HMV Survival in Digital Word - Literature review Example

HMV in Digital World- Literature Review Contents Industry Analysis 3 Porter’s Five Forces 3 Online Sales 6 buying behaviour toward online sales 6 Customer Satisfaction 6 Advantage of Online Sales 7 Product Service Range  8 Differentiation 8 Competitive Analysis 8 Customer Experience 9 Improving Artists’ Experience 9 Improving Customer Experience 10 Enhancing Digital experience 10 Enhancing Brand Experience 11 Reference List 12 Industry Analysis The literature review will consists of the external industry analysis and evaluation of the consumer buying behaviour towards online sales of music products. Porter’s Five Forces Supplier’s Bargaining Power Music industry suppliers are present in diverse forms. These forms include artists, their managers, products (indirect suppliers) as well as suppliers of music accessories, disks and other raw materials for packaging. Internet has provided these suppliers, especially the artists, with multiple opportunities for strengthening market position (Paridon, 2004). They are presently no more dependent on record labels and can perform similar tasks at their homes. Also, distribution of their recorded products is also feasible through internet. Video sharing services such as, YouTube, have also helped several artists to share as well as promote their talent across the globe. At the same time, presence of a large population of suppliers has their bargaining power related to packaging materials and recording disks (Watson and Spence, 2007). Customers’ bargaining power The bargaining power of retail music customers have increased substantially. Customers in the UK music sector can be divided as corporate and individual. With evolution of download services and legal streaming, the e-shops and streaming services, such as, iTunes, have become popular among consumers. As a result of rise in illegal streaming, people are currently buying lesser number of records (Wikstro, 2005). Corporate consumers in this industry include offline and online retailers involved in bulk purchases of albums from the music labels. These entities include stores like, Game and HMV, as well as online stores like, AmazonMP3, iTunes and Zune. Stringent contracts, along with increasing sources where consumers can download songs and videos illegally, have lowered the bargaining power of corporate customers (Rust, Kannan and Peng, 2002). New Entrant’s Threat Established and branded music labels are spending millions in test marketing, recording as well as image-development campaigns so as to ensure competency and quality of the artist, before making a public launch. These areas need implementation of special skills as well as huge access to money. Furthermore, these campaigns are supported by exhaustive distribution network and wide reach in terms of online distributing partners (Michel, 2006). These online partners are also helpful for immediate album distribution to exact locations. Also, the bigger brands can easily use their industry contacts during concert organisation, album promotion shows or for creating buzz for different artists. As these facilities are not available to newer brands, initial risks as well as capital expenditures are higher compared to that of the established brands. Then again, owing to easy accessibility of the smaller studios, more number of independent and newly established record labels is readily launching their music videos and songs. Also, artists presently have the facility to record at home and thus, the threat of new entrants is rising (Leftly, 2013). However, given the high brand value of the big brands owing to experience in the market and huge reputation, it can be said that the threat of new entrants will take a long time to materialize before impacting on brand popularity, equity or profits of the bigger brands. Competitive Rivalry Competitive rivalry has increased over past few years in the music industry. Achieving product differentiation therein is quite difficult as all genres are represented by common artists. Then again, the competitors were able to generate differentiation by way of selling different music formats such as, DVD, CD and Blue-Ray, as well as online formats including WMV and MP3. Nonetheless, with the advent of digital downloads and consumers finding it easier to download music rather than visiting the music stores, the average number of music outlets have reduced and most rivals are focussing on developing online tactics and strategies so as to capture the market (Design Week, 2013). Both the artists’ and consumers’ power is rising and as a direct result of the changing business model of this industry, it is imperative that the recording business should expand into broader catalogue range for sustaining income and business operations (British Broadcasting Corporation, 2013). Hence, it can be said that although competitive rivalry is high in the music industry, overall power and profit margin of the competitors is diminishing. Threat of Substitutes Threat of substitutes is high in this industry. Websites offering pirated music for free are clearly