XMSatelliteRadio:CompetingintheNewDigitalWorld

TeachingNote
CaseOverview
This case examines XM Satellite Radio Inc., the leader in the satellite-delivered radio market.
XMs founding was promoted by the radio industrys first major technological development since
the popularization of FM radio in the 1970s the transmission of radio signals by satellite. XM
launched its satellite radio service nationally in November 2001 while Sirius, its only direct
competitor, launched its service in June 2002. The challenge facing both companies has been to
sell consumers on the concept of satellite radio which requires the purchase of a receiver unit and
payment of a monthly subscription fee for the service. The two companies are engaged in a battle
for subscribers and technological leadership and have spent large sums of money over the past
two years to acquire programming for their satellite systems. Many analysts predict that the two
companies will have 18 to 20 million subscribers by 2010. By the end of the second quarter of
2006, XM had 6.9 million subscribers while Sirius had 4.6 million. While XM and Sirius
continue to compete with one another, they also are facing competition from other digital-based
technologies including MP3 players such as the immensely popular Apple iPod, Internet radio
and developments that are occurring among traditional terrestrial AM and FM radio stations.
The case provides a brief history and overview of XM and its programming content.
There is also a discussion of the integrated marketing communications program used by XM to
create awareness and generate trial when its new service was launched, including media
advertising and demonstration programs that made it possible for consumers to experience the
benefits offered by satellite radio. The case also includes a discussion of the competition XM is
facing from Sirius, as well as other digital technologies. It concludes with a section on the
current status of XM and the challenges the company faces as it struggles to attract more
subscribers and achieve profitable growth. This case is based in part on an interview with Steve
Cook, Executive Vice President Automotive for XM Satellite Radio, who joined the fledgling
company shortly after the launch of the service.

The case illustrates how classical consumer

package goods marketing tactics can be successfully utilized to generate trial and repeat purchase
in a different type of industry. The case also shows that as with all new product introductions,
there is a learning curve regarding integrated marketing communications strategy and tactics.
We recommend using the case with Chapter 11 of the text which deals with Broadcast
Media. IMC Perspective 11-4 introduces students to the digital revolution that is impacting the
radio industry. In teaching the case, the focus should be on the challenges facing XM in terms of

integrated marketing communications and what the company needs to do to continue to attract
subscribers and compete with Sirius. In addition to media advertising, both companies are using
a variety of sales promotion tools such as rebates, price deals, spiffs and other tactics to attract
and retain customers. The case can also be used as the basis for an interesting discussion
regarding developments in the radio industry and how satellite, as well as traditional terrestrial
radio, is being impacted by new digital technologies. A number of ads and collateral material
used by XM Satellite Radio are available in the accompanying power point file for students to
examine as they prepare the case. You might also encourage them to visit the companys web site
at www.xmradio.com for current information on XM satellite radio.

DiscussionQuestions
1. Which competitors should XM target in the future: Sirius, terrestrial radio, MP3
players and podcasts, or Internet radio?
Sirius Targeting its only direct competitor might be the smallest opportunity strategy as
Sirius currently, and over the short term at least, has the smallest user base of all the
competitive options. Spending too much time focusing on Sirius might divert attention from
the larger, more important job facing XM which is growing satellite radio as a viable product
category. Moreover, targeting Sirius legitimizes them as an alternate satellite radio form and
attacking them could undermine XMs advertising strategy which has been to position itself
as the best option to AM and FM radio. While Sirius is a direct competitor, they also are
helping to grow the satellite radio category which is important for both companies if they are
going to survive. It may be too early in the product life cycle of satellite radio for XM to
focus its attention on trying to take customers away from Sirius.
Terrestrial Radio- XM has the strongest package of benefits versus terrestrial radio and its
efforts might be best applied to pointing out these advantages which include more content
and program options, commercial free music, better sound quality, and the ability to listen to
the same programming anywhere in the country. The greatest potential for new subscribers is
in converting the huge segment of the U.S. population that currently listens to terrestrial
radio. XMs tagline, used in advertising and on their website, Beyond AM. Beyond FM.
XM. positions the brand as the best satellite radio option and as better than traditional radio.
MP3 Players - XMs advantages versus MP3 players are primarily in the ease of use area, as
XM does not require searching, downloading and uploading and there is little change
required in radio listening behavior. XM is at a disadvantage, however, because it does not
provide the customized play list and being able to listen to your own music whenever you
want as can be done with a MP3 player. XMs advantages relative to MP3 players are most

