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