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Satellite Radio Providers Sketch Out Retail Programs

Sirius Satellite Radio and XM Satellite Radio are months away from unveiling the details of their retail programs, but both companies have sketched out the broad outlines of plans that will be similar in some respects and widely different in others.

Both providers, for example, intend to simplify the selling process to be more retail-friendly than wireless phone carriers during the wireless industry’s early days.

Both will also offer unspecified “rewards” to retailers who sell their services, and at launch, both will target distribution channels composed of mobile electronics specialists and national, regional and independent electronics retailers. At the outset, both companies don’t expect to include automotive chains or general merchandise chains such as Wal-Mart.

Each company has also struck agreements with major retail chains to promote its service at launch time, and both will continue to vigorously promote the service well after launch.

In at least two ways, however, the two companies are moving in different directions. XM, for example, plans to relieve retailers of all activation responsibility, but Sirius seems ready to incentivize dealers to activate a subscription before the customer leaves the store. In addition, whereas XM plans to authorize individual dealers to sell its service, Sirius will leave it to its hardware partners to authorize retailers — with one caveat. During the launch stage, when product supplies are expected to be limited, Sirius said it will work “cooperatively” with its hardware partners to target specific retailers.

Here are the broad outlines of some of the retail policies that the two companies plan to implement:

Distribution channels: At launch, XM intends to be represented in “thousands” of retail outlets, including “larger CE retailers, regional car audio specialists” and independent car audio retailers, said Stephen Cook, senior VP of sales and marketing. Already, Best Buy, Tweeter etc. and Circuit City have announced plans to support XM’s launch in their stores, which number more than 1,000 combined.

Cook expects broad distribution at launch because the product “has very broad appeal,” but the product won’t be available everywhere at launch. For one thing, the company is focusing largely on car receivers that, “in the early years, will require installation, so we are looking for installing dealers.”

Initial car receiver distribution through automotive chains or the automotive sections of stores such as Kmart and Wal-Mart are unlikely because of the products’ initial price points, “but over time, you’ll see a broad cross-section of retail,” Cook said.

Generally, car audio products priced at $199 don’t sell well through automotive channels, car audio manufacturers have said, and car receivers are expected to be roughly priced at a $150 premium over non-satellite car radios. A universal car add-on might be available at launch at a price possibly as low as $199, Cook added.

The expected price points on a selection of XM home and portable receivers expected to be available at launch will also limit initial distribution.

“Manufacturers’ planning suggests we’ll have home, portable and car at launch,” said Cook, who foresees initial receivers priced from $249 to $599, with portables starting at the low end of that range. As for e-tailers, he said, “We’ll see. We haven’t focused on it.”

For its part, Sirius expects a launch-time dealer base of national and regional electronics chains, regional mobile electronics chains, and independent consumer electronics and mobile electronics specialists. “We’ve had discussions with virtually everyone, and we’re gauging the interest levels of the various retailers and the appropriateness of introducing something like this to their mix,” said receiver marketing VP Doug Wilsterman.

Sirius recently announced marketing alliances with CE retailers Circuit City, Best Buy, Good Guys, Sound Advice and Tweeter, and it has alliances with mobile electronics chains Al & Ed’s and CarToys. Sirius will also be featured in Crutchfield’s catalog and e-commerce site.

Initial distribution will be broad but selective, Wilsterman said, because Sirius is focusing exclusively on car products at launch, limited quantities will be available, and “in the first year, it will be more expensive than in the fifth year.” As a result, automotive chains and general-merchandise chains such as Wal-Mart “will not be factors,” although they could become factors in selling car products in three to five years.

After the initial launch, when Sirius portables and home receivers arrive, channels such as Wal-Mart will be considered, he noted, because those products have “more of a natural tie-in with those kinds of outlets.”

Sirius will also limit initial sales to outlets with assisted sales floors. “Some education will need to take place, and the ones best equipped to do that are the retailers that have floor salesmen,” Wilsterman explained. “It’s too early to introduce the category to mass distribution, but when portables become available, it will be more of a natural fit.”

Although “the first products will be mobile,” Sirius nonetheless “is exploring a number of ideas to get coverage at home at the time of launch,” the VP said, including DBS, cable and the Internet.

Authorization: Both providers are securing commitments from leading retailers to promote their services during the launch phase, but whereas XM will specifically authorize dealers to sell its services, Sirius will take advantage of receiver manufacturers’ existing dealer agreements.

“XM retailers need to be authorized by us, or they don’t get commission checks, POP, or co-op,” Cook said. “We just need to know who they are and know they’ve been trained [or have committed to training] to ensure they’re set up properly, and we can manage the account.”

In the case of large retailers who operate their own training programs, “we’ll probably train the trainers,” Cook said. For smaller retailers, “we’ll work with the manufacturer.”

Sirius, on the other hand, said it doesn’t plan to separately authorize retailers. “I don’t think I could do a better job of distribution than our suppliers,” Wilsterman said. “We value their distribution.” Nonetheless, he said, Sirius will work cooperatively with hardware manufacturers during the first few months of service to ensure that limited supplies reach the types of retailers best able to sell the service.

Activation/Selling: XM and Sirius plan compensation programs for dealers who sell their services, potentially making it more profitable overall to sell a satellite radio than a same-price non-satellite model.

“Our intention,” said Sirius’ Wilsterman, “is to allow traditional car stereo hardware margins plus something extra from us. We will avoid making deals with retailers to severely discount the value of the hardware.”

Neither provider revealed many details about its planned compensation programs, but XM’s Cook told TWICE that “we’re definitely looking at activation commissions or other ways to compensate retailers because our product is more complicated to sell than an AM/FM radio.” Some retail agreements, he noted, will add recurring payments, known in the cellular and DBS industries as residuals.

To be compensated, XM retailers won’t have to get involved in activating a subscription. “At retail, we will keep it simple,” Cook said. “There will be no credit-check or sign-up process. The end user will call 1-800 or activate via the Web. The PCS industry has evolved to this.”

Added Dan Murphy, retail marketing and distribution VP, “Everyone is moving to self-activation, like DirecTV and cellular. No forms, no phone calls.”

As for whether compensation levels will be tied to a subscriber committing in advance to a certain length of service, Cook replied, “It depends.” Consumers will probably be billed quarterly on their credit cards, he noted, or subscription fees will be packaged in with a car lease or built into a car loan.

Like XM, Sirius won’t require dealers to activate a subscription, but it appears it might be in their financial interests to do so.

Dealers will be rewarded if they “actively participate in signing up a subscriber,” but the Sirius VP also pointed out that, at this time, “we are not announcing that a retailer must activate to get a reward.” However, he continued, for all parties involved, “in the early going, it would be ideal for the installer to activate because the customer will leave the store with it working properly.”

Wilsterman declined to say what form the reward would take, but he said that “if a salesman is involved directly in the acquisition of a subscriber, there should be a reward for the retailer.”

To activate, a dealer or subscriber could use a touch-tone phone to enter a credit card number and electronic serial number when prompted by a recorded voice, talk to a live customer service representative, or use the Web, he noted.