appealing to older consumers who seem to like the element of surprise radio gives them and
enjoy listening to the personalities and genre experts XM provides. Also, they may not want
to bother spending the time customizing music or other content for an MP3 player. A
campaign following this approach could be run in publications that target the older segment
of the market such as people over the age of 50.
Internet Radio - The pros and cons of XM versus Internet radio are similar to those of the
MP3 player market. However, Internet radio may be even more threatening as the streaming
format allows for real time communication of content, and doesnt require all the time
spent to download and upload listening material. However, it may be some time before
Internet radio is available in cars which is where much radio listening occurs.
Combination - If only one competitor were to be chosen, XM might focus on competing
against MP3 players by heavily marketing its combination XM/MP3 player unit. This would
provide the most benefits to the most people, both now and in the future, as the market for
MP3 players and Internet podcasting continues to explode. The combination offers the best
of both new age formats: the infinite choice of MP3 players as well as the personalities,
expertise, live content, and ease of use of XM satellite radio, including the ability to record
audio content for subsequent listening.
The best way to determine the optimal strategy is to assess:

The size of the market segments represented by the various forms of competition

The advantages XM has versus each competitor and determining whether they are
important to consumers

Projected growth rates and trends for each form of competition

New technologies on the horizon that will make XMs points of difference and
advantages versus each competitor more or less compelling in the future

2. ShouldXMtrytoappealtoalldemographicgroupsortargetspecificsegments?Ifthe
latter,whichsegmentsshouldtheytargetandwhy? Whattypesofadvertisingand
promotiontacticscanbeusedtomarketXMtothesegroups?
ThefactthatSiriusisbecominginextricablylinkedwithHowardStern,whoappealsmost
stronglytoyoungadultmales,maycreateanopportunityforXMasSiriusmaybeboxing
itselfinfromanimagestandpoint.Thisyoung,machomaleassociationisfurtherreinforced
bySiriusotherdealswithNASCARandtheNFLandgivesXMtheopportunitytoposition
itselfmorebroadlytoawideragemaledemoaswellastothefemaledemo,whichatthis
pointisunderdeveloped.Femalescurrentlymakeup35percentofXMsusersbutaccount

for 50 percent of the U.S. population. Another group XM can target with specific
programmingandmarketingistheHispanicmarket.Hispanicscurrentlymakeup15percent
oftheU.S.population;theyhavethehighestgrowthrateofanyethnicgroup,andareabove
averageconsumersofradio.SinceSiriushaslessrevenueandasmallermarketingbudget
thanXM,thecompanymaybeunabletoaffordamarketingprogramtargetingthisethnic
group.Hispanicsalsohaveatendencytobeveryloyaliftheyaresatisfiedwithaproductor
service.
3. WhatareXMsoptionsfortheiradvertisingcreativestrategygoingforward?Should
theyfocusontheircontentandprogramming,digitalsoundquality,easeofuseversus
theotheralternatives,theirinnovativehardware, acombinationof thesefactors,or
someotherattributes?
The key issue for XM is whether to pursue the same advertising creative strategy for every
market segment and demographic group or whether to customize the message based on each
user groups hot buttons and areas of interest. Decisions also have to be made regarding
points of difference that should be communicated for XM versus the competition.
The major points that can be used as the basis of the creative strategy are that XM has:
a. The best overall content due to its breadth (best for families/something for everyone)
b. The best sound quality as rated by objective sources such as Sound & Vision magazine
c. Ease of use versus MP3 players that require searching, downloading and uploading
d. The latest innovations in hardware
e. A combination of these factors
The print ads provided with the case shows how XM is positioning itself as the best satellite
radio option based on a combination of attributes such as best hardware (portability, storage
and playback features) and breadth of content (commercial free music, sports, news and talk
radio, comedy, and business programming). The earlier magazine insert that appeared when
XM was first introduced focused on the breadth of programming by showing all of the
channels. Students can be asked what they think of XMs advertising. They can be asked
what approach they might recommend as an improvement and why. XMneedstoconsider

