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Seeing the potential of digital broadcasting the American Mobile Satellite Corporation created a new division of the company called American Mobile Radio Corporation (AMRC). This new company AMRC was one of four other potential digital broadcasters to apply for a license which would give them the potential to broadcast digital radio to the United States. AMRC (also known as XM radio) were granted a license to broadcast digital radio, it was It was one of just two licenses the FCC granted, the other going to a firm called CD Radio, Inc. (now known as Sirius Radio), which had been working since 1990 on developing the digital radio concept (Uhle, 1998).
In 1998, AMRC announced that it will it will exercise a $52.9 million option to upgrade its two satellites supplied by Hughes Space and Communications International, Inc. (HSCI), to the "Max Power" HS 702 geostationary satellites, potentially doubling the capacity of its system. AMRC state "It is the new standard for robust communications networks. This move dramatically strengthens AMRC's ability to better serve the marketplace" (Andrews, 1998). Sirius Radio also launched its satellites to serve the market place and the battle for consumers began.
Since their conception there have been many internet and blog discussions over who is the best digital radio station and many comparisons have been made. Both companies provide both goods (radio receiver) and service (the music and entertainment stations provided). Both of these products have to be able to satisfy the customers’ needs, bearing in mind that all customers have different needs (Pride & Ferrell, 2008).
“The quick pace of developing technologies and increasing competition can make it difficult to gain strategic competitive advantage through physical product alone. Customers are becoming more demanding. They not only expect excellent high quality goods; they also expect high levels of service along with them” (Lee & Carter, 2005:253).
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Since the initial startup both companies provide compact radio receivers that fit nicely into all vehicles. Sirius has seen the automotive customer as the biggest target for the digital radio. XM however has seen everyone as a potential consumer and as such has provided both the in vehicle radio system as well as a home and for listening on the go. Although it would appear that Sirius were also quick to see the potential and provide more goods and both companies now provide small portable digital radios, such as the Sirius S50 portable and the XM’s choice of the Pioneer Inno or the Samsung Helix (Lyndall, 2006).
Both companies provide in car systems to a variety of vehicle manufacturers who offer the radio to the consumer as an addition to the vehicle they are buying. XM radio also has their service on three airlines, jet blue airways, Air Tran Airways and United Airlines; this may entice new customers who listen to the sound on a long haul flight (RadioSatellite, 2007). Although the hardware is important and consumers have their aesthetic preferences it is the actual service provision that will attract consumers, the ‘total product’ as the company is selling the satisfaction use or the benefit the consumer wants (Perreault Jr & McCarthy, 2006).
XM is reported to have 170+ channels, 90+ of those channels are streaming entertainment, where Sirius only has 165+ channels 80+ of those channels streaming. This gives a slightly wider choice to the consumer, this helps to establish the product differentiation. The perception that XM offers more choice over Sirius is critical in swaying the consumer to buy that product. Product differentiation is the public’s perception of one product compared to another competing product. Perceived differences might include quality, features, styling, price or image (Pride & Ferrell, 2008).
Pricing is always a very important issue especially when the services provided are very similar and in some cases identical. XM originally charged $9.95 a month for a single account; Sirius was $12.95 which would have probably attracted some of the 7.5 million subscribers to XM radio, which is currently 2.5 million more than Sirius. XM also allow up to 5 radios to be used on a family account at $6.99 a month, Sirius only allow 4 for the same price (RadioSatellite, 2007).
A consumer concern with XM is the fact that they have advertisements on some of their entertainment channels. This is obviously to increase the company profit which allows for improved goods and services to the consumer. However, Sirius does not have any advertising on any of its channels and consumers have argued that this makes listening more enjoyable, their favorite music, talk or sports channel is not interrupted by advertisements. Even with consumers disliking radio advertisements, Radio advertising across the US manages to attract around $20 billion a year, so it is obviously worth some of the consumer’s disapproval (King, 2008).
