1) What is the value proposition of XM to different consumer segments? Who should be the primary target market for XM?
* Nationwide coverage with excellent audio service
* Greater variety of channels to choose from
* Availability: home as well as for people on the go
XM satellite radio’s ability to provide radio service throughout the entire country regardless of a consumer’s location. Furthermore, terrestrial radio offers limited selection and is becoming increasingly cluttered with commercials. Therefore, XM satellite radio provides a greater selection of radio for the various preferences of consumers, commercial free. Furthermore, as an added bonus ...view middle of the document...
Each manufacturer has different operating costs and desired margins. Therefore, XM needs to determine which manufacturers can provide these radios at the optimal price point for consumers. Moreover, XM needs to factor in the necessary installation costs consumers will incur for these systems will need to be put in via installation specialists like Best Buy and Circuit City. Once these factors are determined, XM will be able to better access their subscription fee.
The subscription fee is the biggest part of the equation because this will be a reoccurring fee consumers incur on a monthly basis. Since this product will be considered a luxury product, XM needs to consider their targeted demographic. In doing so, XM will have to establish a price that will be in the range of their demographics’ disposable income. This pricing point is so crucial because it could potentially eliminate hundreds of thousands of customers for the company. Therefore, based on XM’s market research I feel the best subscription price is $10 per month. I feel this is the best price because there is not as much of a drop off in potential customers from $2 to $10 based on the radio’s cost.
Obviously as with any business one of the main goals is to make every customer a lifelong customer. This is because the cost to acquire a new customer is more expensive than retaining current customers. Therefore, as the lifetime of a customer becomes shorter, prices need to rise to make up for the lost revenue. With that in mind, I would charge a cheaper subscription fee as customers continued to remain with XM satellite radio. However, since XM is entering a new market and they are unsure...