whether itshouldhave onecampaign that ituses tocommunicate with all ofits

potentialcustomersacrossvariousmedia,orwhetheritshouldvarytheadvertising
messagebymedium.Forexample,iftargetingtheseniorpopulation,adsmightbeplaced
in ModernMaturity (themagazineoftheAmericanAssociationofRetiredPeopleandthe

largestcirculationmagazineintheUnitedStates). SuchanadmightfocusonthoseXM
channelsthatplaymusicfromthedecadesofthe1940s,1950sand1960s,FranksPlace
(thatfeaturessongsbyFrankSinatra),and/oroldtimeradiowithshowssuchasTheLone
RangerandDragnet,aswellasnewsprogramming.
To target females, XM might place ads in magazines such as Good Housekeeping, Redbook,
Family Circle, and Oprah Magazine that feature XMs programming for women such as
Oprah & Friends, Ellen DeGeneres, iVillage, and Take 5 as well as cooking, fashion, and
celebrity news. Ads aimed at the younger target audience might be placed in magazines such
as Rolling Stone, Vibe, Seventeen, and Cosmo and might feature XM programming that
appeals to younger audiences such as various music formats and its irreverent talk shows.
Advertising that focuses on hardware might be used for specific target audiences. The new
Samsung, Delphi and Pioneer products that combine an MP3 player with XM might be
featured in ads directed at the 18-34 year olds, touting the benefits most important to this
target - that XM provides the ultimate in choice.

Ad copy might focus on the unique

combination of benefits including the ability to have your own play list, the benefit of XMs
hip and cool stations that are the first to feature new artists, and the ability to record what is
heard on XM for later listening pleasure.
4.

Are there any other sampling or promotional programs that XM should pursue to
attract new subscribers and retain them?
XM is doing a thorough job of sampling the product at retail through in-store demos and in
automobiles, both with pre-purchase installations and through rental car programs. However,
there are other opportunities to allow potential customers to sample its service in
environments where they will be spending a good deal of time and be receptive to hearing
music, news, or talk radio. Two examples would be on the more upscale, Metroliner and
Acela train routes, similar to the Jet Blue and AirTran Airways programs, and in sports clubs
where people are working out. The demographics of sports clubs are desirable for XM, as the
customers tend to be young, hip, and have slightly higher incomes. The three primary ways
to impact repeat purchase should be identified:
1) Increasing the percent of free trials through new user promotions that result in
conversions or commitments to at least a one-year plan
2) Encouraging longer contract commitments
3) Encouraging users to buy multiple units for their homes, cars, boats, and family members

