How Spotify’s Competing Against Traditional and Online Music

This week I am assessing how Spotify competes with traditional and other online music providers. I will be reviewing Spotify’s approaches through their marketing mix, more specifically through their product, price, promotion and place strategies.

Within the last 20 years consumers have experiences revolutionary innovations in the way we listen and store our music. In 2001 Apple released the iPod, iTunes and the iTunes Store, partially replacing the Discmans and Walkmans, and the 15 or so disc folders that stored all your favourite albums (Costello, 2016). Consumers could comfortably listen to music and store their all of their content in a tiny device that could be taken anywhere, anytime. Then in 2006, as a way to combat music piracy and encourage legal content consumption, Spotify emerged onto the scene.

Consumers were able to stream online audio content, which came in a form of a seemingly limitless number of artists, albums and crowdsourced playlists. This was a significant contrast to the traditional way of listening to music, as the users paid a fixed fee to have access to unlimited content (Chaffey & Ellis-Chadwick, 2016).

At the time of Spotify’s launch in 2008, it was not the first site to stream content, but it quickly became the most popular. It is an affordable alternative to iTunes, whether the consumer purchased the premium plan or not. Additionally, the Spotify platform is also a highly personable, manageable and easy to use and listen to a vast array of music.

However, in 2017 music streaming is now a much more competitive market. Consumers have the choice of Apple Music, Pandora, Tidal, Amazon Prime Music, Google Play and SoundCloud (Chaffey & Ellis-Chadwick, 2016). So why choose Spotify and what makes Spotify different?

To better illustrate how Spotify competes with its market competitors and the traditional music industry, it is necessary to show their differences and evaluate through the 4 elements of the marketing mix. This includes:

Product:

1. Brand

2. Highly recognisable Spotify logo, including its white font a green background.

3. The virtual product, which is giving the user the right to access Spotify’s music collection; the physical product such as the gift cards.

4. Services

5. Guides, tips and customer support.

6. Spotify does not offer any warranties, except the statutory warranties by law, as it is not a physical good and the user does not acquire ownership of the music/files.

7. Functionality

8. Availability on a range of operating systems such as Android and iOS, and devices such as desktops, tablets and mobiles.

9. Packaging

10. Packaging options are limited due to the fact that Spotify offers virtual goods.

Price:

1. Strategy

2. Spotify is a part of a new price strategy model called the ‘Fremium’ model.

3. Tactic

4. Spotify’s free account grants members free music streaming up to 10 hours a day. The catch is that for every 1 hour of streaming, customer’s will listen to 3 minutes of advertising per hour (Chaffey & Ellis-Chadwick, 2016).

5. However, members are given the option to watch a short video to avoid 30 minutes of adverts, which also shows the benefits of paying for a premium account.

6. Revenue Model

7. The Fremium model is the main creator of Spotify’s revenue as 70% of their earnings are contributed in the form of royalties to the music content creators (Chaffey & Ellis-Chadwick, 2016).

8. Discounts

9. Student Discount

10. A Premium Spotify Plan requires customers to pay $11.99 per month, which offers users unlimited, ad-free streaming with offline usage (Spotify AB, 2017). The student discount enables Australian university students the access the premium plan for $5.99 per month, for a maximum of 4 years.

11. Premium for Family

12. This plan offers a maximum of 5 separate premium Spotify accounts under one membership (Spotify AB, 2017). A ‘family’ living on the same address is charged a fixed price of $17.99 a month.

Promotion:

1. Advertising

2. Spotify’s innovative approaches are also reflected in their advertising segment. Not only do they find promotion strategies that keep costs down, but these are also highly effective. They include:

3. Multi-platform ad campaigns,

4. Partnerships with other relevant service providers,

5. Micro sites,

6. Word of mouth,

7. PR,

8. Co-marketing.

9. Publicity

10. Spotify is known to create partnerships and co-marketing with well-known and established brands and organisations, in order to show how Spotify can be integrated in common spheres of life, such as social media (Chaffey & Ellis-Chadwick, 2016). A clear example was seen when Spotify created the ad featured in cinemas in the US and the UK, showing its cross-platform availability.

11. Sales promotion

12. Again, the main driver of sales for Spotify is its Fremium model. Spotify uses this as a tool to engage their consumers. Its members are able to understand the platform and its benefits, in optimism that the customer will place a greater value on the uninterrupted service, thus creating a willingness to pay.

Place:

1. In the context of marketing, a place signifies the business’ distribution strategy. As Spotify is purely virtual, its mode of distribution describes how the consumers receive the content they pay for.

2. The technology, and primarily the internet, helped Spotify completely eliminate the consumer’s need for physical storage of content.

Streaming is the leading way of delivering audio content. Additionally, Spotify is the leading content provider (Gil, 2016). As this has been such a profitable business, the emergence of competition was inevitable. However, in my opinion, Spotify’s success is due to their first mover advantage, their Fremium Model and their choice of partnerships. Spotify set the tone for the music industry as the new way for consumers to listen to music content. Their revenue model focussed on using advertising for to their customers. The small inconvenience of ads enabled Spotify to offer their services for free. Additionally, Spotify has created great partnerships with other e-businesses. Being able to connect services with others is a very desirable and trendy feature of technology. It also puts Spotify in the commonplace of internet user’s social medias. These factors are the primary reasons as to why the business is able to maintain and grow its competitive advantage.

References:

1. Chaffey, D & Ellis-Chadwick, F 2016, Digital Marketing, 6th edn, Pearson Education Limited, Harlow, UK.

2. Costello, S 2016, ‘History of the iPod: From the First iPod to the iPod Classic’, Lifewire, Online, Viewed 8 September 2017, https://www.lifewire.com/history-ipod-classic-original-2000732.

3. Gil, L 2016, ‘History of Music Streaming’, Sutori, Online, viewed 9 September 2017, https://www.sutori.com/story/history-of-music-streaming.

4. Spotify 2017, ‘Premium for Family.’, Spotify, Online, viewed 9 September 2017, https://www.spotify.com/au/family/.

5. Spotify 2017, ‘Spotify Premium. Only $5.99 for students.’, Spotify, Online, viewed 9 September 2017, https://www.spotify.com/au/student/.