Business Analytics Blog

Business Analytics Blog

Opinions expressed on this blog reflect the writer’s views and not the position of the Capgemini Group

His Master’s Voice Needs Help from Analytics

News this week is that HMV has gone into administration. My first reaction was, I used to remember a certain Virgin music shop, where have they disappeared to? While I was in high school, I spent half of my money earned from a weekend part-time job on CDs. I used to buy them from a cool little independent music shop situated on a 2nd floor above some high street retailer. I wonder if the shop still exists. But more importantly, when did I last purchase a CD myself?

 

I don’t remember. My behaviour of acquiring music appears to have changed over the last 10 years. I started from buying CDs in store, then moving on to buying them online. I have used iTunes to download digital music before and now I just use Spotify (an online music streaming subscription service) completely.

It seems though that it’s not just me. Many people have made some sort of digital transformation. Figures show that digital music sales have surpassed physical music sales in the UK. Digital accounted for 55.5% of the £155.8M spent on music in the first quarter of 2012. In the US, between 2000 and 2010, record store sales have declined by more than 76% and CD sales declined by 50% while digital music sales are projected to grow well over 10% per year. The emergence of online stream services such as Spotify has further driven a proportion of music lovers away from buying CDs. Since Spotify launched in 2008, it has now got over 20M users, 5M paid subscribers. Its service is available in over 20 countries and is generating over £500M in revenue per year.

So what’s causing this shifting in customer behaviour? Or more importantly, what’s triggering customers from buying physical CDs to buying/subscribing digital music online? From customer’s perspectives, I think there are several major triggers:

1)     Price: Customers find it cheaper to purchase music in digital format. Definitely no delivery cost and they don’t have to pay for the cost of the CD case, rent ofthe shop floor and wage of sales staff (things most of them don’t care about). If they use an online stream service, their music spending would be capped too.

2)      Convenience: It’s easy to purchase and upload to smart phones or iPods – the music players predominantly used nowadays.

3)      Information: Connected to internet while making purchases means they have wealth of product information such as peer recommendations from social media, online reviews and websites such as Youtube to help them make better informed decisions.

4)      Flexibility: In digital format consumers can tailor their purchases, e.g. they select the songs they want and create their preferred play list. Customers often find this way more satisfying and their utility value increases.

Many factors are pointing in favour of digital format music. So how can HMV revive themselves if they are saved? Analytics can help. For one thing, there is still a significant music sales generated from selling physical CDs and from record stores. So in reality, there are probably still a few customers (e.g. male, mid-age, emo and traditional) who love spending time in stores, flipping through CDs and who will certainly be sad to see HMV disappear. By applying data analytics techniques, we can accurately identify those customers (and potentially a few more segments of customers who are appealed by HMV’s brand and stores) and design strategies targeting sales at them. Analytics can also help us understanding what factors are really driving customers’ purchase decisions and these insights will in-turn help the business transform into a more focused and effective manner. For example, if convenience does prove to be an important driver of digital music purchase, then the business should consider investing more in their websites and emphasise more strongly on offering digital copies online. (It appears that they do sell digital albums but clearly my impression of them is not updated – something for them to work on after the survival?)

So after HMV are out of their immediate trouble, not sure I will be buying many CDs from them still. However, going forward I do think they could use a bit of help from our Business Analytics team.

 

About the author

Jonathan Chadwick
Jonathan Chadwick
Jon has worked for 18 years as an analytical consultant in the UK, USA and Europe for a diverse range of sectors, most recently Financial, Oil & Gas and Government. Jon has extensive experience in benefits realisation, modelling, business analytics, portfolio management and change management. Jon devised and created Figure It Out.

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