The Traditional CD Marketing Company - Essay Example

ECONOMICS Background The current research looks generally at the traditional retail CD market in terms of its change in operational style and its reaction to events in the external business environment affecting its performance, in the light of economic theories. These economic theories are those of price elasticity of demand, and supply-and-demand theory. The traditional CD marketing company at the beginning of dynamic operation is a company that is presented as trying to get closer to its consumers, and therefore has revamped its operations to reflect a more talent centric organization to compete with downloading mp3 files from the internet. There is a lot of tension in the current environment between downloading songs over the internet, and buying songs more traditionally on CD. There has been a lot of change in the retailing environment in association with the issue of downloading digital resource. At the same time, many modern players in the retail CD market have cut out on the branch style of the organization and have streamlined so that they have fewer corporate offices and zones, and more time and attention to pay to its stars and customers. In terms of price, the competition is that of a rivalry between the traditional CD of music, bought at a retailer in a brick-and-mortar form, versus a song or album that is downloaded over the internet. “Nearly all of the leading OMPs provide the same standard set of features and pricing: $0.99 singles, a dedicated software client, and an extensive catalog of music from the five major labels plus many independents” (Lin, 2009). The current research must also look at the vital issue of how many people are downloading music for free over peer to peer (p2p) networks, or paying minimal amounts through services like iTunes, therefore seriously threatening the recording industry’s and the traditional CD retailing industry’s profits. From a modern perspective, one can also take a traditional view of the overall industry, in terms of development, production, distribution and retail, talking more about making CDs than about making mp3 files, and focusing on cost requirements for making a hit in music, developing this as a sort of artist investment process. On the other hand, in considering marketing and promoting costs, it is important to register the popularity of free internet downloading and how much of a threat this represents. The current research examines economic concepts before putting them in the context of CD vs. digital song retailing. Relevant economic concepts Price elasticity of demand is one concept that can be related to the general issue, which is the traditional retail CD market, and how it has responded to the new market of people downloading songs over the internet. The basic item for consideration in this relationship, in terms of price elasticity of demand, is the song. Therefore, the song represents the product. And the demand for the product or song is called inelasatic, through price elasticity of demand theory, if a customer is willing to pay a premium for the song. On the other hand, the price is considered elastic, if consumers only are willing pay a certain static price that remains within a few pence within competitors, for the song that is being sold. So therefore, price inelasticity and elasticity of demand can be related to any industry in which there is competition. And because there is such dynamic competition in the music industry, as it is represented by the CD retailer of songs vs. the internet download provider of songs. At a set price per song, sites like iTunes are competing basically with a similar price for a CD of songs, representing an average of eigth to fourteen songs. This represents a narrow range of prices, so the general market is one of elastic demand. If demand is elastic, the company, whether it is releasing a CD of songs or selling songs on the internet, is going to have to price very closely to competitors. On the other hand, if the demand is inelastic, the maker of the product can raise prices arbitrarily. Traditional CD retailers or internet distributors may argue that certain “hot” or special-release albums may be premium-priced, but there is still not that much variance of the price overall among competitors. Inelastic demand represents a narrow range of prices for the song. Inelastic demand means a CD distributor or a site like iTunes can raise prices without hurting any demand for the songs of the artists it is representing, and elastic demand means that customers are sensitive to song prices, and will not go above a certain amount per song. “Drinking water is a good example of a good that has inelastic characteristics in that people will pay anything for it, so it is not elastic. On the other hand, demand for sugar is very elastic because as the price of sugar increases, there are many substitutions which consumers may switch to” (Price, 2009). Listening to a song is basically a form of entertainment for people, so there are many possibilities for relating these concepts that are thought-provoking. In other words, the relative economic concept can be justified. The relationship between supply and demand is another concept which can be related to the traditional retail CD market, and how it has responded to the new digital market of people downloading songs over the internet. Unlike some other market, like snack biscuits or furniture, in which there are countless companies making the product, there are only a few companies putting out commercially available music CDs who have the economy of scale to be considered trend makers. This field is limited