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Read the below case studies and answer the given questions. 1. ONLINE MUSIC GIVES RISE TO DISTRIBUTION HEADACHES Who'd be the marketing manager for a...
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Read the below case studies and answer the given questions.1. ONLINE MUSIC GIVES RISE TO DISTRIBUTION HEADACHES

Who'd 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 £2.1 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 discs, 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 co‑ordinate the distribution of products. The independent recording sector is also important as a source of new talent. The market is subject to extreme sales variation, due to fluctuating reputations and 'hype' 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 hobby 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. The chief difference between the two types of chain is the range they stock: Woolworth's may sell more units than any other chain, but it keeps a considerably less deep list of titles on display than HMV who are aiming to attract the more 'knowledgeable'—and frequently higher and more regular spending—music fan, in addition to the chart‑orientated buyer. More mature consumers tend to shop at outlets like Boots or WH Smith.

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. Over the same period, the number of UK independent record shops fell from nearly 2,000 to 1,500. Although record companies welcome the huge volume provided by supermarkets selling music, they fear a repeat of the retail revolution in the USA which virtually wiped out the small 'indie' record shop. The music industry

believes the long‑term development of new bands has been harmed because the shops that used to sell debut albums are in decline. Asda's category controller for entertainment says that record companies are in a difficult position because, although publicly they feel that supermarket price promotions are devaluing music, privately they are happy to see any sector performing strongly. However, music companies are finding supermarkets, with their high expectations of marketing and merchandising support and low margins on CDs compared to groceries, much harder to deal with than specialist chains.

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 Kingfisher 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 Research has suggested that the sites most commonly visited by 15-24 year olds are music related. Music is well suited to on‑line retailing. With no need to see the actual CDs, it is easier to listen to a taster on‑line than in a shop. Web sites can also add value by incorporating reviews, concert listings, and discographies.

However, distribution through the internet did not get off to a very good start for the music companies. Internet based companies such as Napster.com and Aimster.com tried to get round the copyright laws by allowing "members" to swap files with each other. This undoubtedly cost the music companies a lot of money, and they eventually succeed through the courts in driving many of these sites out of business. But the music companies realised that new pirating sites could spring up at any time and the internet was very difficult to police. Should they continue to rely on the courts to drive the sites out of business, or should they try and join them? The companies were aware that the internet sites were driven by energetic entrepreneurs - could the music companies harness these energies for their own benefits?

Gradually, the companies started licensing companies to provide mp3 format downloads using coding that prevents multiple copies subsequently being made, believing that they did not have the internet skills to set up their own distribution operations. In May 2001, the music and media giant Vivendi Universal acquired one of these sites - MP3.com for $372m, just six months after MP3.com paid Vivendi $53.4m as compensation for intentionally violating its copyrights. For MP3.com a big attraction was having access to its new owner's back catalogue. For Vivendi, the benefit was to acquire the skills necessary to distribute through a channel which it knew little about, other than as an adversary in the courts. By 2003 MP3.com had amassed 3m users within a year of opening its European operation with a staff of just 25 (Sexton 2003). Visitors to the site enter their personal details to get access to 1.2m songs, either as streams or downloads, depending on the content supplier. MP3.com's role as a marketing ally represented a recovery from three years previously, when the parent American website was badly wounded in the crossfire with peer-to-peer "baddies" Napster and Aimster.

 

QUESTIONS:

1.    Identify the key environmental forces that should be considered by music producers in evaluating strategies for channel design.

2.    Contrast the role of a specialist music retailer with that of a grocery supermarket in the channel for CDs.

How would you suggest music producers might control their marketing channels more effectively?


2. COMPLACENCY CAN BE THE BIGGEST ENEMY OF RETAILERS


"There's no need to ask the price - it's a penny" was the proud claim of Marks and Spencer a hundred years ago. From the start, it had developed a unique position in its market - an emphasis on low price, wide range and good quality. Over time, the Marks and Spencer position has been steadily developed, along with its profitability. By the 1990s it looked unstoppable as a retailer, as it progressively expanded its product range from clothing to food, furnishings and financial services. The world seemed to be waiting for M&S to exploit, and despite disappointing starts in the US and Canada, it developed steadily throughout Europe and the Far East. Then, just like any star who has been put on a pedestal, the media began to savage the company. After a sudden drop in profits and sales during 1998, critics claimed that the company had lost its position in the market place. It appeared to be like a super tanker, ploughing straight ahead with a management that had become much less adaptable to change than its nimbler competitors.

