Market Situations of Music Industry: of EMI - Case Study Example

EMI Marketing Plan Content 1. Case Overview 2. Business Purpose 3. Marketing Audit of EMI Business a. External Environmental Analysis i. PESTEL Framework ii. Porter’s Five Force Model b. Internal Environmental Analysis i. SWOT Analysis 4. Aims 5. Strategy a. Ansoff Matrix b. STP (Segmentation, Targeting and Positioning) c. Marketing Mix Functions (7 P’s) 6. Implementation and Control 7. Budgeting and Scheduling 8. Performance Measurement and Corrective Actions 9. Conclusion 10. References (Note - The entire analysis and planning has been done on the basis of information given in the case. There is no other source of information has been used as it is not a part of case analysis methodology. The classroom learning and various strategy models have been used effectively in order to analysis this case.) 1. Case Overview The case gives an introduction about the market situations of music industry which are drastically changed over a period of time. Due to the innovation in the technologies, industry has seen significant changes in the mode of providing and distributing music. Earlier the music was recorded in the vinyl LP forms then it has seen the fastest growth in CD sales to the digitally accessing music over internet but now this has seen a steep decline due to introduction of digital music. In terms of distributing music, penetration of internet and social community sites have changed the complete scenario. Pirated music has taken the whole business of copyrighted music. This case also describes the current market situation of music company EMI and the factors affected the business of EMI. Rather than trying to change the affect of intervention of internet into music industry, companies have adopted this technology and they are seeing a potential opportunities in this market. 2. Business Purpose The business purpose of EMI is to provide music to the customer in any format and through any distribution channel, because the consumers want to enjoy with music anyhow and anywhere. 3. Marketing Audit of EMI business To judge the current market position, it’s positioning and its strategies, it is imperative to understand the internal and external factors affecting the business environment, the strength and weaknesses and the competitive environment. To understand all these, there are several strategy models like - PESTEL (Political, Economic, Social, Technological, Environmental and legislation) analysis, Porter’s five force model, SWOT Analysis, Ansoff matrix etc. We will use these models to judge the current position and EMI Company and how it has arrived here. a. External Analysis I. PESTEL Analysis – Political, economic, social, technological, environmental and legal analysis A PESTEL analysis is useful to evaluate the macro-economic environment of the industry. This analysis becomes important when industry is going through globalization phase and key drivers for the industry had undergone a sudden change. There are certain key drivers to this industry which might lead to change in macro economic environment. PESTEL framework gives idea about failure and success of any strategies. PESTEL includes six different perspectives to any strategy which are political, economic, social, technological, environmental and legal aspect. It is imperative to evaluate the future changes in these aspects. PESTEL framework helps us to figure out that which factors should given most priority. In this case also it is vital to evaluate the macro economic perspectives. As per the data given in this case, we can not analyze it from all perspectives; we can only apply the economical, social, technological and legal aspects. 1. Economic Whole economics revolve around demand and supply. There are some demand side factors and some supply side factors which determines the strategies for any company. In this case, on the demand side, earlier consumers had very less sources of buying music and the bargaining power was into the hand of the suppliers, but now the evolution of internet and technology revolution, music is available on cheaper rates. Price cuts by super markets are creating a huge impact. As the data given in the case that because of the price cuts by supermarkets the value of a CD album fall by around 4%. 2. Social It is mentioned in the case that due to the change in the consumer’s social life, the way of distribution of music has seen a drastic change over a period of time. Due to the growing activities in online social communities, virtual communities and networking website, consumers are sharing music files with each other and sales of copyrighted music have been reduced. Although companies have adopted this into their strategies and website like i-tunes, Napsters are providing copyrighted music. Data shows that these websites are becoming profitable arm of the music companies. 3. Technological Revolutionary changes in the technology have been the strongest reason for changing the consumer’s demand. Intervention of internet caused decline in sales of singles to Euro 21.4mn in from Euro 66mn in 2000, whereas the sales of e-singles have increased from 4.5mn in jan-march, 2005 to 9.5mn in oct-dec.2005. Internet caused decline in annual sales of 80mn units worth 200mn euro to just 31mn units worth 80mn euro only. File sharing systems have resulted in online availability of 800 million tracks across all categories which is detrimental for music companies. 