primarily to the labor market of the home country and international music industry, in which the companies are all interdependent and there are only a few of them, and they are also geographically concentrated. An example of a supply and demand relationship affecting an organization would be multiple. In the organization is not singular; it is made up of independent entities. The supply is controlled by the company which is putting out artists on a CD or digital format. In comparing the traditional CD retailer and the digital download market, it is important to notice how the organization meets the criteria of the pricing model according to supply and demand theory. Another likely effect of labor would be that the supply curve would increase and there would need to be more resources at the traditional CD retailer given over to the retention and motivation of employees in a less expanding market, compared to internet downloads. Companies like this have to respond to changes of supply and demand in the external environment. And, as mentioned above, “Another objective concerns the issue of the control of pricing which has been taken from distributors and retailers by the unfeasibility of competing with a similar product that is offered for free” (Music, 2009). For the future of the industry being able to change and react to external supply and demand actors to continue into the present, it must be stressed in the present environment that mp3 retailers need to be customer-aligned as well as traditional CD retailers. Within the general industry of those who produce entertainment or music, there is a variance in the present between tradition and change. The customer sees the company optimally not being a self-righteous reactionary to industry change, but rather an agent of change. It may be more tenable for these entities to supply a more hands-on approach to change in the external environment by changing this internal structure. This may mean the solution of becoming a more active part of the internet envrionment in terms of policymaking alternatives. “When consumers increase the quantity demanded at a given price, it is referred to as an increase in demand. Increased demand can be represented on the graph as the curve being shifted outward” (Price, 2009). This concept of supply and demand is not as simple as two words suggest; there are many situations when the supply or demand is created artificially, which affects the variables and interrelationships between states. Supply and demand as well as price elasticity of demand and supply, are basically capitalistic economic principles. Capitalism is a system in which the means of production and supply and demand are controlled not by the state, but by private enterprise, within a market economy. There are five components of the market economy. The first component is the freedom of individuals to make choices about production within an underlying market system. The second component is that production is determined by supply and demand, on which businesses base their choices. The third component is that there are many different categories in the market for different products and needs. The fourth component is that the cost of labor is also determined by supply and demand. The final component is that businesses are primarily motivated by profit. Capitalism is essentially about power falling into a system of private governance. Many people presently also equate capitalism with free trade; supply and demand, and elasticity are among its central concepts. These concepts can be applied to many industries more specifically. Conceptual application One can easily apply the concepts and theories of supply and demand, and elasticity to the CD industry, as it is seen to be in competition with the new era of digital downloading. In terms of arguments about price elasticity that may be used by traditional music labels and CD manufacturers, many manufacturers see their main competition as being services such as iTunes, which supports Apple’s iPod and iPhone products. Traditional CD makers often complain about the relatively cheaper price point for music and other types of tracks on iTunes (a proprietary digital music service). However, there are also other download services, but most of these compared to the few major players who dominate the industry, arent big enough to make a significant impact, and therefore they represent the continuation of elastic pricing. In this type of pricing, as mentioned above, there is not much variance between buying a song on iTunes and a song on a CD in theory, but with the CD, you have to buy 8-14 average of other songs, and on iTunes, the customer can just buy the song. Therefore, this affects elasticity because pricing is on different scales. Tradtional CD retailers often like to point out that, as mentioned above, premium pricing opportunities can be garnered through new-release, special-release, and other pricing strategies, and “offer up a lower price point which will be added to the equation so that it doesnt look just like a price increase - the goal is probably a lower price point for deep catalog/less desirable tracks, competitive for the majority of music, and premium for more popular tracks” (Labels, 2009). This quotation shows price elasticity at work, because in all three of these categories, the actual cost difference is very minor. It is also important to view supply and demand relationships as they relate to elasticity in the case of this industry. In the future, it is entirely possible that, as one source predicts, “Differentiation and success in the digital market will depend on content exclusivity, community-oriented