Resource Based Strategy Option 2: Target Retailers and Small Businesses with a Marketing Campaign
Presently SiriusXM relies on the auto industry to source the majority of its new customers. This reliance became an obvious crutch to the company during the recent economic downturn. As consumer spending levels experienced a sharp downturn, SiriusXM’s subscriber base also saw negative growth. An obvious strategy for mitigating this risk in the future is to diversify the company’s sources of revenue. SiriusXM has a firm grasp on the market of individual consumers in the US, thanks in large part to its strength as the only satellite radio company now in operation. A relatively untapped market for the company, however, is that of small business and retailers. This R/B strategy proposes targeting such a fertile market with intense marketing efforts.
Advertising on terrestrial radio, television, and in print that is targeted toward small business owners and retail stores has the potential to attract a substantial new customer base. This untapped customer base of businesspersons consists of managers and owners who can be made to see the benefits of offering premium listening content in their respective businesses. The biggest appeals are the variety of content that SiriusXM offers, the absence of commercial advertising included in SiriusXM’s content, and the relatively cheap price of the service when placed in the context of business expenditures. To target this segment with advertising would require SiriusXM to offer additional discounts and incentives above and beyond what the company is accustomed to offering new car buyers. The strategy SiriusXM should take in this regard is to offer small business owners and retailers free satellite radios for their places of business in exchange for a subscription commitment. There exists a void in the nebula of publicly available information as to how much SiriusXM spends to manufacture a single satellite radio unit. An acceptable approximation is $50 per unit. Assuming this cost, SiriusXM would incur steep expenses at first when implementing this R/B strategy option. However, with subscription commitments being lined up at the same time, a service price of $17 per month suggests that SiriusXM would quickly earn that marketing expense back. Further, customers would see clear appeal in saving even more than this amount, as the retail price for such units is generally much higher. Satellite radio technology is very slow to change as SiriusXM has no competitors that use similar technology. Therefore, new customers who are given free radios could potentially use those systems for several years, indicating that this type of arrangement could add to SiriusXM’s bottom line in a positive way. Save for the large up-front cost associated with marketing to this potential customer base, and the sizable cost of running a free radio promotion, this strategy presents itself as an appealing option. With the company presently boasting about its preliminary fiscal year-end 2009 financial data showing about $100m of free cash flow, additional merit is lent to this strategy (SiriusXM, 2009). SiriusXM would maintain its business level strategy of focused differentiation if it implemented this strategy option.
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