iTunes – Sticker Shock & Basic Economics
April 17, 2009 at 4:45 pm | In Marketing, Music Business | Leave a CommentTags: 1.29, 69, 99, apple, April, Chart, Demand, Economics, iTunes, price, Pricing, scarcity, song, Sticker Shock, title, track, value, Variable, variable pricing
iTunes introduced variable pricing at the beginning of April. Early research is showing a decline in sales for titles bearing a $1.29 price point. This is absolutely no surprise for 2 reasons:
1) Sticker Shock: The iTunes customer is conditioned to a 99cent track price. $1.29 is a 30% increase. Most of us notice a 30% price hike on any product that we regularly purchase (gas, groceries, etc.) so it’s no surprise that the impulse buyer is going to prioritize their list of desired music and think twice before buying. The good news for the labels is that sticker shock wears off quickly and as soon as the price structure feels like the new standard, people will resume their impulse behavior.
2) Basic Economics: When you raise the price of a product, you reduce the demand. Conversely, you usually lower a price to stimulate demand. This is why even the top tracks are suffering on the charts right now. People consume based on their purchasing power and a higher price per track reduces the number of tracks a consumer can afford. The bad news is that the laws of economics are rarely broken, but a move to variable pricing is a healthy move. All tracks aren’t created equal, and although scarcity doesn’t exist in the world of digital music, value still determines demand. A top selling title has more value than a low selling title, therefore, it yeild a higher price. The consumer’s shouldn’t have to pay the same price for tracks of different value, and the labels or artists shouldn’t have to charge the same price for different products either.
If I had to guess, I’d say that sticker shock will be a moot point in a few months and there will be a more consistent list of higher and lower priced tracks by the fall. Once most of the top titles are $1.29 and most of the low titles are $0.69, the charting will look normal again.
Competing with Free
July 20, 2008 at 7:04 pm | In Music Business | Leave a CommentTags: 99, competing with free, control, convenience, demo, free, mole, p2p, prerelease, spoof, success, value
The Record Labels CAN Compete with FREE!
1. Convenience: All P2P users suffer from one problem. If one of them doesn’t have it, then none of them have it. The file has to remain active through the entire download process. It only takes a few failed attempts for the 99cent download to become appealing and if iTunes has it, they have it 24/7 for a price you can count on. Convenience is the first step, but it cannot succeed alone.
2. Value: Bundling and limited time price promotions take the sting out of paying for downloads. Give them something they can’t get on P2P or that’s at least nearly impossible to find. There are more options than ever for those interested in bundling physical and digital formats, merch, swag, etc. Bundle value with convenience, and you now have a word of mouth marketing campaign. Value is subjective and can be a great resource, but it cannot succeed alone.
3. Spoofing: Ever boot up your limewire, download your favorite track and then play it, only to find out that it’s not what you wanted. Spoof the hi octane audio…the stuff people want, because that’s what they are going to be looking for first. If you can spoof those quick enough and cause enough confusion and frustration, you will soon have a real customer. Spoofing is valuable but it cannot and will never succeed alone.
4. Mole Control: Just to clarify – THE CD IS A DIGITAL FORMAT. Yes, you can hold it in your hand, but for some reason, that fact alone is the most dangerous and most fatal misconception. The CD is not only a digital format…it’s the label’s worst nightmare and the only people who don’t fully understand it’s distructive power are the labels. It has superb quality, It can be duplicated, it can be uploaded, and it can be shared without degradation to the nth degree. I’m not saying the labels should protect the CD, I’m saying they should stop using it until after the release date. Promote the record digitally through secure channels, use streaming audio where possible, vet accounts and representatives that require the special treatment of a CD, and protect your assets from leaks. Mole control can be effective, but it cannot succeed alone.
5. Snippits: a 30 second sample will tease but not satisfy, and guess what…any portion of a song will tease but not satisfy. There’s something about the end of a song that people want to hear. Perhaps it’s needing to feel complete. The catch is that people don’t even want snippets for free. They’ll listen a few times, but ultimately they are going to want the entire thing and that’s where convenience comes in. 30 seconds is a trend that was solidified by Apple…it’s not the golden rule and the labels should use snippets instead of full songs everywhere possible before a release date. They should supply links to the content as soon as it’s available for sale from the snippets. Customers and fans alike will be willing to surf to your website and stream all day long until they are so satisfied that find no reason to buy. Snippets keep them hungry. Snippets excite and frustrate, but Snippets cannot succeed alone.
6. The Combo – (SUCCESS): You only have so many hours in a day and you are short staffed at best. How do you maximize your ability to compete with Free? Pick 3 of the top 5 (any 3) and you will be well on your way.
Say you use snippits, spoofing, and convenience. You have raised the demand for your artists while raising awareness and making value obsolete, you have created mass confusion in the Free world regardless of any leaks from your promotional engine, and you have made it easy for anyone who hears a snippet to buy the song.
Say you use Value, Mole Control, and Convenience. By default, you have created a word of mouth campaign, while limiting the chances that P2P will be able to compete with you on Release Day which will beg the question of every freeloader out there, “Is it really worth the time and effort it would take to steal”
No Profit in Downloads
July 14, 2008 at 8:45 pm | In Music Business | Leave a CommentTags: 99, apple, business, download, Industry, iTunes, label, margin, Marketing, Mastercard, mechanicals, merch, Music, Napster, profit, Rhapsody, royalty, strategy, Visa, Zune
Let’s face it, the Labels are going to take 70% and that’s fair. What? It’s Not? Of course it is…They spent the thousands in studio and production cost, not to mention manufacturing and distribution, only to have the artist sell more T-shirts and stickers at their merch table because all of their fans are hooked up via BitTorrent. It’s not like they pocket the 70% anyway. There’s overhead, mechanicals, and other royalties that have to be paid, not to mention someone who has to sit down and sift through the data so the auditors don’t pitch a fit.
The question is…Can you be profitable with the other 30% and the answer so far is an overwhelming NO!
You may think you’ve struck gold when you find that company that allows you to setup your own storefront for 10 or 20 bucks, pull in the titles you want to sell and then let’s you make 10 to 15 cents per tracks sold, but the reality is that noone shops at these stores. iTunes and Amazon are satisfying 95% of the digital consumers out there and Rhapsody, Napster, Zune, Passalong, and many other reputable brands are fighting for the loose change already.
After you realize this doesn’t work, you can try building your own store from scratch and licensing in the labels in order to keep more of the profit. The reality of that is that in order to be your own retailer, you have to engage with Visa and Mastercard who are going to take 15 cents per transaction and then another 2 or 3 percent of everything you make leaving you with the same 10 to 15 cents you had in the first scenario. It forces you into developing a marketing strategy around bundling and encouraging larger purchases and that’s where you lose touch with your consumer. They don’t want to spend more than 99 cents and if you make them, they will still find what they want and buy it…just NOT from you.
The economics just aren’t there. They just don’t work. It’s barely worked for iTunes and the dream of selling digital music is driving company after company into the ground. It’s not worth the hassle and if you are looking to be entertained with your money, you’d be better off buying lots of fireworks or just flushing it down the toilet.
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