the biggest substitute identified. While the final choice in respect of whether to purchase the music or download the same illegally is totally dependent on consumer’s conscience, the free music attribute of pirated websites is already taking away huge profits and revenues (Koh, Murthi and Raghunathan, 2010). Another substitute of the music industry is the free music streaming websites such as, Myspace. Although the consumer is not able to download the tracks for free, the websites allow listening to any track for unlimited number of times without purchasing the same. Thus, the live streaming websites are another viable and identified substitute as they adequately entertain consumers (Huang, 2005). Also, other industry factors, such as, radio channels, 24 hour music channels and other television channels, can be considered as indirect substitutes related to the music industry. The average price of these entertainment channels is high as such services require set-top boxes, monthly subscriptions as well as maintenance charges. At the same time, owing to the added facilities provided by these services such as, huge choices of channels and added recording facilities, the overall value of these services are set higher compared to that of the average music albums. As a result, music albums are increasingly being replaced by the television and music channels and radio channels (Banda, 2013). Music substitutes are also present in the form of entertainment channels such as, games and films. Although these are not direct substitutes, they are entertainment providers with similar goals and objectives, which are gaining consumer’s time share as well as that of their wallet (Zentner, 2006). Moreover, utility of these games and movies is larger compared to that of music. It can be said that the ratio of cost to performance pertaining to games and movies is greater compared to that of normal music. As a result, even though the products of gaming industry and films are high priced, yet they appear to fare better in terms of revenues and profits. Online Sales Customer buying behaviour toward online sales With the evolution of internet, consumers have found a new platform that is able to provide an unusual and comparatively more efficient shopping experience. In the present scenario, customers are independent of specific locations or opening hours of the shops and are able to browse and purchase the service or products offered at any time and from any place. Consumer research in terms of e-commerce services have increased over the past decade with increasing online shopping among the consumers (Green, 2001). Consumers’ behaviour pertaining to online shopping can be directly related to five elements, namely logistics support, e-stores, technological characteristics of the website, presentation of home page as information on the website and product characteristics. Studies have also indicated that people with time constraints are more involved in online shopping (Johnson, 1999). Business of the music industry has declined, especially that of the traditional business comprising CDs and DVDs. Then again, the products such as, books, magazines, video games and music merchandises, are extensively sold in online format (Wu, Cheng and Yen, 2008). The consumer mindset towards online services and products can be related to their information processing. For instance, consumers shopping online are goal-oriented compared to offline shoppers who are experimental. As such, the online stores offering discounts and sales will attract goal-oriented consumers compared to experimental ones. Such online shopping behaviour of the consumers is generally formed through various sources such as, personal experience, direct marketing, social network, internet as well as mass market exposure (Schiffman and Kanuk, 2000). Customer Satisfaction Contemporary online consumers have huge expectations from the marketers such as, instant gratification. Whether it is an online transaction or download of music videos, consumers want every service to be prompt, hassle-free and cheap (Koh, Murthi and Raghunathan, 2010). In this situation, consumer satisfaction has become increasingly difficult to attain and with declining consumers’ loyalty, marketers are striving to maintain the same through traditional strategies and marketing gimmicks. Additionally, with increasing similarities between personal and business transactions, consumers expect their service providers to be available 24x7. Considering the increasing mobility of online consumers, it is important for marketers to devise tactics that will facilitate communication with the consumer as per their suitability and ease, thereby enhancing customer satisfaction (Bockstedt, Kauffman and Riggins, 2006). Communicating with firms via multiple and unique channels such as, SMS, web chat and email chain, is becoming greatly popular among the online consumers. The manner in which a firm is able to respond to these customer requests will ensure effective connectivity as well as greater satisfaction among the consumers (Gaffney, 2007). Apart from that, companies can also utilize