Case #5: Spotify's Pricing Strategy

I think it is safe to say that most people in my generation have some experience using an online music player. Popular platforms include iTunes, Pandora, and Rhapsody, just to name a few. One of the most recent new online music players is Spotify. Spotify is a software program that users can download that allows them to stream a huge selection of music right to their computers at home. Before it was available in the U.S., it was taking Europe by storm. It essentially works by having a large collection of music, millions of tracks, that users can search for and play using the free Spotify software. The music is streamed to the users' computers, meaning they do not have to download it. Check out the video below to learn a little more about Spotify.

Click here to check out Spotify's website!

The obvious benefits of Spotify that separate it from its competitors are that the user can choose exactly what to listen to, make playlists, and then share their playlists and songs with friends. The social aspect of Spotify is huge, particularly with Facebook. Check out the video below to learn a little more about Spotify + Facebook:

 

Below is a screen shot of me preparing to share a song that I was listening to via Spotify as a Facebook status update.

Spotify has three different subscription options: Free, Unlimited, and Premium. Although most of its users have the Free subscription, those who do pay for the services more than make up for those who do not. That brings me to discuss Spotify's pricing strategy. According to Anderson's taxonomy, Spotify employs several different pricing strategies. The first of these strategies is "Freemium." This strategy is characterized by the offer of a free version of a product or service that the majority of its users subscribe to. There are also two paid subscriptions offered: Unlimited and Premium. The Unlimited plan costs $4.99 per month and removes the play time limits as well as the ads from thr free version. The Premium plan costs $9.99 per month and adds many more features. Check out the lists below to see exactly what each subscription includes.

The second pricing strategy that Spotify employs is Advertising. After every couple of songs that the user listens to, Spotify plays an advertisement. These ads are usually between 15 seconds and 1 minute in length and cannot be paused or skipped (trust me, I've tried). The companies that choose to advertise on Spotify have some information about the user, so that they can better reach their target audiences. The advertisements only exist in the Free subscription model, and disappear as soon as the user commits to a paid subscription, like Unlimited or Premium. Below is a screen shot I took while I was using Spotify. Although I was playing a song at the time, meaning an ad was not playing, there was still a banner ad at the bottom of the window.

The third pricing strategy that Spotify employs is Zero marginal cost. This strategy applies heavily to online music since there is not much opportunity to make money in that industry anymore. Spotify knows that people are not willing to pay to simply listen to music online because there are so many other places they can do it for free. However Spotify does recognize that people are willing to pay to listen to a huge selection of music without any advertisements, especially when they can take the music wherever they go.

The fourth pricing strategy that Spotify employs is Labor exchange. Spotify users can share their music collections, which is what allows Spotify to have such a huge music collection. Having users share their music collections is very beneficial to Spotify, as it makes their software more desirable to other users. Spotify's social features also benefit from its user's actions. For example, when a user logs into Spotify through Facebook, any song they listen to is automatically posted on their Facebook wall. This lets all their Facebook friends know that they use Spotify and is like free, personalized advertising for the company.

People label it as free, but it’s not – people pay with their time, listening to targeted ads and we’re seeing good results with those.

Daniel Ek

CEO of Spotify

Although I have only recently heard of and started using Spotify, I think that it is a very good product because it lets the user choose exactly what songs they want to play from a huge selection for free. I think that using a combination of pricing strategies makes the company even stronger. Spotify reported in January that it had over 10 million registered users. The company added that 3 million of those users are paid subscribers. That means that nearly one third of Spotify's users have a paid subscription. This proves that offering a free version of the product is a huge strength, rather than a weakness. The fact that there are 7 million users with free subscriptions means that there are 7 million users being exposed to Spotify ads. This provides a huge opportunity for the company to make lots of ad revenue.

Another form of proof that Spotify's pricing strategies are effective is the huge increase in its market share last year. In 2010, the company had a market share of 9.1%. One year later, the company had a market share of 18.7%. This means that Spotify doubled its market share in one year! This shows that the company is growing very quickly and is definitely doing something right.