Students can be asked to identify additional tactics to encourage customer retention. For
example, while XM has encouraged customer retention through the pricing of their different
plan options, they could develop a buzz marketing/tell-a-friend type of promotion whereby
current users become evangelists for the product. Current users who refer a friend that signs
up would get one month of XM service for free. To maximize conversion from car dealer
programs, its important to make sure that users who have not activated the units know how
to do so and how to use the service. These people can be contacted via phone several weeks
after purchasing their new vehicles to see if they need help or have questions. To encourage
longer contract commitments, users whose initial contract period is about to expire should be
contacted via direct mail and phone and given incentives to trade-up in length of
commitment, such as a special offer on the latest hardware (like cell phone companies do).
5. What type of programs can XM develop with retailers to increase their share of
aftermarket installations?
Key to creating impact at point-of-sale is the trial/display of units that allow customers to
sample the XMs sound quality and programming. Attached to these units are marketing
materials such as brochures and signage that communicate XMs marquis programming.
Products should also be displayed out of the box, as impulse purchase decisions are affected
by the look of the products (as with Apple iPods, where the sleek/stylized look of the product
has been a key feature). Its nearly impossible to replicate the factory installation trial
programs through retail outlets, since consumers would have to purchase the hardware and
pay for the installation to try the product. If consumers choose not to subscribe, they would
be unable to return the hardware. To create excitement at point-of-sale, promotions could be
considered such as providing a free CD with the purchase of a unit and/or a CD with
commitment to a one-year subscription. This would be a win/win for retailers, as it would
both drive users into the store for the promotion and would encourage them to visit both the
satellite radio departments and CD music departments of the store. They might also consider
using a sweepstakes whereby people who purchase an XM system would automatically be
entered, or prospective customers might be encouraged to visit the companys web site to
enter. The sweepstakes prizes might include a car with a factory-installed XM satellite radio
system, the opportunity to be a guest on the show of their favorite XM radio channel host, or
other prizes such as a portable XM receiver or combination XM receiver/MP3 player.
Both XM and Sirius currently use rebates as an extra incentive for retail buyers of their
satellite radio systems. Sirius has been offering rebates of up to $100 while XM reduced its
rebates to around $20 to $30 in the summer of 2006. XM has indicated that it wants to

continue cutting the costs of its components to reduce prices rather than rely on rebates.
However, the use of rebates has been a very effective for Sirius as the sales promotion tactic
helped the company win nearly 60% of retail sales in the second quarter of 2006. XM may
have to reconsider its position on rebates if it continues to lose sales to Sirius because of the
difference in the rebate offer. Consumers may be attracted to Sirius because of the larger
rebate and retailers may find it easier to sell the brand over XM because of the cost savings.
This may result in retailers pushing Sirius over XM and may continue to be a problem unless
XM can clearly differentiate its products and programming or lower its equipment costs.
Another trade promotion tool being used by XM and Sirius is push money or spiffs, as the
case notes that both companies pay between $10 and $20 to retailers each time someone buys
a satellite radio in a store and activates it. As long as the incentive fees are equal, neither
company will gain a competitive advantage by using them. However, they may find
themselves in a promotional trap whereby neither of them can eliminate the use of spiffs
unless the other does so.
6. How can XM best combat the momentum Sirius gained from the advent of Howard
Stern?
To maximize the benefit of signing Howard Stern, Sirius focused much of their advertising
budget in the four months prior to his coming and the two months after his arrival on
promoting his show. A great deal of the advertising for Sirius continues to focus on Stern
which means there is less emphasis on communicating the breadth of their programming.
Moreover, Sirius has become inextricably linked to Stern. While Howard Stern is enjoyed by
many, the shock jock is perceived negatively by perhaps even more.

XM has the

opportunity to differentiate itself from Sirius, seem like a better value, and appear more
wholesome by focusing on its breadth of content. However, XM may have to be somewhat
careful here as their line up includes Opie and Anthony, whose program also includes
irreverent content.
7. Is there a cooperative advertising message (such as Intel Inside) that XM can further
promote with its distribution partners to increase the synergy and awareness for the
brand and its unique benefits?
XM may be able to work with automotive companies to deliver a type of
ingredient/component branding message about the benefits of having its satellite radio system
as an accessory in a vehicle. XM benefits greatly when prestigious partner brands such as
Lexus, Cadillac, Infiniti, Audi and others advertise that they offer XM Satellite radio in their
vehicles. Since XM has 60 percent of auto makers as exclusive partners, it should receive the

majority of automotive advertising that promotes satellite radio. XM might further encourage
its automotive partners to promote the availability of its satellite radio system as a factory
installed option by providing a cooperative advertising allowance.

XM might also co-

sponsor research that demonstrates the value of having XM in a new vehicle and how it
increases purchase intentions. Encouraging XM product mentions in advertising done by its
automobile partner will also help increase awareness and prestige due to favorable
associations with these brands.
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This teaching notewas preparedby Professor Michele Greenwald, Visiting Professor at
HECParis,asanaidtoinstructorsintheclassroomuseofthecase.