Many observers had commented on the fact that the company did not have a marketing department until 1998. Marketing, at least in terms of advertising the brand, had become so important to its competitors, but had never been high on Marks & Spencer's agenda. According to Media Monitoring Services, M&S's total media spending between Dec 1997-Nov 1998 was just £4.7 million, almost a drop in the ocean compared to the spending of Sainsburys (£42.1m); Tesco (£27.5m); and Woolworths (£21.5m). While other retailers had worked hard on building a brand image, M&S has relied on the quality of its stock to do the talking. The argument was that everyone knew what they were getting with M&S underwear or shirts - good quality at fair, but not cheap, prices. Similarly with food, M&S's offering was about quality rather than price. M&S believed its customers knew what the brand stood for and advertising was much less important than ensuring that it could obtain the right products at the right price.

In 1998, M&S looked to marketing to help turn around its performance, describing its new marketing division for UK retail as "a significant development in our retailing philosophy". Many suspected that M&S's conversion to marketing had been encouraged by the example set by the star of modern retailing, Tesco. There are many similarities between the problems facing M&S and those which Tesco faced a decade previously. In the early 1990s Tesco was a brand which looked like it had seen better days. The retailer's format was tired, its stores poorly laid out and the positioning of the company was still based on its founder's principle of 'pile it high and sell it cheap'. Its arch-rival, Sainsbury's, was regarded as the more upmarket store for the middle classes, who shopped for quality food in a more pleasant environment. Since then, Tesco had innovated with improved store designs, petrol stations, coffee shops, a new fascia, the Tesco Club-card and 24-hour store opening. The list of Tesco's marketing initiatives seemed to be unstoppable, in an attempt to keep one step ahead of its competitors.

In contrast, M&S had failed to keep pace with customer service. In many issues of retail development, such as out-of-town shopping centers, Sunday opening and loyalty cards, it had lagged behind its main competitors. While it has stood still, the likes of Tesco and Sainsbury's marched ahead until there was no longer much that felt exceptional about the M&S shopping experience. Analysts argued that M&S had failed to make its store layouts help shoppers bring clothing together to make outfits. In a typical M&S store, all jackets would be located in one area and all cardigans in another, for example. Its competitors had made much greater progress in bringing together coordinated sets of clothing which would encourage shoppers to spend more. M&S has also been criticized for making things difficult for customers by not accepting payment by major credit cards. 

In response to its current troubles, the newly created marketing department of M&S launched its first national campaign for retail towards the end of 1998. The ads followed an initial attempt at regional TV advertising earlier in the year, which the company was said to be very pleased with. The newly appointed Chief Executive claimed "It's not that people don't like what we're selling, but that we haven't got the message across. There are an awful lot of people who love us for our knickers, but they don't love our home furnishings because they don't even know they are there." Many critics thought the problems were much more deep-seated and blamed the store's problems on the fact that its autumn fashions were seen as dull and uninspiring, and out of touch with consumers' preferences. Greater authority was pledged to the marketing department when it came to new product design.

In response to its pledge to listen to what its customers wanted, new designers were brought in to try and give the company's ranges more sparkle. The company even thought the previously unthinkable by proposing to stock manufacturers' own branded products, instead of relying entirely on M&S's own label products. If customers wanted to obtain variety at M&S, the new thinking was that the company must adapt and offer it. Another area identified for development was direct marketing of fashion products - an area where the company had begun to lag behind its rivals who had developed interactive web sites.

Serious questions remained about the company. How quickly could it change in response to its changed environment? The company had not been known for speedy decision making, so probably a major structural overhaul was essential before it could get down to the serious business of adapting to customers' changing needs. Also, there was a great danger of changing the company's position too far and too fast, thereby alienating its traditional customers without gaining sufficient new ones. As a warning of how not to change, M&S's rival Laura Ashley had repositioned itself so radically from its original format that it now failed to gain the support of any major group. M&S had itself tried to become more fashion conscious during the mid-1980s with similar effect, and had to make a hasty retreat to its traditional, more staid image.


QUESTIONS:

1.        What do you understand by positioning, and what tools are available to Marks and Spencer to give it a positioning advantage?

2.        There has been a lot of debate about whether the existence of a marketing department can actually be harmful to services companies because it absolves everybody else of marketing responsibilities. What then, do you make of M&S's decision to introduce a marketing department?

3.        What are the dangers to M&S of moving its market position too far and too fast? How can it try to alleviate these problems?

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