It would appear that the services offered from both stations is very similar and often it is down to the personal tastes of the consumer whether they prefer the Sirius broadcast celebrities like Howard Stern or the XM celebrities like Oprah Winfrey or their favorite sports channel or talk show host. As services such as the digital radio are intangible it is harder to obtain a product differentiation than services embedded in goods. In this case, perhaps the key to product differentiation is the quality of the service that a company provides and the consistency of that quality is one of the keys to maintaining and subsequently increasing the consumers who purchase the good and services (Pride & Ferrell, 2008; Lee & Carter, 2005).
Product quality should be determined by the consumer’s view of the product. From a marketing perspective, quality means a products ability to satisfy the customer’s needs or requirements. Just because a radio station has 100 channels or 1000 channels does not mean that it is a quality product if the consumer does not want to listen to 99 percent of the channels. A radio station could have 5 channels but is highly popular because the consumer wants to listen to those channels and no other. XM radio conducted market research before it launched the radio and asked the public directly what they wanted to listen to and devoted its radio channels to specific musical tastes, in this way it provided what the customer wanted, which is in the definition of quality (Perreault Jr & McCarthy, 2006).
A large part of quality is also the customer service; XM provides customer service and support to its consumers, the down side to this is the fact that they can only be reached Mon- Sat: 6am- 2am ET and Sun: 8am-8pm ET, in comparison Sirius offers customer support and service 24 hours a day, 7 days a week, which is obviously far better for the consumer and a better quality of service for the paying consumer (RadioSatellite, 2007). Providing good customer service may be the only way that a company can differentiate its products when all products in a market have essentially the same quality, design and features (Pride & Ferrell, 2008:341).
The quality of the services for XM has impressed the consumer and they currently have approximately 7-8 million subscribers. It could be said that XM radio are in the maturity stage of their product life cycle. Although subscribers are on the increase, the industry profits are in decline due to the initial high overheads, the cost of their celebrities and the production costs of the goods they provide to the consumer. Both XM and Sirius have realized that they are in the maturity stage so before they begin to decline they have agreed to merger; Sirius will pay $5 billion for XM (Ellis & La Monica, 2007).
This merger has been approved by the US monopolies commission as they believe it will not cause a monopoly of digital radio (Ellis & La Monica, 2007). This merger will allow the new company to generate cash flow and try and recoup some of the initial overheads. It will also allow them to maintain the market share of digital radio as it does not have to compete anymore with a worthy competitor. Finally it will, hopefully, meet the needs of the customers even better as the new company can adopt some of the qualities that the other company did not provide such as 24 hour customer support (Pride & Ferrell, 2008).
The merger of the two companies creates a dilemma, what to name the new company? Both XM and Sirius are brand names and both have their own quality services that are wanted by their current and prospective consumers. To consumers the brand name is as fundamental as the product itself; consumers associate that particular brand name with the differentiation of the product from other like organizations. XM radio is an easy to remember name and easy to associate with the quality needed by the consumer and over 7.5 million consumers believe they have a quality product. Customers are loyal to XM and this is shown by the fact that they did not leave the station after the price increase, although the alternative was priced the same, so therefore it must have been the quality of service that kept the customer happy (Pride & Ferrell, 2008).
It is difficult to evaluate which is the better brand name unless you are a customer of either radio station. Every aspect of a brand is subject to a consumer’s emotional involvement, interpretation and memory. Both Sirius and XM have their own loyal customers who continue to pay their monthly fees for the service that they require. Each consumer will associate XM or Sirius with their own personal level of quality. XM can be associated with Oprah Winfrey as she is a celebrity host, Sirius with Howard Stern. Every consumer will tell you which is the better brand and why, it is for those reasons that they chose XM over Sirius or vice versa. Both radio stations have provided a quality product that is needed by its individual consumers. It will now be interesting to see what differences the merger makes to the product, goods and services, to the consumer’s satisfaction and the effect it will have on those who chose XM over Sirius or vice versa (Pride & Ferrell, 2008).
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