4. Legal Illegal downloading has the severe impact on the business industry; it became a major threat to all the stakeholders of this business. As per the data given into the case the global revenue generated by legal downloading in 2005 was euro 624mn which is only 6% of the total record companies revenue. This implies that industry had a net loss of 94% of the total global revenue just because of illegal downloading. II. Porter’s Five Force Model To identify the significant forces prevailing in the industry, it becomes imperative to use this model. It helps us to figure out the environmental and competitive forces which will affect the industry in the near future. These major five forces includes – 1. Threat of the new entry 2. Threat of the substitute products 3. Bargaining power of buyers 4. Bargaining power of suppliers 5. Competitive rivalry within the industry Implication of these forces is that, strong the impact of these forces makes the industry less attractive, unstable in the near future and the scenario will be highly competitive to get high returns. 1. Threat of the new entry – This influences the degree of competition within industry. As the entry barriers are low for new players then it becomes easy to enter into the business which gives rise to the competition. The level of entry and exit barriers decides the degree of rivalry in the industry. High entry and exit barriers give advantages to the existing players in the market. In the given case the new ways of distributing music have become an entry source for few players which share music through online communities and social networking websites. Although EMI has started it’s VMS (Virtual Music Store) with the co-operation of Universal music, but it need to get a competitive advantage to remain strong in this particular mode of business. Since this industry has become very competitive and to survive in such kind of scenario where sales of copyrighted music is seeing bottoms, it is difficult for new companies to survive at initial stage. 2. Threat of Substitutes – Substitutes of the products will result in decrease in the demand of the existing product as it will provide the same benefit as of the original products. Rather than creating a new market, substitutes will take its share from the exiting pie and this will result in the competition on the basis of price and quality in the market. There are certain factors pertaining to this case which determines the pie for existing products for existing players in this industry. Pirated music through file sharing websites has become a substitute for the music customers. Although the quality of the pirated music is not good enough, but if the customer is getting this on low price or say free, then he\she is ready to take this kind of music. 3. Bargaining power of buyers – The profit margin for any company depends on the degree of bargaining power it has with it. If this bargaining power shifts to the consumers then profit margins can take a toss. This happened in this industry, because of the price cut by large retail outlets, continuous innovation in technology and free sharing of music have given the bargaining power in the hands of the customers. The advantage of digital music is made it cheap, universal, convenient and flexible. 4. Bargaining powers with suppliers – This determines the cost of music sold to the company, as the bargaining power will be in the hands of singers, musicians then the cost for the distributors will go up. In this case, musicians and singer are also facing problems because of the decline in the legal downloading of music. This is why there is very less incentives for them to work. The main sources for income are live shows and the nor-core activities of the business. 5. Competitive rivalry – All the above 4 forces create a huge impact on the competitive rivalry among existing players. Be it low barriers for entry and exit, availability of substitutes and low bargaining power with buyers and suppliers, these all result in intense competition among player in the basis of price, quality, differentiation, and value for money etc. In this case also we can find that the companies are putting its efforts to find out the innovative cheaper and easier way to distribute music (taking into the consideration of all the illegal sources). Innovation in ways of distributing music has become the key driver of this industry. This has raised the intensity of the competition within industry. Although companies are co-operating for fighting with pirated music distributors and they are together putting their efforts, but the way to stop illegal downloading is yet to find. b. Internal Analysis for EMI i. SWOT Analysis After having a fair view of external environment and the industry scenario, it is necessary to have an in depth analysis of the company. SWOT analysis helps up to find out the strengths, weakness, opportunities and threats for EMI. I. Strengths In case of EMI, it is having a PAT (Profit after tax) of Euro 142mn in May 2005, which shows that company is getting profit out of its business. The main strength of EMI is that it has very flexible business strategies. Although the technological scenario were changing but EMI was able to keep itself with it like – EMI signed a deal with Apple’s i-tunes and under that it was providing premium and high quality music at 99p per track as compared with 79p per track of low quality. In 2002, Universal, the world’s biggest record company announced a deal with a satellite firms that stored songs under the brand label of Virtual Music Stores. Later on EMI and BMG also joined it. The advantage of this was that a smallest store can have a large collection of songs. EMI had also earned