Question

Read the overview below and complete the activities that follow.

While the company’s strategy sets forth an approach to offering superior value, a company’s business model is management’s blueprint for delivering a valuable product or service to customers in a manner that will yield an attractive profit. In this exercise you will be asked to evaluate the business model for SiriusXM.

The two elements of a company’s business model are (1) its customer value proposition and (2) its profit formula. The customer value proposition is established by the company’s overall strategy and lays out the company’s approach to satisfying buyer wants and needs at a price the customer will consider to be a good value. The greater the value provided and the lower the price, the more attractive the value proposition is to customers. The profit formula describes the company’s approach to determining a cost structure that will allow for acceptable profits given the pricing tied to its customer value proposition. The lower the costs given the customer value proposition, the greater the ability of the business model to be a moneymaker. The nitty-gritty issue surrounding a company’s business model is whether it can execute its customer value proposition profitably. Just because company managers have crafted a strategy for competing and running the business does not automatically mean that the strategy will lead to profitability—it may, or it may not.

Go to investor.siriusxm.com and check whether Sirius XM’s recent financial reports indicate that its business model is working. Are its subscription fees increasing or declining? Is its revenue stream from advertising and equipment sales growing or declining? Does its cost structure allow for acceptable profit margins?

Is its revenue stream from advertising and equipment sales growing or declining? Explain your answer.

Answer 1

Is its revenue stream from advertising and equipment sales growing or declining?

It is increasing.

The company’s annual revenue hasincreased steadily over the last three reporting periods from $3.8B in 2013 to $4.6B in 2015, while netincome has grown from $186M to $500M over the same period. This is an increase in net profit from 4.9% in 2013 to 10.9% in 2015. It has gone up from $34268K in Q3 2016 to $ 41,462 in Q 3 2017. The revenue from the advertising has increased from $32m in 2016 to $36m in 2017. The Equipment revenue has also have the increasing trend from $27m in 2016 to $30m in 2017. This illustrates an increasing value proposition (revenue) as well as aneffective and growing profit formula (earnings). The conclusion the student should reach is that thebusiness model is working effectively