Although I am fairly new to Spotify, I would highly recommend it! I was a little skeptical at first, as it seemed pointless to me since there are so many other free ways to listen to music. However I recently learned a few things that got me hooked:

• It is very easy to search and find tons of different music all in one spot (saves the trouble of searching YouTube for music again and again for each new song).
• It lets you choose exactly what song you want to listen to (unlike Pandora where you have to listen to whatever it thinks you'll like and limits how many songs you can skip with the free version).
• It lets you share what you are listening to or see what your friends are listening to. (I have used this feature a ton during my time interning for music promotion companies. It is one of the best ways to promote music online now!)

Thank you for reading my blog! I hope you learned something new. Feel free to check out the sources I used below!

Sources:
Wired Magazine
PC Pro
Technorati
Arctic Startup

Case #4: Trojan Fire & Ice Mobile Marketing Campaign

Mobile marketing is a growing trend that is being fueled by the adoption of smartphones. According to a study by Pew, one-third of adults in the US currently own a smartphone. The table below provides further information regarding smartphone ownership and usage:

 

Click here to check out the article I got the above information from

Although the majority of US adults do not own smartphones, that one-third that does is valuable enough to make up for it. This is because people are very engaged in their mobile devices, unlike other media where they are used to ignoring marketing messages. Since people are generally concentrating on whatever it is they are trying to do on their smartphones, they probably notice advertisements more than those on other media. According to the source linked below, 82% of people notice mobile advertisements. Around 42% of people actually click on the ads and 49% make a purchase because of the ad. Clearly mobile marketers are doing something right if they are able to capture the attention of 82% of smartphone users. Check out the link to this information below:

Click here to check out the above information 

Mobile marketing comes in a variety of forms. For example there is the idea of sending SMS (text message) advertisements. These ads often contain links which bring the user to the company's website and encourage them to make a purchase. I have received one or two of these ads before, however I did not own a smartphone at the time so I was unable to open the link provided. The ads I received via SMS were from Verizon, which is my mobile carrier. Therefore I did not really feel that the ads were invasive since I already know that Verizon has my cellphone number.

Check out the source where I got this image

Personally I think that if I were to receive a lot of SMS ads on my phone, I would get very annoyed. This is because I use SMS strictly for communicating with my friends and family. I do not think I would be very happy if I suddenly started receiving several SMS ads daily. I think the way to make this less invasive for consumers is to only send these ads if they signed up for them, kind of like a mailing list for promotional offers. I think that if there was a certain company I was very loyal to, I would not mind getting SMS ads from them once in a while. However if the company sent ads too frequently I would definitely be annoyed.

Another form of mobile marketing is location-based marketing. This is the kind of thing where your cell phone tracks your location and you receive ads based on your specific location. For example if you entered the mall, you might receive an ad on your phone notifying you of a special sale or discount offer at one of the stores. I think this is a very cool technique because it is relevant to where the person is. If I was just wandering around the mall and received an ad on my phone saying that there was a big sale at one of the stores, I would be very likely to check it out. I think some people might find this a little creepy, but then again, there's not much about smartphones that isn't creepy.

A third form of mobile marketing is mobile applications. Applications are becoming such a huge industry and many companies are hiring developers to build their own apps. I think this is also a great technique for mobile marketing because the consumer has to download the app to get any of the marketing messages, meaning that it is not really invasive like some of the other techniques. However the number one issue here is getting people to download the app. I think the company needs to find a way to associate a benefit with downloading the app. For example if a company developed an app that would give consumers exclusive coupons and special offers, I think the company's loyal shoppers would definitely download it. Another option for marketers is to advertise on an already existing app. That is one of the things that Trojan Fire & Ice did with its mobile marketing campaign last year. Below is Mobile Marketer's description of what Trojan did with Pandora:

Trojan’s integration with the Pandora iPhone application, which was a perfect fit with the its target, featured time-sensitive “Plan Your Date” and “On Your Date” personalized tools incorporating "mood music" and location-based "How Steamy Do You & Your Partner Like It?" functionality.

I think it was very smart of Trojan to develop tools that Pandora consumers could use rather than annoying ads. I also think it was a very smart decision to market using Pandora since so many people use it. Pretty much everyone I know that has a smartphone has the Pandora app. Pandora is also a great way to reach Trojan's target market, which Mobile Marketer defines as "consumers ages 18-34 who are experienced condom users in a 'relationship mindset.'"

