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New Research Says Make More Money by Charging Less: New Technology, Old Strategy
Posted on Tuesday, February 02 @ 23:00:00 CST by admin
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The rise of the Internet has really turned the world upside down. Not only has knowledge and information exploded, being made readily accessible, it has also caused economists and business professionals to rethink about business strategies. Why so? In something that can be considered as the simple yet complex phenomenon like music, packaging and distribution has become a lot easier with an almost negligible cost. With that in mind, how much worth, in monetary terms, does a song really have? Apple founder Steve Jobs has pondered on the question. It's no wonder that with cheaper distribution via the Internet, the Wall Street Journal back in 2006 reported a 20% decline in CD sales. With both legal and illegal downloads competing against CDs manufactured by major recording companies, it's really time for these major companies and labels to start rethinking about how to sell their products. The latest research suggests they can make more money by selling music for a whole lot less.
The trend that iTunes along with other music download facilities has just made music a lot more affordable. This in effect encourages typical consumer who has internet access to opt for digital downloads at the comfort of his/her own home rather than spend a lot of time at a record store and shell out a lot of money for just a CD, money that can be used instead to purchase around. How cost effective is a digital download? Think about Metallica's "Death Magnetic" for a while. On Amazon, the CD costs around 12.00 USD plus shipping. You'd have to wait for the CD to be delivered to you in a few days to weeks while paying for more. To some degree this is an inconvenience. Downloading "Death Magnetic" from iTunes only costs 9.99 USD. With a reasonable broadband connection, you can get the entire album in less than an hour then listen to it right away without all the waiting and the additional clutter a physical CD brings.
Raghuram Iyengar, an assistant professor of marketing at the Wharton University of Pensylvania, suggests that major labels record labels could make higher profits from their music catalogs by lowering their prices instead of jacking them up. His research involved the study of pay-per-song plans that exists in avenues such as iTunes as well as subscription models like eMusic as well as an examination of the traditional record and CD distribution model. Professory Iyengar's study concludes that pay-per-song models are more popular with digital consumers and that their music purchases increase sharply at lower prices. Such was the result that it is estimated that overall profits of record companies increases as prices drop.
If you're an independent musician or label, the Internet therefore provides a more profitable alternative for distribution. If you're a major record label executive, it's high time that you rethink about pricing because in the long run. Following the suggestions of such a study is a win-win situation for musicians, record labels, and consumers. More profit, more accessibility, more exposure, more economic movement. Everybody becomes happy if people stop becoming greedy. In such a utopia, everybody gets something. While the technology is relatively new, the practice of having a sale, just like discount stores, still works wonders being profitable.
Want more info about Professor Iyengar's study? You can read the article by clicking on this link.
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