This report discusses the case of XM Satellite Radio from the Harvard business school making an analysis on how to market the coming product of satellite radio and the business strategy to succeed in the industry. The report is divided in questions that help see the different aspects of the case and take a closer look at how to start this company. At the end recommendations are made on what is the best way to go with the business. Only one competitor: SIRUIS company in the car radio High price to manufacture radio system, $270
Key population segment that will have higher demand for the product: 25-34 years old Principal radio manufacturers: Pioneer, Alpine, Sony Winning idea: Commercial free radio Near CD quality music Average revenue from advertising $23, taken from traditional radio data Projected revenue from advertising $42,748,927 Penetration rate 7% (Assumed) Use both home and car radio market Create two plans of monthly charges: $8 basic and $12 premium Selling price for radio system $300 Number of channels: basic 25 stations, premium 50 stations
Retailers selection: Best Buy, Radio Shack and Wal-Mart Eliminate advertising and go commercial free Associate with radio manufacturers: Pioneer, Alpine, Sony 1) What is the value proposition of XM to different consumer segments? Who should be the primary target market for XM? The value proposition of XM basically tries to attract all customers with the purchasing power of acquiring the system. What they offer is satellite radio systems without the need to re-tune the station in order to get quality sound when moving from an area to another.
Another important value proposition is the fact that the radio will contain stations for each age group and this will allow the customers to get what they want in terms of music. Other value proposition should be the commercial free idea. This idea is under consideration because of the possibility to increase revenue from advertising payments. The problem with leaving this value proposition behind is that it will take value away from the service and will be more difficult to differentiate the product from that of normal FM/AM radio.
For example if the company decides to part away from the commercial free idea the only other point of differentiation will be the quality of the sound provided and no need for tuning your radio. This idea will still look appealing for customers that drive long distances but will not draw people from the home market since there will not a lot of value added from the service. XM Satellite Radio main target audiences are: • Truck drivers • Commuter drivers • Home owners tired of traditional radio
The main focus of XM Radio and its value proposition should be mainly on young adults (25-34 years old); since the market research shown on exhibit 10 from the case shows that this group has the highest projected demand. In this exhibit we see that this customer segment accounts for a projected demand of 180,000 for men and 150,000 for women in rural areas when the price for the radio equipment is $200 and the monthly payment is $12. Also in the metro area the projected demand for Radio Satellite at a monthly price of $12 and a price of $200 for the radio equipment is 425,000 and 425,000 respectively.
From exhibit 9 we also can see that tech seekers are the ones more eager to buy the product from the beginning without a lot of hesitation. The company should focus on the younger generation. Also something that should be taking into account is people who drive across state who have to be changing the radio station they now posses every time they go to a different town. So part of the target audience should be truck drivers and people that drive into different locations to do their job.