tools, file compatibility, and less restrictive usage rights. Despite file sharing concerns, consumers have indicated that they would be willing to pay” (Lin, 2009). Presently, competition is affected by price elasticity of demand in this industry, because many of the companies competing with CD manufacturers have products with a high degree of demand, in comparison with traditional stereos and CD players. Of the various makers of MP3 players, there are some in strong positions and others are in weak positions. Apple appears to be strongest right now, especially in terms of brand recognition, but there are also potential problems of iTunes having to compete with free downloading in terms of supply and demand and price elasticity, to say nothing of the traditional CD industry and its competition with both pay internet services like iTunes, and illegal free downloads. In terms of supply and demand and the problematic nature of applying theory to real corporate situations, the CD industry here is facing a very difficult, and almost impossible situation by competing with internet p2p networks. For example, think of something that is normally free, such as a local coupon book. Then imagine that near the stacks of coupon books on the sidewalk, there is a person selling coupon books for ten dollars a book. Realistically, one wonders not just who is going to buy the coupon books, but also who is going to keep selling them. From a CD industry perspective, often, “The core disagreement is that labels feel that flat rate pricing doesnt capture enough margin for those hot tracks where users would pay more” (Labels, 2009). But if someone is offering the same product for free, one must really ask whether the labels are looking in the right direction by even competing against flat-rate services like iTunes, when they are actually competing with internet pirates. Generally, the basic problem of the current industry situation is not what many would perceive to be a real problem in the sense that it needs to be overcome to solve serious challenges: the problem for CD retailers is that there are too many substitute models to meet supply upon product entry, and that competition offering free songs has effectively shut down their system of realistic competition, so that they cannot even see the threat clearly. This is of course a problem with a rather blinding bright side for those who argue that music and other resouces should be traded freely among people. But for the CD industry, it is an absolute disaster. In the face of it, some stress the need for a cost-controlled internal structure to combat possible external losses due to free mp3 downloading. “Because of the high costs involved combined with the general decline in the sales of CDs and singles, many industry insiders think the singles market cannot continue in its current form. One possible escape route is the radio only release” (Hollensen, 2007). Marketing efforts must also include the assumption that this is not a dynamic business environment and can be very stifling to competition, in terms of supply and demand curves. Traditional notions of supply and demand may be upheld or challenged by the industry. One can see how for a song, at each price point on the internet or from a CD retailer, a greater quantity is demanded by consumers. In other words, more people are getting computers and mp3 players, and more people are wanting to take advantage of digital music downloads. This raises the equilibrium price in theory, but competition actually keeps the price down. Meanwhile, there is the abberation of the same product being offered for free on p2p networks also keeping the price down, particularly for the digital companies. Both large and small music retailers need to be closely aligned to consumer needs as well as being aligned to the concept of not being a reactionary to industry change, but rather an agent of industry change. This may be difficult for many cost-effective and stable music industry and retailing companies to achieve, because in the past they have based performance initiatives on the perception of dealing with change in the external environment while still maintaining a cost-effective internal structure. It may be more tenable for these entities to take a more hands-on approach to change in the external environment. Conclusion There is the conclusion regarding downloading free music over the internet as a progenitor of adverse effects on music retailing and distribution, in relation to the ability of music retailers to deal with and embrace change in the business environment. In many cases, as one source notes, “The biggest roadblock to deter music piracy, however, is the most blatant: for every legal victory and technological advance the industry makes, those (pirates) always seem to stay one step ahead” (Hollensen, 2007). Additionally, just forcing ISPs to reveal their customers’ names won’t necessarily lead to prosecution. This shows how issues such as the issue of expectations for privacy on the internet is involved. REFERENCE Hollensen, S (2007). Global Marketing. Upper Saddle River, NJ: Prentice Hall. Lin, A (2009). Understanding the market for digital music. http://74.125.47.132/search?q=cache:avdYV7Xv77EJ:surj.stanford.edu/2005/pdfs/Albert.pdf+competition+cd+industry+digital+music&cd=4&hl=en&ct=clnk&gl=us Labels fighting for price elasticity (2009). http://hypebot.typepad.com/hypebot/2005/09/labels_fighting.html Music CD industry: Competition (2009). http://www.soc.duke.edu/~s142tm01/compete6.html Price elasticity of demand; supply/demand elasticity (2009). http://economics.about.com/cs/micfrohelp/a/priceelasticity.htm Read More