Customer Lifetime Value at SiriusXM

SiriusXM is a New York-based telecom company providing satelliteradio and online radio services for customers in North America.SiriusXM brings hundreds of ads-free channels broadcasting widestvariety in music, live sports, world-class news, talk shows, andcomedy. Customers may listen content in vehicles, phone, or athome/office. Unlike typical radio stations that transmit signal onFM and AM frequencies to a limited territory through radio towers,Sirius XM broadcasts content through satellites to the entire NorthAmerica and does not require transmission of radio signal throughland towers.

SiriusXM offers several subscription plans to its customers. Themost popular is Music & Entertainment (M&E) plan featuringhundreds of channels, which customers may listen to in cars andonline (via app and in-browser). The subscription for M&E[1]costs $17.99 per month (see Table 1 with plan details). Major typesof expenses by SiriusXM include maintenance of satellite network,copyrights, and licensing fees.

A relationship specialist at SiriusXM examines dynamics ofsubscription and churn (i.e., rate at which customers unsubscribeor leave company). She notices that there is a group of M&Esubscribers (called at-risk M&E) that spends little timelistening SiriusXM – these customers fall in the lowest decilebased on usage of SiriusXM M&E plan. Although, at-risk M&Ecustomers pay full subscription, they are more likely tounsubscribe (i.e., churn) than regular M&E subscribers (seeTable 2 with churn rates for different plans). A relationshipspecialist is trying to come up with a retention strategy forat-risk M&E customers. She is considering downgrading thesecustomers from M&E to the Streaming Platinum (SP) plan (Table1), which offers lower number/variety of channels at a lower price.A specialist assumes that when at-risk M&E subscribers areswitching to SP plan, these customers will have the same churn rateas typical SP subscribers. She also estimates that SiriusXM willencounter one-time $5.00 expense per customer to switchsubscription plan from M&E to SP (the expense to contactcustomer by mail, email, or via app). To test such assumption, arelationship specialist wants to estimate LTVs for both plans andselect option with a highest value. She is comfortable using12 months to estimate LTV. The discount rate (costof capital) is 1% per month. Provide answers tothe following questions:

1. (10 points) Estimate LTV for at-risk M&Ecustomers using information in Tables 1 and 2. As an example, youmay use Excel file for American Home Improvement (AHI) (used forDemo 1 CRM)
2. (10 points) Estimate LTV for downgraded-to-SPcustomers.

Note: For questions 1 and 2 prepare atable in Excel demonstrating your calculations of lifetime value(again, see Excel file for AHI as an example). Submit that tablewith your answers.

3. (10 points) Compare LTV for both scenarios andsuggest which one a relationship specialist should use (i.e.,downgrade to SP plan or do not change at-risk M&E).
4. (10 points) Describe potential factors thatmay affect LTV of switched customers so the actual lifetime valuewill be different from one estimated in q.2.

Table 1

SiriusXM Monthly Subscription Plans

Plan	M&E	SP
Subscription Fee	$17.99	$11.99
Cost of Service per Customer	$6	$4

Table 2¹

Monthly Churn Rates for SiriusXMSubscribers

	Month
	1	2	3	4	5	6	7	8	9	10	11	12
At-Risk M&E	15%	15%	15%	20%	20%	20%	25%	25%	25%	30%	30%	30%
SP	7%	7%	7%	7%	7%	7%	10%	10%	10%	10%	10%	10%

¹ – Probability of beingactive = 100%-Churn Rate

Discount rate = 1% per month

[1] Actual features of SiriusXM plans may be different from onesused in this assignment and may change over time.