a lot of money from its non-core areas like music concerts and other accessories. For this it has teamed up with a talent management company. EMI has also signed a deal with lastfm.com for distributing music. II. Weaknesses The only weakness with EMI was that it didn’t have any sustainable competitive advantage with it. None of its business strategy was fruitful for a longer period of time. After signing a deal with Apple’s i-tunes, there were some compatibility issues between digital music players and music available on online stores. All this was creating confusion in the mind of the consumers and it was leading to loss of market share and mind share as well. III. Opportunities As given in the case that there is a huge potential in the market, there were significant growth in the purchasing habits of consumers. The sales of e-singles were increasing with a double digit growth rate. As Jupiter Research forecasted that digital music market will become double in size in 2006 as compared with 2005. It will grow with a rate of 25% for the next five years. Earlier the digital distribution of music was posing a threat for companies but when companies adopted this technology changes in their business strategies then it becomes an opportunity for companies. It is just because that digital distribution of music is cheap, universal, convenient and flexible customer can enjoy it wherever they want. All these were creating a huge potential market for EMI in the near future. IV. Threats The revolutionary changes into the technological aspects of this business are posing a threat for the company. It is very costly to cope up with the change in technology which is profitable only for a short period of time. Unless and until there is no sustainable advantage for the company, technological development is loss making deal for the companies. The rapid change in consumers buying habits and their preferences & perceptions are posing threats to the company. Having a look on the external and internal analysis of the company and industry, it is implied that although there is so much potential for the future in the market but due to the rapid changes in the business environment whether it is from technology side, customer side, social life of customers etc, it is creating a very competitive scenario for EMI. To out compete the market EMI needs to develop a sustainable competitive advantage over its counterparts (taking into consideration of all environment changes). 4. Aims To be a top music company, EMI needs to employ all its resources and strengths to get a sustainable advantage in its core business through bringing innovative solutions for distributing music. To get the highest market share and mind share of consumers across globe through innovation and service quality. There is a strong need to make the consumers aware about the benefits of listening copyrighted music. This awareness will surely create a demand for the products. Looking at the potential opportunities in the market our aim is that for the next 4 years the revenue of EMI should grow with a rate of 25%. To achieve this we need to penetrate the existing market and develop new products for new markers. Customer oriented marketing will make them aware about the products offered by the company. (We can not target any particular figure for market share because the figures of current market share of EMI are not mentioned in the case.) 5. Strategy The marketing strategy is to achieve our aims in an effective manner. To achieve all these, a clear marketing strategy is required, so for that we can use various model like Ansoff matrix (to know that where should we put our efforts.), the segmenting, targeting and positioning of the products and the marketing mix for EMI. Although there is not much information or data provided in this case for the company to measure whether it achieve its goals or not. It requires a lot of data which can make the strategy more accurate and more reliable. It is mentioned in the case that EMI is dealing up with so many companies but we do not know that which deal is the most successful among all. Which venture is reaping profits for the EMI? EMI is catering into a service industry, in this industry getting a market share through product differentiation is very tough because it is for everyone and everybody is providing the same. The only difference can be created through the quality of service for consumers. The service quality should work for enhancing the share of loyal customers in the complete pie. Customer’s preferences and their likings should be taken care of. At the same time, spreading awareness about copyrighted music should be a vital part of the overall strategy. Taking its business to all over the globe will also be part of the objective because the music industry is going global. Integration of the operations of EMI Group with other companies will have some anticipated benefits like, controlling price and currency fluctuations; the availability, timing of and demand for artists releases; the impact of electronic or other new music distribution formats; the impact of music piracy and other forms of copyright infringement; the impact of heightened competition in the music publishing and recorded music businesses; legislative, fiscal and regulatory developments and political risks; general conditions in the businesses of the companies and general economic conditions etc. a. Ansoff Matrix Ansoff matrix focuses on the current and potential products as well as markets. The adoption of the strategy will depend on which quarter the current status of