 

Check out the source where I got this image

Another technique that Trojan Fire & Ice used to reach its target market is rich-media in-browser units. These were displayed across mobile Websites such as Esquire, MTV, Jersey Shore, Cosmo, BET, G4, NBA, LimeLife and E!. These units could be clicked on and expanded to provide more information to the consumer. Trojan chose to use those particular mobile Websites because they are frequented by its target audience. These rich-media in-browser units were also spread through various mobile apps, so that users would see a small ad and have the option to expand it. Trojan also used traditional Web banners on a variety of sites. 

Click here to check out where I got this photo

Trojan also partnered with MTV's Jersey Shore to best reach its target audience. Below is Mobile Marketer's description of the collaboration between Trojan Fire & Ice and Jersey Shore:

Trojan developed custom editorial content with Jersey Shore cast members, including "Go On A Date Jersey Shore Style," and "Jersey Shore Dating Tips" from cast members. In addition, Trojan expanded the Jersey Shore integration to Foursquare, with real-time Jersey Shore cast member check-ins and date venue tips.

 Check out the source where I got this photo

This was a smart move because Jersey Shore is a hugely popular television show among Trojan's target audience. The company also partnered with Shazam, which is a mobile app where users can share and tag music that they like. Shazam has about 75 million monthly users, making it a very smart choice for marketing. Trojan made arrangements so that every time a user tagged a love song, a banner would display that read, "Stop Tagging and Get it On." If the user clicked on the banner, they would be brought to the Trojan Fire & Ice mobile site. This is a very smart idea because so many people use Shazam and probably play love related songs all the time, meaning that a ton of people were exposed to the Trojan banner and roughly 42% of them clicked on it.

 Click here to check out where I got this photo

Trojan also used mobile search ads, which targeted users depending on their location. For example if a user were in a drug store using Google's search engine, there would probably be a Trojan Fire & Ice ad. The company also used videos posted to Facebook and Twitter to generate hype.

Overall, I think Trojan Fire & Ice's mobile marketing campaign was a huge success. The company really looked into a lot of different ways to reach its target audience through various mobile marketing techniques. Within the first week, the campaign had already proven that its rich-media in-browser units were 300% more effective than traditional mobile Web banners. The use of Pandora and Shazam were smart because they reached the appropriate target audience in an interactive, non-invasive manner. The partnership with MTV's Jersey Shore was also a very good idea because of the show's popularity among Trojan's target audience. Check out the video below for an overall summery of the campaign.

Thank you for reading my blog! Please check the sources I used below.


Mobile Marketer

Case #3: Facebook and Domino's Pizza

I first created my Facebook account when I was a sophomore in high school. I signed up because so many of my friends had already created accounts that I felt out of the loop. I had always been an avid user of MySpace, but when that began to die down I turned to Facebook to fill the void. Initially I was not that into Facebook; I would check my account once a week if that. Now I check Facebook almost everyday and often several times a day. In fact, the majority of my peers have a Facebook account that they are constantly checking. This is one of the things that makes Facebook such a strong medium, the frequency that many users access the site.

I primarily use Facebook for casual social interactions. I am Facebook friends with most of my friends from both college and home. During my sophomore year of high school, I participated in an exchange program where I had an Italian student stay with me for two weeks. Over that period of time I became very close with my exchange student, as well as all of the other ones that were staying with my friends. When it came time to leave, we all decided to keep in touch using Facebook. Many of the Italian students already had accounts, which came as a surprise to me. Even more surprising was when I decided to search for my old pen pal from Nepal and actually found her. We had been pen pals when I was in fourth grade, as we had been studying Nepal in my history class and each of us were assigned a different pen pal. I did not expect to find her at all, because for some reason I assumed people in Nepal would not use Facebook. I was very wrong.

According to Facebook’s statistics, the company “had 845 million monthly active users at the end of December 2011, 80% of which reside outside the U.S. and Canada. At this time, the company also had more than 425 million monthly active users who used Facebook mobile products. The company had 483 million daily active users on average in December 2011. The website can be used in over 70 languages,” which makes it globally accessible. Check out the link to these statistics below.

