Umair Haque / Bubblegeneration
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Design principles for 21st century companies, markets, and economies. Foreword by Gary Hamel. Coming January 4th. Pre-order at Amazon.

Friday, June 04, 2004

There's a nice article in the Journal today about a new 'pricing strategy' by Universal (Records), which was essentially across-the-board (~30%) price competition. Of course, this was never gonna work, because it (as usual) ignored the economics of the industry, and consumer preferences:

"...consumers didn't view an album with its price cut to $12.98 as much of a bargain. Moreover, many music buyers never even saw the lower prices. A wide swath of music retailers, from Virgin Entertainment Group Inc.'s Virgin Megastores to Trans World Entertainment Corp.'s FYE, either never adopted the cuts or were slow to implement them -- and pocketed the extra cash.

Indeed, Universal misread how music retailers -- many of them financially weakened by online piracy -- would respond to the cuts. The retailers felt the music giant's public pronouncements about the strategy were designed to force them into making cuts they couldn't afford. And they thought that the low-price plan favored their new archrivals -- megachains like Wal-Mart Stores Inc. that can afford to offer CDs at deep discounts and make up the losses with other, higher-priced products. Music stores, which usually don't carry other product lines, can't afford to discount CDs as steeply.

"They were trying to force a new pricing strategy upon us," says Martin Herrmann, a consultant with FTI Consulting Inc., which was working with the ailing Tower Records chain on a balance-sheet restructuring. Record retailers felt they were the victim of "strong-arm tactics" designed to force them to accept untenably low retail prices that squeezed their profit margins, says Don VanCleave, president of the Coalition of Independent Music Stores, which represents 70 retailers in 24 states."

-- umair // 11:46 AM // 0 comments


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