to day basis.

-Urban areas have greater music selection, commuters travel less and there is a great -Urban areas have greater music selection, commuters travel less and there is a great deal of more public transportation.deal of more public transportation.

OBJECTIVESOBJECTIVES

MAINTANE POSITION AS MARKET MAINTANE POSITION AS MARKET LEADERLEADER

MAINTANE PRESENT CUSTOMERMAINTANE PRESENT CUSTOMER

GAIN NEW CUSTOMERSGAIN NEW CUSTOMERS

ALTERNATIVE COURSES OF ALTERNATIVE COURSES OF ACTIONACTION

1.1. STATUS QUOSTATUS QUO

2.2. INCREASE ALL ADVERTISINGINCREASE ALL ADVERTISING

3.3. INCREASE ADVERTISING TO XM RADIO’S INCREASE ADVERTISING TO XM RADIO’S SPECIFIC TARGET MARKETSSPECIFIC TARGET MARKETS

4.4. TARGET SIRIUS’S CUTOMERSTARGET SIRIUS’S CUTOMERS

5.5. DECRASE PRICESDECRASE PRICES

6.6. CHANGE PRODUCT (REDUCE CHANGE PRODUCT (REDUCE ADVRTISING, OFFER MORE CHANNELS)ADVRTISING, OFFER MORE CHANNELS)

ALTERNATIVE COURSES OF ALTERNATIVE COURSES OF ACTIONACTION

6.6. OFFER PROMOTIONSOFFER PROMOTIONS

7.7. GAIN & CEMENT REALTIONS WITH GAIN & CEMENT REALTIONS WITH KEY PLAYERS:KEY PLAYERS:

1.1. PIONEERPIONEER

2.2. ALPINEALPINE

3.3. SONYSONY

8.8. BUILD IN SWITCHING COSTSBUILD IN SWITCHING COSTS

Recommendation:Recommendation: COURSE OF ACTIONCOURSE OF ACTION

1)1) INCREASSE ALL ADVERTISINGINCREASSE ALL ADVERTISINGA GEOGRAPHICAL INCREASEA GEOGRAPHICAL INCREASE

INCREASE ADVERTISING ALL OVER THE COUNTRY INCREASE ADVERTISING ALL OVER THE COUNTRY NOT ONLY IN SPECIFIC TARGET MARKETS SUCH AS NOT ONLY IN SPECIFIC TARGET MARKETS SUCH AS SAN DIEGO AND DALLAS/FORT WORTH.SAN DIEGO AND DALLAS/FORT WORTH.

A PRODUCT LIFE CYCEL INCREASEA PRODUCT LIFE CYCEL INCREASEBEGIN ADVERTISING NOT ONLY TO THE PEOPLE BEGIN ADVERTISING NOT ONLY TO THE PEOPLE WHO ARE ADVENTUROUS AND WILLING TO BUY A WHO ARE ADVENTUROUS AND WILLING TO BUY A NEW PRODUCT BUT TO THE FOLLOWERS WHO ARE NEW PRODUCT BUT TO THE FOLLOWERS WHO ARE A MUCH LARGER TARGET MARKET.A MUCH LARGER TARGET MARKET.

4)TARGET SIRIUS’S 4)TARGET SIRIUS’S CUSTOMERSCUSTOMERS

DEVELOP ADS THAT ATTRACT DEVELOP ADS THAT ATTRACT SIRIUS’S CUSTOMERSSIRIUS’S CUSTOMERS – XM’S ADVERTISING IS VERY LIMITEDXM’S ADVERTISING IS VERY LIMITED

THIS IS A BIG DEAL BECAUSE IT IS SIRIUS’S THIS IS A BIG DEAL BECAUSE IT IS SIRIUS’S COMPETITIVE ADVANTAGECOMPETITIVE ADVANTAGE

THE FACT THAT XM HAS MORE CHANNELS THE FACT THAT XM HAS MORE CHANNELS (100 COMPARED TO 60), THE PRICE (100 COMPARED TO 60), THE PRICE DIFFERENCE ($3 LESS FOR XM)DIFFERENCE ($3 LESS FOR XM)

4) REDUCE THE PRICE4) REDUCE THE PRICE

REDUCE THE MONTHLY FEE OF $9.95REDUCE THE MONTHLY FEE OF $9.95– THIS WOULD BE POSSIBLE BECAUSE THE THIS WOULD BE POSSIBLE BECAUSE THE

UNIT VARIABLE COST IS VERY LOW AND UNIT VARIABLE COST IS VERY LOW AND THERE HAS BEEN SUBSTANTIAL THERE HAS BEEN SUBSTANTIAL GROWTH. GROWTH.