the company is. If the market is new and the company is launching existing products in that market then company should go for the extension and development of the market, where as in the existing market with new products, company should adopt the strategy of market penetration. Figure 1- Ansoff Matrix In this case if we see that the market of the music distributors is same and the forms of the products keep changing, so EMI should adopt a strategy product development or extension of the services provided by the company. It has to create point of differences on the basis of service quality, and then only it will be able to get a sustainable growth rate. There are new markets opening up for new products, and companies are moving to their non-core businesses also, so EWI needs to diversify its business, in order to hedge the market risk associated with the distribution of music. Although EMI has also started earning money from its non-core activities, but it should focus on the core business as well. b. STP (Segmentation, Targeting and Positioning) To achieve the objective of getting market share on the basis of service differentiation, EMI should formulate its strategy for three main factors (STP) first is the marketing segmentation then targeting and at last positioning of the products and services it is offering. 1. Marketing Segmentation To achieve anything we have to set a focus for our strategy. Music business has taken a shape of global business because of the internet boom and globalization. First of all we need to segment the whole potential music market in different sub groups on the basis of common characteristics. Although there is not much information given in the case but we can segment the whole music market on the basis of geography and demographic factors. Since each and every country has its own kind of music and under that also, the likings of consumers are different. The choice of the music of Youth will not be same as choice of old veterans. 2. Targeting After segmenting the potential market into various sub groups, EMI should target more than one segment, because to get the break even one segment will not be sufficient enough. It should provide different kind of products to different kind of segments, The products type can be, classical music, jazz, western, new albums, or depending on the singers. 3. Positioning EMI should place its products in the market in such a way that it gets a positioning of high quality products and services at comparatively low prices. EMI is against the pirated music and it will fight against the provider of pirated music. The EMI should create a huge store of all kinds of music; the huge inventory of music will give it an advantage like, the first and final search point for consumers. EMI can position itself by saying – “The first and final search point of your music thirst” High Quality High Price Figure-2 – Predicted Positioning of EMI Music c. Marketing Mix Functions Distribution of the music is a type of service industry so under that there are 7Ps of marketing mix. We will look at the point of parity and difference in this. The marketing mix for any services includes 7Ps which are products, places, pricing, promotion, people, process and physical evidence to analysis the strategy of positioning products or services in its target market. Defining the roles of all these P’s will help us to achieve the position where we want to be. I. Products The products of the EMI should be of high quality, it should have long term contracts with popular music compositors and singers, the quality of the music it have, the higher the market share of EMI will grow. Depending upon the type of market it is targeting, it should have all categories of music, EMI should lead all music genre, including pop, rock, jazz, classical, Latin, Christian, country, rap/urban and dance. The world famous labels include Capitol, Angel, Blue Note, EMI, Priority and Virgin. EMI is among one of the most popular labels in the world. II. Place EMI is into the business of distributing music through any channel. Internet has removed the boundaries of nation as a physical presence in every country; now with the use of internet distribution of music has become very cheap, flexible. Consumers can enjoy it wherever they want. The online stores have taken the place of physical stores. EMI has its presence over more than 70 countries and in the near future it should go up. Changing channels of distribution of music has always been a key driver of the business. EMI should spend time, money and resources to innovate the way of distributing music. III. Price EMI is facing challenges in terms of price from different other players. Keeping in mind of the consumer’s view point that they want high quality music at lowest possible price, EMI should lower its cost of per track for the consumer by integrating operations and merging with companies in a way to get the synergy benefit. IV. Promotion EMI should start with spreading awareness about the benefits of copyrighted music, because copyrighted music is of best quality and it gives a better feel than pirated music. As part of its strategy, it should fight against with pirated music providers. As the industry has seen dramatic changes due to intervention of internet, so the promotion by using will create a large impact. For that- EMI should deal with google and other search engines, that whenever anybody search for any kind of music, rather than displaying the pirated sites on the first page, it should display legal downloading sites and EMI should be given a preference over