Friday, July 28, 2006

A Possible Marketing Strategy for XM

July 28, 2006

During the conference call XM Satellite radio announced the method by which subscribers for Nissan, Toyota, and Hyundai would be counted. In simple terms the method is that they will not be counted until the promotional period is over. Those that keep the service will become counted subscribers, and those that don't will never have been counted.

This method has a few effects:

1. There are radios out there with listing ears in promotional periods that are not counted.

2. Because XM is footing the bill for the promotional period, there is no revenue. If these subscribers were to be counted, it would have a negative impact on ARPU. By not counting them, ARPU can remain high. This is good. You want to keep ARPU as high as possible.

3. The structure of this method lessens the deactivations line item. A vehicle in this category will have never been termed as a subscriber, so thus would not be termed as a deactivation.

Now, this strategy has some big potential benefits for XM. It gives them the ability to market their service in a way that they have not really used before.

Let's assume that the promotional period is 3 months with a 1 month buffer at the end for customer retention efforts, etc.

In the first year, XM could then collect 8 months of revenue at $12.95 per month. This would equate to $103.60. This is the best overall scenerio.

Now, what if XM made the consumer an offer when they were activating their radio. An offer such as this:

" Your car comes with a 3 month promotion for XM service. If you pay for a one year subscription now, we will give you an additional 3 months free. This would mean that you would effectively get 18 months of XM service for the price of 12."

In effect, XM would reap many benefits from this method.

1. They would lock up a subscriber for 18 months (basically unchurnable).

2. They would begin to get revenue immediately to offset subsidy costs.

3. They could add this person to the subscriber rolls and count right away.

4. They would avoid the hassles associated with month to month subscribers.

5. They would effectively turn the initial activation call into a marketing call as well.

6. They would likely be able to increase the take rate.

This is just a little bit of thought into the process. Mabey XM already had this in mind......We here at SSG believe that at least this, or something similar should be explored.

7/28/2006 04:18:00 PM

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