– THE GROWTH CAUSES THE FIXED COSTS THE GROWTH CAUSES THE FIXED COSTS TO BE SPREAD MORE WIDELY. WHICH TO BE SPREAD MORE WIDELY. WHICH INCREASES THE CONTIRBUTION MARGIN INCREASES THE CONTIRBUTION MARGIN AND ALLOWS XM TO REDUCE THE PRICE.AND ALLOWS XM TO REDUCE THE PRICE.

9) 9) BUILD IN SWITCHING COSTSBUILD IN SWITCHING COSTS

OFFER DISCOUNTS FOR RETURNING OFFER DISCOUNTS FOR RETURNING CUSTOMERSCUSTOMERS– EACH TIME YOU RESUBSCRIBE YOU CAN EACH TIME YOU RESUBSCRIBE YOU CAN

SUBSCRIBE FOR LESS THAN YOUR SUBSCRIBE FOR LESS THAN YOUR ORIGINAL SUBSCRIPTIONORIGINAL SUBSCRIPTION

– THE MORE YEARS YOU SIGN UP FOR THE THE MORE YEARS YOU SIGN UP FOR THE LESS THE SUBSCRIPTION SHOULD BE.LESS THE SUBSCRIPTION SHOULD BE.

KEY ASSUMPTIONSKEY ASSUMPTIONS

FIXED COSTS ARE A HIGH FIXED COSTS ARE A HIGH PERCENTAGE OF COSTSPERCENTAGE OF COSTSVARIABLE COSTS ARE A SMALL VARIABLE COSTS ARE A SMALL PERCENTAGE OF COSTSPERCENTAGE OF COSTSIT IS 2003 THE COMPANY HAS BEEN IN IT IS 2003 THE COMPANY HAS BEEN IN BUSINESS FOR 2 YEARSBUSINESS FOR 2 YEARSTHE HIGHER THE NUMBER OF THE HIGHER THE NUMBER OF CUSTOMERS THE MORE XM CAN CUSTOMERS THE MORE XM CAN CHARGE FOR ADVERTISINGCHARGE FOR ADVERTISING

THE ACTION PLANTHE ACTION PLAN

To increase the number of users by 100 To increase the number of users by 100 each month and achieve market each month and achieve market leadership over Sirius.leadership over Sirius.– Start focus groups in other regions to find out Start focus groups in other regions to find out

what people want and expect from a satellite what people want and expect from a satellite radio in those regions.radio in those regions.

– Offer a promotional price break in those Offer a promotional price break in those regions to take some of Sirius's customers regions to take some of Sirius's customers and peak the interest of new buyers without and peak the interest of new buyers without lessening the value of the radio.lessening the value of the radio.

AlternativesAlternativesCreate new channels that sir music Create new channels that sir music that most radio stations do not play that most radio stations do not play

due to lack of popularity.due to lack of popularity.Positive – Gain more subscribers Positive – Gain more subscribers interested in hearing the music offered and interested in hearing the music offered and become known as the place to go to get become known as the place to go to get your music heard.your music heard.

Negative – Not enough demand to support Negative – Not enough demand to support the channel, then XM will lose money on the channel, then XM will lose money on marketing a failed channel.marketing a failed channel.

Become completely commercial Become completely commercial free on all music channels.free on all music channels.

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

Continue to put commercials on Continue to put commercials on some stations.some stations.

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

Industry Sales Trends:Industry Sales Trends:

Hardware will cost $270.00 to manufactureHardware will cost $270.00 to manufactureThe retailers want to make a 30% marginThe retailers want to make a 30% marginThe manufacturers set the price to the The manufacturers set the price to the retailer and the retailersets the price to the retailer and the retailersets the price to the consumerconsumer

Wholesale cost from manufacturer to Wholesale cost from manufacturer to retailer: 270/.7 = $386.00retailer: 270/.7 = $386.00

Retail cost from retailer to consumer: Retail cost from retailer to consumer: 386/.7 = $550.00386/.7 = $550.00

Forecasts Forecasts

1-5 years: Satellite radio will continue to be 1-5 years: Satellite radio will continue to be successful with XM radio being at the forefrontsuccessful with XM radio being at the forefront

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