Resource Based Strategy Option: Aggressive Pricing Strategy for New & Existing Customers
The first potential strategy that SiriusXM can take to begin reorganizing its operations involves restructuring the company’s current pricing model. Currently customers can pay $17 per month to receive more than 180 channels. This package is called “the best” of the XM and Sirius networks of channels. To subscribe only to either XM or Sirius’s separate lineup of channels costs $13 per month (SiriusXM, 2009). Generally speaking, there are few other options for flexible or discounted pricing. When XM and Sirius merged operations in 2008, the new combined company was expected to realize economies of scale resulting in operating cost decreases. In short, the proposed synergies have failed to materialize in full since the merger has been completed. One aim of the merger was to cut out certain programming that would become redundant once both former companies’ content was combined. The fact that the pricing model still reflects the ability of customers to subscribe to either Sirius or XM separately should indicate that content offerings have indeed not been cut. In fact, recent new partnerships with sports, news, and business networks have increased the overall cost of providing content to subscribers. USAToday reported that Sirius and XM satellite radios are manufactured differently, making them unable to receive programming broadcast from the other provider (Lieberman, 2007). “The best” package is only compatible with new radios the company is making that can handle both signals.
Needless to say, consumers are confused by the merger, as it is difficult to understand one service from the other. SiriusXM has toyed with the minds of customers for too long, and if it weren’t the only satellite radio company in the US right now, its customer based would have shrunk along with consumers’ confidence in the company. An option the company should consider is from now on only manufacturing and selling satellite radios that are compatible with both the XM and Sirius satellite networks. This would make compatibility a non-issue, and all future customers could have access to every SiriusXM channel if they wanted it. More importantly, the company could give some serious consideration to price cuts. One of the criteria that federal regulators held the SiriusXM merger to was low prices for consumers, so that the new company would not be considered a monopoly in its industry. For the average consumer and new car buyer, $17 per month can still add up to a substantial amount over time though. Further, upfront costs to purchase the radio device and to pre-pay for subscriptions require a large outlay of capital that initially deters many would-be customers. A price point somewhere down near $8-$10 per month would seem much more reasonable to the thousands of holdout consumers who are pinching pennies these days.
Another issue facing the SiriusXM pricing model is promotions in the auto industry. Many times new car buyers are offered 6 months or so of SiriusXM service included with their purchase of the satellite radio. When the time comes to decide whether to drop the service or continue with it, a large percentage of users choose to discontinue. More aggressive pricing strategies featuring lower prices targeted at this group could potentially improve customer retention and loyalty figures in a positive way. This proposal seeks to shift SiriusXM from a focused differentiation strategy to that of best cost. Major deterrents to the plan, however, include the company’s seriously crimped cash flow and continual negative earnings. It is possible that the consumer market for satellite radio service is already highly saturated, and that more aggressive pricing would simply lower SiriusXM’s revenue figures while only modestly improving the total number of subscriptions. These risks seem to outweigh the potential benefits, making this plan a difficult choice.
SiriusXM Radio, Inc. (2009, May 7). Sirius xm radio reports first quarter 2009 results. Retrieved from http://investor.sirius.com/releasedetail.cfm?releaseid=382353
SiriusXM Radio, Inc. (2010, January 19). Sirius xm adds 257,000 net subscribers in the fourth quarter. Retrieved from http://investor.sirius.com/releasedetail.cfm?ReleaseID=438640
SiriusXM Radio, Inc. (2010, April 23). Siriusxm radio, inc. pricing. Retrieved from http://www.xmradio.com/servlet/ContentServer?pagename=XM/Page&c=Page&cid=1239034455913
Lieberman, D. (2007, February 20). How Sirius-xm merger would cut companies' costs still unclear. Retrieved from http://www.usatoday.com/money/media/2007-02-19-xm-sirius-talks_x.htm
WorldSpace Inc. (2009, December 31). Worldspace inc announcement. Retrieved from http://www.worldspace.com/index_wsmsg.html
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