the opportunity of capturing new customers. Providing a better customer service by way of implementing promotional tactics as well as relationship building will retain the existing customers as well as contribute in generation of new business (Gaffney, 2007). Advantage of Online Sales Multiple online communities have started to dominate the online sales market. Various social media services such as, MySpace, Facebook, LinkedIn and Habbo Hotel; content sharing sites such as, Vimeo, You Tube, Slideshare and Flickr; and gaming sites such as, Eve Online and Sims, have opened doors for social media marketers in terms of advertising and promoting their services and products, product development, establishing positive branding effects as well as gaining huge media popularity, thereby increasing the brand equity (Thompson and Sinha, 2008). Online sales have provided the marketers and consumers with various advantages alike. Firstly, the marketers need not spend huge amount of capital on real estate for establishing stores or buying/renting locations. Secondly, the number of products as well as variety is more in online stores compared to that of the traditional brick-and-mortar formats, which are constrained by limited space. Online sales are increasingly becoming popular among consumer too (Penz and Hogg, 2011). For goal-oriented customers, especially those with particular needs and less time to spare, online stores provide a perfect platform where they can locate appropriate products and services with the required specifications. Also, most of the online and offline products are similar in terms of features and offerings, which is why consumers need not spend extra time and money on travel and purchase. Increasing online sales can also be advantageous and it will increase the duration of sales (Eroglu, Machleit and Davis, 2003). Consumers are able to browse and purchase online round the clock, unlike in traditional stores that have fixed opening and closing time (Verdict Research, 2013). Products can be displayed at any corner of the globe, which in turn facilitates higher sales and revenue. While smaller street or retail stores cannot compete with the bigger ones, they can achieve competitive advantage by entering in the online format. Product Service Range  Differentiation Even though HMV is posited on unstable grounds, the company can establish itself in the volatile music industry by adopting the new trends and offering services and products that can satisfy the demands of contemporary customers. HMV can be differentiated from its competitors on grounds of flexibility, partnerships and diversified portfolio of products. HMV is one of the oldest brands in the music industry, which provides the firm with a unique brand image (Wu, Cheng and Yen, 2008). Additionally, the company has undergone a series of important partnerships with firms such as, MAMA Group, Curzon Cinema and 7 Digital. These partnerships have given HMV unique set of customers through which it has been able to remain afloat in the market. Lastly, the diversified portfolio of HMV ensures that the business is never suffering losses. The company has forayed into visual, digital music, fashion and technology, which renders it a one-stop shop for the target customers. Established brand image and constant expansion into new and popular product and service segments are the two major differentiating factors of HMV (Eroglu, Machleit and Davis, 2003). Competitive Analysis At present, the top competitors of HMV include Amazon, Apple, Arena Media and Tesco PLC. However, HMV’s major competitors are Amazon and Apple, which have successfully captured the new market of young consumers by offering products and services as per the specific needs of consumers (Hoovers, 2013). Although the company has performed well in terms of brand value and brand image, its average profits and revenue have slumped over the years. Such situation can be attributed to the changing trends among consumers and increasing popularity of the digital services and products (Savov, 2013). Figure 1 Market share of Music and Associated products of HMV (Source: Thompson and Sinha, 2008). Amazon has captured almost 20.3 percent share of the current entertainment industry and iTunes have acquired around 9.1 percent of the market. At the same time, HMV’s market share has declined to 16.1 percent (Design Week, 2013). Even though HMV was established comparatively earlier in terms of expanding into online market, the full-fledged transaction was not completed until 1999, thereby leading to immense dissatisfaction among the consumers as well as customer loss. Additionally, the download service of HMV was launched very late in 2010 and consequently, HMV failed to capture the free music market (Design Week, 2013). Customer Experience Improving Artists’ Experience The music industry is able to function because of two important participants; the artists and consumers. The artists are individuals who rent their voice for entertaining the other group of enthusiasts called the consumers. Marketers spend a huge amount of budget for ensuring customer satisfaction