other. EMI should buy a lot of web space for communication the value proposition through internet. It can display links to the websites and flash ads with lot of innovativeness. EMI should provide free sample clips of newly released music to its customer, by listening that free clips, there are chances that customer can buy it. EMI can launch various promotional and sales offers on internet; it can provide opportunities to its customers to meet with famous singer on the buying of music. Other sales incentives can be a part of its promotional strategies. Just like signing a deal with Apple’s, EMI should start a joint venture for distributing music through Microsoft. Microsoft is the largest selling operating system in the world. EMI should develop its websites where consumers can download their music. The website should be more interactive in nature and customers should be able to use it with ease. Some innovative services can be offered as a promotion to its customers like, organizing live concerts, music zones, games, quizzes etc. All these will help EMI to create a good brand recall for the company. People will perceive it as a company which offers value for money. V. People Although on internet, there are no touch point of EMI employees to its customer, but on the physical stores, it should give a feel of satisfaction to its customers. EMI can create a few touch points on online store also, where they can directly interact with the customers and make him feel good. VI. Process Process is mean by the way of delivering music to the customers and the steps involved in that process. Since the music has delivered in the forms of CD-DVD or customer can download it on internet. So to increase the process quality EMI should provide nonstop download and uninterrupted speed. The process should be easy and customer should feel comfortable with the process whether it is related with the downloading or payment. The mode of payment should be safe and secure for the customer. VII. Physical Evidence Services are intangible; customer can only feel that they can not see it. To make the customer feel about that company care for them, there should be some tangibility attached with it. EMI should focus on relationship management; this will help them retaining their customers with them. Having a detailed database of customer’s personal data, his choices, likings and him preferences etc. EMI should take care all of this in order to maintain a good and long term relationship with them. 6. Implementation and Control As the analysis and this marketing plan has been designed on the basis of data given in the case. There is very limited information given in the case that is why it is tough to decide exact figures in the future objectives. The strategy is very subjective and there are no figures attached with this. To achieve our aim of 25% growth rate, we need to expand our business horizon and global reach. Employing new people into the middle management is necessary. 7. Budgeting Processes The company needs to – Employ new middle managers Store Managers 15 store managers per quarter Online web space for promotion 8% of the entire sales Hiring an advertising agency Either a global company or different Organizing concerts 5 mega concerts in each quarter Buying new store locations across world 10 new store in every quarter Integration with other companies like Warner Websites development and making it more interactive Since the cost for all these have not mentioned in the case, so we can not take any random cost for this, but the strategy and the budget heads will be the same. The scheduling of these will be according to the objectives we have set. In the first few months, advertising company should do a research to know the current perception and positioning of EMI in the mind of the customers, and then it should develop a proper marketing communication plan on the basis of value proposition offered by EMI. The point of differences should be highlighted. After developing a marketing communication plan, it should be launched on the websites and get as much web space as required. After the few months of viral, it should see its impact on the revenue of the company. 8. Performance Measurement & control The EMI needs to create software for establishing relations ship with its customers, it should get the feedback from the customers, this will show that are consumers satisfied with the services it is offering or they need any change and development in the services offered. The impact on revenue will let us know about how effective our marketing plan was? Other than launching a software for relationship, EMI should count the number of times its’ websites and downloading links has been clicked, this will also show us that the whether consumers are wiling to browse it or not. 9. Conclusion To conclude, as per the limited data and information given in the case, the above mentioned marketing plan with set objectives will work effectively. As the analysis says that EMI needs to focus on controlling internal factors and should be able to accommodate the change in external factors in its planning. The feedback system and spreading awareness and fighting against pirated music will help it to get more market share. EMI is among the major record company and it will be on top position. 10. Reference Case on Digital music industry, Bermingham City Business School.2009, MA Marketing (FT) Marketing Planning, M Willoughby Gerry Johnson, Kevan Scholes, Richard Whittington. "The Environment ." Exploring corporate strategy . Pearson Education, 07 Dec 2007. 52 - 67. Read More