Facebook Newsroom

The fact that Facebook is able to reach hundreds of millions of people each day from all over the world is one reason that Facebook is an excellent marketing tool. Another reason is that Facebook is inexpensive compared to other marketing platforms. If a large business wants to create a Facebook customizable/business page, which almost all of them do, they do have to pay. However if a small or recently opened business is looking to increase awareness via Facebook, there is no reason they cannot create a free fan page for the business. This allows small businesses to get their names out there online for no cost at all. Facebook also provides the opportunity for advertisers to buy space on the side of the website. Personally, I try to ignore these ads as much as possible and I would assume that most of my peers do the same. However since Facebook is so widely used, the ads do get a lot of exposure.

Although there are many reasons that Facebook is a great marketing tool, it could also be argued that it has some drawbacks. For example, there has been a huge problem in the past where random people have been creating fan pages for businesses, when they are not associated with the business in any way. This causes issues because then businesses are being represented by someone outside of the company, there is no way for them to monitor the content being posted, and the public will most likely think that the fan page was created by the business. Another drawback to Facebook marketing is clutter. There are so many fan pages on Facebook that many users do not know what they should or should not "like." Due to the cluttered environment, many fans do not think to search for some of their favorite brands since they are being bombarded by so many other brand pages.

Overall I really think Facebook is a crucial part of a company's marketing strategy. This is because so many people use Facebook and expect most companies to have their own pages. In a study conducted at Rice University, it was found that "companies that use the popular social-media site Facebook and its fan page module to market themselves to customers can increase sales, word-of-mouth marketing and customer loyalty significantly among a subset of their customers." This conclusion was drawn after a study was done on Dessert Gallery (DG), which is a Houston-based cafe chain. The company had no Facebook presence prior to this study being conducted. The results are as follow:

The study, based on surveys of more than 1,700 respondents over a three-month period, found that compared with typical Dessert Gallery customers, the company's Facebook fans:

• Made 36 percent more visits to DG's stores each month.
• Spent 45 percent more of their eating-out dollars at DG.
• Spent 33 percent more at DG's stores.
• Had 14 percent higher emotional attachment to the DG brand.
• Had 41 percent greater psychological loyalty toward DG.

Clearly, Facebook is an effective marketing tool. However, the article also points out that Facebook can best be used as a niche marketing tool, since only Facebook users are really going to be affected by companies' Facebook marketing campaigns. Check out the link to this article below.

Rice University Facebook Marketing

One company that really does a great job at using Facebook as a marketing platform is Domino's Pizza. Below is a screen shot I took upon first arriving at the Domino's page. The link to the page is below the image.

Domino's Facebook Page

I was immediately struck by the red and blue layout design, as it strongly reflects the company and its signature colors. This helps maintain the strong Domino's brand image, which is the red, white and blue and the Domino's logo. Next, I noticed the Think Oven box in the center of the page. This is an interactive interface that features two tabs: current project and idea box. The current project tab is a place where Domino's describes something they are working on changing. Then Facebook users can suggest solutions to the project. The current project is to help the company design its new uniforms. An award of $500 each is being offered to the two best written ideas as well as the two best visual ideas. A deadline is also listed, which creates a sense of urgency for the interested Facebook user. The idea box is a place where users can submit any ideas they have that they would like to share with the company. I think the whole concept of the Think Oven is a very good idea because it creates an opportunity for user interaction. The cash award for the current project creates an incentive for people to submit answers. This will definitely increase the page's "likes" because people will be visiting it more often to use the Think Oven. I also think people will be more likely to tell their friends about the page because of the contest and cash awards. Check out the video below to learn more about the Think Oven.

In addition to using Think Oven, Domino's also provides other avenues for user interaction. For example, the company often posts status updates showing pictures of various pizzas with interesting captions. Statuses also often include questions or conversation starters that get a lot of users involved by commenting or liking the status. Often times the status updates will actually ask for likes, saying something like, "click like if you're celebrating Mardi Gras today!" Domino's also posts polls and links to draw users in. The company posted the image below on Valentine's Day. This photo was shared by 132 people, meaning that the image was probably seen by thousands of people simply from fans sharing it. We can assume that a large number of people also saw this photo from Domino's post.

Posting interactive status updates makes it fun for users to be Domino's fans on Facebook because there are many opportunities for them to interact. Of course, users are also allowed to post to Domino's wall.

