ONLINE MUSIC GIVES RISE TO DISTRIBUTION HEADACHES

Who would be the marketing manager for a music label? You might be able to rub shoulders with the stars but ultimately, once the partying is over, it’s time to get down to business. And a ‘business’ is exactly what the music industry is- a very aggressive business. In 2001, the UK market for pre-recorded music was approximately $3.1 billion, at retailers’ selling prices (Mintel 2002) Since 1997, retail sales value had increased by 21%, although the rate of increase had begun to slow down. This was largely due to the decline in the singles market and increased competitiveness in the market, which has led to the introduction of discounts and special offers. However, by 2002, the music industry appeared to be in crisis as new forms of distribution challenged traditional retail outlets.

By 2000, CDs had become the dominant form of distributing music. Vinyl records had all but disappeared and the market share of cassettes had been slipping. Innovative formats had been launched, but except for mini disc, with no significant consumer impact-do you know anyone who owns a laser disc or a DAT player? Competition within the CD market place is largely between major entertainment corporations who record, manufacture, and coordinate the distribution of products. The independent recording sector is also important as a source of new surrounding individual artists or related phenomena. Think of the unpredictable ups and downs in the sales of bands like Oasis and of soundtracks like The Titanic, for instance. There is also always a huge seasonal variation in volumes because of the Christmas gift giving market.

Looking more broadly, consumer spending on recorded music forms just a part of the wider leisure and entertainment sector, which typically also includes books, magazines, sports, games, and products. This means that the marketing carried out by record companies has to overcome some pretty big hurdles in order for a particular CD to enter the average consumer’s consciousness.

A significant contribution to the marketing of CDs is made by distribution channels. The main intermediaries are the general high street chains like WH Smith and Woolworth’s, which sell other goods in addition to music related products; and the specialist record chains like Our Price and HMV.

Sales in other non- traditional outlets, such as petrol stations and grocery stores, have been growing. Supermarkets in particular have moved strongly into the recorded music sector, with chains like Safeway and Sainsbury’s offering a top chart selection, sometimes at discounted prices. Some chains, such as Asda, also offer singles as well as a limited ‘back catalogue’ range but these are usually mid-price or budget compilations. The number of Asda stores with record departments grew from zero in 1991 to 250 by 1996.

The grocery multiples normally buy their CDs through a wholesaler. It suits them to do so because of the hugely diverse nature of the titles available and the need for frequently changing ranges. The major wholesalers include Entertainment UK, which is part of the Kingfishers Group and Total Home Entertainment (THE), which is part of John Menzies. The process for gaining supermarket distribution for a CD title is as follows: the major record companies present their titles to a wholesaler which has an account with a grocery multiple; the wholesaler then recommends a selection to the retailer’s buying team; they may also work out the planogram (the store shelf layout) and do the merchandising.

The internet has offered new opportunities and challenges for major labels and independent record companies to provide access to their products. Research by Forrester Researcher has suggested that the sites most commonly visited by 15-24 year olds are music related. Music is well suited to online retailing. With no need to see the actual CDs, it is easier to listen to a taster online than in a shop. Websites can also add value by incorporating reviews, concert listings, and discographics.

1. Explain three (3) ways how social media can assist the music industry in selling its music on a global level. (7 marks)

2. Discuss one (1) basies of segmentation that you as the marketing manager would use for your music store. (5 marks)

3. Use a diagram to explain a type of marketing channel mentioned in the case. (8 marks)