through promotions, campaigns, discounts and freebies (Jones, 2013). Also, the overall benefit solely from music consumption is very little. In such situations, HMV can enhance overall customer experience by associating music with other consumer goods and merchandisers such as, headphones, posters, t-shirts, speakers and other associated music products (Wikstro, 2005). Also, HMV can create unique service, especially for its artists and contributors, such as, launching official websites of the artists, campaigning for them, organizing tours comprising live concerts and other performances as well as promoting tour campaigns of artists, distributing concert tickets to music enthusiasts on behalf of the artists as well as providing free consultancy and geographical statistics such as, music download, concern traffic, popularity or likes in social media to the artists (Bockstedt, Kauffman and Riggins, 2006). Improving Customer Experience Another major factor that has brought about decline in the brand popularity and financial health of HMV is its inability to understand customer demands and trends as well as to provide a unique customers’ experience. A unique strategy to increase HMV’s customer experience is that of introducing eCRM strategy in business. This electronic CRM process helps in harnessing the huge data from the company’s loyalty cards, which can be further utilized to create offerings for specific customer sets. E-CRM will also help in alerting the stores regarding live feedback from the customers as well as management of the call-back requests (Gaffney, 2007). Such facilities will empower staff in taking ownership of the shop as well as enhancing customer experience and offer invaluable regional, national and local store rankings and satisfaction analysis, thereby leading to an improved in-store experience in both innovative and live manner and providing a unique strategic differentiation to HMV (Eroglu, Machleit and Davis, 2003). Through the launch of this facility, HMV will be able to establish two-way dialogue between the headquarters, the company stores as well as the valuable and loyal customers, which in turn will enhance customer loyalty by effectively responding to their opinions. HMV can also collect customer feedback through surveys and email immediately after a customer visits the store. Such initiative will allow the company to accordingly facilitate prompt improvements. Enhancing Digital experience With the introduction of Apple iTunes, the entertainment world has become digitalized and HMV have been struggling every since. Also, the company is encountering steep competition from Amazon (Marketing Week, 2014). Although HMV experiences adequate web traffic, the number of such visits, which have converted into sales, has declined substantially. The company has been focusing on establishing its digital business for the last few months. In order to increase its digital space and attract more customers, HMV will have to enhance the overall digital experience provided (Gaffney, 2007). The digital experience offered by HMV, such as, survey, email, response and portal, should be intuitive and clean. An appropriate and user-friendly portal will allow employees to resolve and manage call-backs as well as filter information based on dates so that key performance indicators of HMV’s various divisions and regions can be compared (Goode, 2014). Such outcomes will ensure a healthy competition between stores and facilitate overall increase in performance among the staff and managers. Customers will also be encouraged to share their feedback and experiences over the social media websites, which in turn will generate store traffic, enhance attention towards the brand and increase store recommendations (Gaffney, 2007). Enhancing Brand Experience The music retail industry has transformed into digital business and HMV will have to respond to this change in a prompt manner so as to not lose out on consumer’s mind share and pocket share. The brand is known for instilling innovation as well as facilitating greater collaboration between the artists and retailers. HMV can revitalize the brand image by strengthening its relationship with the existing customers as well as formulate appropriate campaigns to target new-age customers and music lovers (Bockstedt, Kauffman and Riggins, 2006). In order to do so, HMV will have to cut down its irregular product portfolios, close down loss-making stores and concentrate on services and products that mostly attract the present target group (Eroglu, Machleit and Davis, 2003). These include a cool place to relax and listen to music, equipped with latest technology and offering discount and promotional sale offers to the members and regular visitors. Thus, by enhancing overall appearance of the brand and promoting two-way brand communication with the consumers, artists and other stakeholders, HMV will be able to regain its lost market share and successfully establish itself in the digital market. Reference List Banda, M. H. V., 2013. Willingness To Pay for Music Streaming Systems. 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