Overall I definitely have to say that Domino's Pizza's Facebook marketing strategy is a very good example of the effective use of social media. The page currently has 5,192,249 fans. Domino's even created this video upon reaching five million fans:

The video was a way for the company to let its fans know that they are appreciated. Clearly Domino's is doing something right if they have over five million Facebook fans. Another thing that makes this marketing strategy successful is that Domino's seems to understand that Facebook is best used to reach a niche market of only Facebook users. I know that the company understands this concept because its Facebook marketing efforts comprise only a small part of its entire marketing strategy. Not only is there much more to the marketing strategy, but there is also a similarity between executions across all its different media. There are many Domino's TV commercials. Feel free to check out some of the ones below:

As you can see, the first two commercials are very humorous. All three of the commercials are light-hearted, which fits into the company's brand identity. The first commercial emphasizes timeliness, stating that Domino's can deliver any order in thirty minutes or less. The second commercial advertises Domino's newer Artisan pizzas, showing that they are authentic, which contradicts the way Domino's Pizza was regarded several years ago. The third commercial shows the interactive capabilities offered by Domino's, which positions the company as a fun, interactive company with excellent customer service and a lot of respect for each of its customers.


This commercial is a part of Domino's Pizza's current marketing campaign. As you can see, the company is really stressing interactive media, which is heavily targeting a younger audience. I think the company's customer base is fairly broad, in that both high school students and working mothers frequently consume its products. However, this new campaign seems to be targeting a younger audience, perhaps college students or young adults. The company offers an interactive website where the user can go through a step-by-step process to place and order. The site also features a tracker to show the process of your order. The image below is a screen shot of this tracker. Check out the link to the blog where I got this picture from below it.

Fuzz Martin


I also know that Domino's Pizza puts out direct mail promotions. I know that my family frequently receives coupons for promotional offers in the mail. I think that these coupons definitely increase purchases, because they get customers to make larger purchases than they usually would because they realize they can save money on their favorite products.


Therefore I think that Domino's Pizza is marketing itself extremely well using Facebook. Its entire marketing campaign is based around user interaction and really caring about what the customer has to say, and that is why its Facebook page with the interactive Think Oven is such a good idea. As described above, Facebook can be an extremely affective marketing tool if used correctly. I think that Domino's understands the correct use of Facebook as a marketing platform and that is why its Facebook marketing campaign is so successful.


Thank you for reading my blog! Feel free to check out my other case studies.

Case #2: SOPA/Megaupload

I think it is safe to say that almost everyone in our generation has participated in some sort of illegal file sharing, whether it was downloading music or watching movies. The Internet makes it so easy for us to find free versions of almost anything we want, making file sharing seem completely acceptable. I remember hearing about the Napster case, when I was much younger, and being amazed by the fact that someone figured out how to share so many songs for free on the Internet. I remember giving my father a list of songs that I really wanted, and he would download a few of them every so often before Napster was shut down. Suddenly when the lawsuit arose, my father told me that he would not be downloading any more music. He told me that it was illegal and that he could get in a lot of trouble if he continued to do it. However by that time, I had already had a taste of free music and did not want to give it up. I expressed my frustration to my father and he explained the problem with free music sharing online: it is illegal because it is an example of copyright infringement and is robbing the artists of the money they deserve. After realizing that file sharing is actually stealing, I stopped supporting it, as I did not want to hurt the artists or filmmakers that I was a fan of.

That is why last month, when the whole SOPA ordeal was going on, I had very mixed feelings. If you are like me, and tend not to look at the news, you probably learned about SOPA by seeing many of your favorite websites participate in a blackout strike. Some involved parties completely blacked out their sites, temporarily halting functionality, whereas other simply displayed a banner stating that they were protesting SOPA. I’m sure that everyone had at least a few of their friends change their Facebook pictures to the one below as a form of protest. I personally noticed the absence of Wikipedia, which was completely shut down temporarily as a protest. However when I saw a black banner across the top of Google’s homepage, covering the usual logo, I panicked. What is SOPA even going to do? I immediately started doing research on SOPA and was a little surprised by what I found.

