BMG Case Study
Over the last couple of years, global music industry has witnessed a significant change in the market structure and consumer preferences - BMG Case Study introduction. Rapid growth of internet era has established a new channel to access products and services online and has also redefined the role and structure of the middleman/distribution network. To be able to respond back to the digital music market (significantly different business model as compared to the traditional recorded music value chain), BMG will need a tailored distribution and promotional strategy.
Some of the key factors reflecting the unique needs of the digital music distribution model are: Reduced fixed cost to produce music will enable more music diversity (lower entry barrier for musicians) and a less skewed distribution of sales among artists. This will expand the promotional needs and would also require broader alliances with larger artist base. In case of the traditional distribution model, record companies used to off-load (or in some cases share) the consumer interfacing with brick-and-mortar retailers.
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For instance, focus area for BMG’s central distribution unit was to manage product shipments and strategic relationship with brick-and-mortar retailers. However the digital music distribution would require online advertisement models like search engine optimization and consumer behavioral tracking. Digital division will also have to focus on selection of appropriate technology platform with built-in security (digital right management) to prevent illegal copying. This is critical to avoid any negative impact on the publishing division’s copyright inventory and overall profitability.
In lieu of the above it’s critical for BMG to establish a separate distribution channel to cater to the unique demands of digital music industry. Another alternative of strengthening the existing “central distribution division” with phased transition to digital music format would loose the crucial first mover advantage. In one of the similar business situation, sales organization at Encyclopedia Britannica was among the most successful commission-oriented door-to-door distribution channel.
However, it had a difficult time transitioning to selling electronic-based encyclopedias. This had contributed to the loss of early advantage and caused significant market erosion To enable gain the early market share, BMG cannot afford to wait for a matured technology market. BMG’s digital division will have to forge alliances with major technology leaders for broad music format compatibility. At the same time it should continue monitor consumer response and music technology market developments and accordingly adjust its business model for music format support.