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Competing on other than Price for Music Sales
Posted By Barry Ritholtz On January 7, 2004 @ 11:20 am In Finance,Media,Music | Comments Disabled
Decommoditizing Commodity Products: We’ve been looking at price competition for retail music sales ; I normally care very little about non-price competition. Over the years, I have learned from any sales affiliated job I had held that such terms as “Service” and “Value-Added” and their ilk were nothing more than code words for “Not price competitive.”
This is especially true when selling commoditized goods: Books, CDs, DVDs, TVs, etc. Anything which you can look up a model number, ASIN or ISBN code tells you that the retailer is the least important particpant in the chain from creation to consumption.
One of the rare exceptions is detailed in this December 29th 2003 article from the NY Times; I must have overlooked it during the holiday mayhem.
It seems that several of the large discounters — who typically compete on price alone — have added a new technique to their arsenal — exclusivity:
“Serious record collectors generally do not flip through the CD’s and DVD’s at Wal-Mart, Best Buy or Target. The music departments in those stores are mainly known for offering a narrow selection of chart toppers. But increasingly mass merchandisers and electronics retailers have become the place to go for music that cannot be found anywhere else. That is because many big name artists with new releases to promote, do not just turn to their labels, they also strike exclusive deals with major retailers.
In this holiday shopping season, for example, an extended version of Rod Stewart’s new CD, “As Time Goes By . . . The Great American Songbook Vol. II” is available only at Target; Wal-Mart has an exclusive special release of Britney Spears’ new CD with links to additional tracks online; and a Rolling Stones concert DVD is only sold at Best Buy. Earlier, Target offered a $7 Bon Jovi CD featuring some live and acoustic versions of songs from “Bounce.” The full album was released widely to retailers at the same time.”
Let me note that Mrs. BigPicture picked up the Rod Stewart ‘Great American Songbook Vol. II’ CD at Target (its pretty good). Although I was annoyed at the $13.99 price, its not available anywhere else — at least for now. That’s one way to “decommoditize” commodity goods. Not that this technique is only available for limited periods of times, lest it runs afoul of the anti-trust laws (limiting horizontal distribution/competiton).
“The exclusive deals are being offered as mass marketers are seeing their share of the music business grow. Discount stores like Wal-Mart accounted for only 13.5 percent of music sales in 1994, said Clark Benson, the chief executive of the Almighty Institute of Music Retail, a Los Angeles-based company that sells data about retailers to record labels. This year the figure is 34.8 percent. Billboard and its corporate sibling Nielsen SoundScan lump electronics chains like Best Buy and Circuit City with traditional music stores. Adding their sales to the other mass marketers would probably raise that group’s total to more than 50 percent, said Geoff Mayfield, the director for charts and senior analyst at Billboard.”
There is one last interesting twist to the story:
“Exclusive deals have not been restricted to brick-and-mortar retailers. Amazon.com customers who bought “Afterglow” by Sarah McLachlan before its release could immediately listen to some of its songs through a system on Amazon’s Web site. Now that the CD is available, Amazon customers who buy it have exclusive Web access to remixes of some of Ms. McLachlan’s songs.”
This is something that the labels could have/should have been doing for a long time: Giving potential CD purchasers a reason to actually BUY a disc, rather than copy or download one. Its not difficult to put a unique code on every CD, and only when that disc is in your PC can you access additional tracks, videos, etc., from an artist’s website. That’s the sort of innovation which counters the time and inconvenience of “free” file sharing.
Of course, it requires creativity and innovation, and in the music industry, those traits mostly reside with the artists, and not the business side. That’s simply a shame — yet another sales opportunity is being missed . . . again.
Big Stores Make Exclusive Deals to Bring in Music Buyers 
By Ian Austen
NYTimes, December 29, 2003
Article printed from The Big Picture: http://www.ritholtz.com/blog
URL to article: http://www.ritholtz.com/blog/2004/01/competing-on-other-than-price-for-music-sales/
URLs in this post:
 price competition for retail music sales: http://bigpicture.typepad.com/comments/2004/01/music_retailers.html
 Rod Stewart ‘Great American Songbook Vol. II’ CD : http://www.amazon.com/exec/obidos/ASIN/B0000C9ZEX/ref=ase_thebigpictu09-20/002-2267231-0348809
 Big Stores Make Exclusive Deals to Bring in Music Buyers: http://www.nytimes.com/2003/12/29/business/media/29custom.html?ex=1388034000&en=6f32b16e444d61d5&ei=5007&partner=USERLAND
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