CD Pricing in the Recorded Music Industry
- Length: 1903 words (5.4 double-spaced pages)
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Strategic Marketing Management
EMI music group was formed in 1931 when Gramophone Company merges with Columbia Graphophone to form Electric and Musical Industries (EMI 2007). EMI started with operations in nineteen countries and has eventually grown to operations in over fifty countries. EMI has the rights to over one musical composition. Of the five major music companies, EMI has the least market share in the Unites States. This market share may now be in jeopardy as Universal Records has decided to decrease the price of its CD's in an effort to generate sales. EMI must determine what they would gain or lose by dropping or not dropping their retail price for CD's and the price charged to retailers.
The recording industry is highly competitive with its profits based in its ability to attract and retain artist who sell hit records. Advertising, promotion and publicity for its artist are central elements in a music company's marketing program and they represent a sizeable amount of the company's costs. Universal has more market share because it has more hit artist and a larger music catalog than any other music recording company. Because of these facts, Universal is susceptible to the most losses. Universal made the decision to slash its CD prices in the US by up to 31.5 percent in the US, not to increase market share but to persuade consumers to start buying CD's again (Universal, 2003). Since the advent of new technology allowing consumers to obtain music in non-traditional means, actual CD sales in the US had been on a decline since 2000 (Kerin, 2007). In fact, four of the major five record companies reported losses in the first half of 2003. Universal is considered a heavy hitter US with a market share of 29.4% while EMI ranks in the bottom of the five major record labels with a mere 9.8% of US market share. EMI was the only company that did not report losses the beginning of 2003 due to major reorganization efforts.
Existing Marketing Problems
EMI's major problem is lack of market share in the US. Upon first glance one would think that the major problem that EMI is faced with in its US market is the possibility of a decrease in its CD sales caused by the decrease in CD price by Universal Music Group. It is acknowledged that the decrease in price by Universal will affect EMI but Universal's price cuts are not the only or main problem EMI is faced with.
EMI faces several problems within the US and Universal Music Group's price decrease is only one of them. The problem that EMI is faced with is not that Universal CD price slashing will decrease its market share. The main problem is that EMI does not have enough US market share to begin with. Even if EMI decreases the sales price for their CD's to compete with Universal Records, this won't necessarily increase their market share of hit recording artist.
It should be mentioned that CD sales are not expected to increase any time soon. As someone who grew up during the development of file sharing, the majority of the suggestions given in this analysis are based off observations and reactions, or lack thereof of the Universal announcement. Universal's 2003 announcement was met with criticism and indifference from the group of consumers who were once the largest buyers of music, young people and they made there indifference know throughout the internet community. As Ashlee Vance put it "Two decades and four presidents is a long time to wait for a single price cut on what became a mass market good" (Vance, 2003).
Universal is decreasing the price on its CD for all artists but superstar artists CD's are being reduced by a smaller amount. Universal also incorporated a new retail sales plan called Jump Start. Retailers pay wholesale prices for CD's (this is the price that will be decreased) but receive additional compensation for advertising support and CD placement. Under the new plan retailers guaranteed 33 percent of display space in exchange for a deeper discount on CD prices. Whether or not retailers participated in JumpStart, Universal would end all additional compensation. Universal worked under the assumption that these strategies would not only increase the number of retail buyers but also move retailers to increase display space for Universal increasing Universal's ability to market their artist. (Smith, 2003).
EMI must implement new measures to increase its market share. It can also decrease its CD prices to compete with Universal Records. EMI has less market share because it has less hit recording artists and a smaller music catalog. EMI has several options to increase its prominence in the record industry. One of these solutions is for EMI to change its marketing mix. EMI can consider changing its product mix by offering more music geared toward group of people who have steadily increased the percentage of music they buy for the past ten years; consumers over the age of 40 (Kerin,2007). EMI can also cut cost involved with artists by dropping artists that do not produce, supply the market with high quality artists and increasing productivity. This in turn will also increase its market share. And of course, EMI can decrease the price of its CD's.
New product development is another alternative. EMI can also use the advances in technology to change the way it promotes its artists as well as its product placement within retail outlets as well as placement of those artists on the internet. Using these advances can also include developing products/music that are readily available for internet download to mp3's or possibly a form of music entertainment that is combined with DVD's to capitalize off the recent DVD sales surge. Inventing new technology that prevents internet downloading and/or copying music to blank CD's is also an option that EMI can pursue.
For every action there is an equal and opposite reaction and such is the case for each of the solutions for EMI. Changing EMI's marketing mix may give EMI the increase in market share that it needs, but the process of change is time consuming and can be costly. Money and Time are not two things readily at the disposal of EMI and probably wont' be for some time. By offering more music geared towards the consumer who actually purchases music, EMI will place itself in a position to sell CD's to consumers who purchase CD's. However this also takes market research, time and heavy promotion of new artist. By dropping artist that do not produce and supplying the music industry with high quality artist, EMI will be able to increase their market share. But as mentioned in the case, the music industry is extremely competitive and close-knit. Any meetings with possible new artist may cause other record labels to attempt to recruit that artist as well. Decreasing its CD prices is and option for EMI and may increase sales of their products. However as stated earlier sales of CD's is not the main problem EMI has, lack of market share is.
Using emerging forms of technology to increase awareness of themselves and their artist will also allow EMI to increase its market share in channels that were unheard of. Also, since more and more consumers are buying music electronically, EMI can also make more of its catalog available for internet purchase thru different download mediums such as iTunes, walmart.com, Rhapsody or several other websites. Utilizing these serviced offers download lovers the chance to purchase music legally and in the manner they prefer. Combining CD/DVD is another great alternative. DVD's sales are rising as the latest form of entertainment so EMI would do best by piggybacking on these sales by offering CD as a part of the package with a DVD or offering a DVD with the sale of CD's. This would be a wonderful tool to sale soundtracks to hit movies.
EMI needs to use the latest digital technology to its benefit. First, EMI needs to partner with websites specifically designed to download music and enter into partnerships that allow the on-line stores to offer their products. EMI can also take advantage of these websites to increase its marketing efforts of those artists most attractive to the group of consumers who download the most music, 12-17 year olds and 18-24 year olds. Some artists for example, allow one to two songs off an upcoming album to be downloaded for free. These teaser songs give the public a free taste of what will be available and in some cases dissuade music lovers from pirating albums. If possible EMI should offer more of its artist to movie production companies. This would give the artist more exposure and allow for the promotion and sale of combination DVD/CD package.
General Ideas and Comments Regarding EMI Case
The music industry is and always will be competitive by nature and by having the smallest North American Market share any solutions EMI develops can be duplicated with a lot more speed and money by recording giant Universal. Therefore, EMI needs to carefully plan its next steps. Copyright infringement laws were enacted but barely made any significant change to individuals wanting to obtain music illegally. Music Piracy has not decreased nor has the industries need to control what music is available to consumers and how it's being made available. Yet the music labels should concentrate there efforts on producing quality artist, marketing them effectively and changes their business models to meet the new demands of consumers. Since then EMI has launched several initiatives proving that it hears consumers and is responding. EMI was the first major label to allow its music to be sold online with DRM, digital rights management, a program that blocks specific way buyers can use their purchased music bolstering it sales (Van Bursick, 2007). EMI also launched the biggest European music download initiative by a record company in Europe with over 140,000 tracks from more than 3,000 EMI artists. Hopefully with efforts such as these EMI will improve it market share and attract more artists.
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