SOPA, which stands for Stop Online Piracy Act, is a bill that Congress tried to pass last month to stop the illegal distribution of copyrighted materials online. One of the biggest struggles with stopping online copyright infringement is the huge group of illegal file sharing websites based in foreign countries. Since these websites are not based in America, we do not really have the power to shut them down. Essentially what this bill would do is allow the government to shut down any website that is enabling illegal file sharing or even just providing some sort of way for a user to locate illegal file sharing. This makes sense until you really think about it: any website with user-generated content could fit into this category! If a man in China posts a link to his illegal website on Facebook, Facebook could be shut down. If someone uploads any part of a copyrighted video to YouTube, it could be shut down too. I'm not going to get into too much detail here because I think the video below explains the concept of SOPA in the most concise manner possible. If you want to view the actual SOPA bill, click the link below the video.

View the actual bill by clicking here

After the Internet blackout strike took place, Congress decided to step down and re-think its plan to enact SOPA. I think this was a great decision because SOPA would have unfairly shut down innocent sites just because some user posted something illegal. Enacting SOPA would literally destroy the user-generated content that the web has been rapidly expanding around for the past decade.

However this was not the end of the battle against online copyright infringement through file sharing websites. On January 5, federal authorities arrested four people and took 18 domain names and $50 in assets. Around the same time that everything was happening with SOPA, the US government decided to shut down Megaupload.com. Megaupload is one of the largest file sharing sites in the world, based in Hong Kong. It is estimated that the site has robbed copyright holders of about $500 million by sharing their content illegally, while those running the site were earning incomes of about $175 million.

 Click here to view the indictment

The first thought that came to mind upon hearing about this was, "why can the U.S. government shut down a website based in Hong Kong?" I wondered what the point of SOPA even was if this could already be done in the first place. I did some research and discovered that the reason the U.S. was able to shut down Megaupload is because it was operating under a .com domain name, meaning that it is an American domain. The company also had servers located in Virginia and Washington D.C.

It seems to me that Megaupload will fight these charges since only its domain name and two servers are U.S. based. Since the company itself was actually based in Hong Kong I think that it may have a case. If you have never heard of Megaupload, or even if you have, you may want to check out the company's theme song below.

As you can probably see from watching the video above, Megaupload was a huge company with a big reputation. It actually sought out celebrities whose content was featured heavily on its database and offered them money to say that they support Megaupload. This gave some Megaupload users the idea that celebrities were okay with their intellectual property being shared online for free, which is hugely untrue.

In actuality, to producers of this illegally shared content are struggling to put food on the table. Websites like Megaupload have literally destroyed the job market in the film industry. As soon as a movie is released, it can be found all over the Internet because people illegally share this content online. What is even worse is that the websites that host these pirated movies are actually profiting! They do this by running advertisements on their websites so that every time someone watches a film on their site they are making money. Watch the video below to gain a better understanding of how much illegal file sharing is actually hurting these content producers.

Personally, I can understand both viewpoints on this subject. Online file sharing is cheap, easy, and convenient. Why would I want to pay a dollar for a song when I could just find it for free on a number of different websites? The fact that our generation has grown up in an era where we are able to find almost anything we want online for free is what is really stopping more people from standing up to the issue. However I think that the video above really highlights the problem that illegal file sharing is causing. People are being robbed of millions of dollars! These people are working hard to produce this content that people are consuming, and people are taking it for free and literally robbing them of their income. Imagine walking into the kitchen of a small, family owned restaurant and stealing a bunch of prepared meals. It seems wrong right? Now imagine watching a movie online for free using a file sharing site. Doesn't seem so bad anymore does it? Regardless of the way society views file sharing, it is the same thing - it is stealing.

One thing that I have noticed is that some musical artists understand that mp3s have almost no monetary value on the Internet anymore and have started giving away their music for free. Pretty Lights Music label, for instance, gives the music of all of its artists away for free on its website. Every time someone downloads an album, the site gives them an opportunity to make a donation. Although most people probably do not donate, the artists know that there are some true fans that would be willing to spare some money to keep the music coming. These artists depend on revenue from concerts and merchandise sales to make a profit. Believe it or not, they are highly successful. I think that illegal file sharing is a huge problem that needs to be eliminated, but the solution is complicated. However, in the mean time I think that content producers should begin to take a more realistic approach to their income strategies so that they will stop losing so much money due to pirated content. Please check out the Pretty Lights website below.

Pretty Lights Music

Thanks for reading my blog! Please feel free to check out the sources I used below:

Forbes

LA Times Blog

Ars Technica
I learned about the first and third videos through my Government & Media class.
I learned about the second video through my International Marketing class.