The following explains the main assumptions behind ar.com's target sales as presented in Exhibit 1 below.
Exhibit 1: Sales Projections
|(millions of $US and %)||1999||2000||2001||2002||2003||2004|
|1||Total world sales $US||12,878||42,820||44,533||46,314||48,167||50,094|
|2||Total electronic music %||4.3||4.5%||4.7%||4.9%||5.2%||5.4%|
|3||Total electronic music $US||1,776||1,926||2,093||2,280||2,489||2,724|
|4||Estimated total online sales %||1.0||1.9%||3.5%||6.0%||10.5%||17.1%|
|5||Total online sales $US||402||812||1,554||2,800||5,040||8,568|
|6||Total online electronic $US||17||36||73||137||260||466|
|7||ar.com mkt share of above %||0.5%||2.0%||4.0%||6.4%||9.0%||11.6%|
|8||ar.com's sales $US||0.087||0.73||2.92||8.82||23.34||54.26|
Line 2 is a weighted average of the market shares of electronic music in the U.S., Germany, the UK, and the rest of the world. The individual breakdowns can be found in Appendix 4, on page 30, the detailed sales figure worksheet. Line 5 represents the music sales that will take place over the Internet, be they downloadable, or CDs which are shipped to the consumer. This figure assumes that half of worldwide online sales will be in the U.S., and is calculated using Jupiter Communications' figures of projected U.S. online sales, shown below. - Please note that this figure takes into account the fact that the not everyone in the target markets has Internet access and/or can speak English. This is because line 5, the figure calculated from Jupiter's figures takes into account that only half of online sales will be in the U.S.
It is important to note that electronic music (or electronica) is not a mainstream music genre. It appeals to a growing niche market. The major music labels and online music stores such as CDNow, MP3.com and Amazon.com are not aware of how to serve this market. As a result, electronic music artists are turning to independent record labels and to the Internet to distribute their music. Their online purchase of music is still limited, however (only 20% of our survey respondents have bought music online - see below). We believe that this is mainly due to a lack of music sites devoted to the sale and distribution of this genre of music. Indeed, according to a recent Internet survey, 43% of consumers have sought to buy music online, whereas only 19% have actually made a purchase.10 Thus, we believe that this group has the potential of becoming significant consumers of online delivered music if they find a site that fulfills their musical needs.
ar.com's target market is very specific, as it comprises those people who already listen to electronic music. ar.com conducted a survey of 100 respondents, mostly in the Montreal area, with approximately 10% of respondents were from abroad, (surveyed via the Internet). As this market research revealed, the target market is young (average age 25), well educated (average 1-3 years University), and predominantly male (65%). They have computers at home (81%), Internet access (97%), and spend more time on the Internet than most people (9 hrs/wk). They also are more likely to have access to a high bandwidth connection (31%) than average Internet users, and are also more likely to possess a CD burner (29%). They also buy more CDs than the average consumer (3.2 CDs/month vs. 1.7 CDs/year for the average Canadian consumer11). A high proportion (12%) of electronic music fans actually compose their own music, which supports the fact that a high proportion of them (75%) would like to support a retailer which rewards artists at a higher level than the industry average. This is part of ar.com's marketing strategy.
Possibly the most important characteristic of electronic music listeners is that they are dispersed all over the globe. For the purposes of marketing communications, however, ar.com's main target markets are in the U.S., Germany and the UK. This is because the consumers in these countries are either English speaking or highly fluent in English, have the highest sales of CDs per capita, and the highest concentration of electronic music fans for historical reasons. Since ar.com's main distribution channel is via the Internet, an English speaking person anywhere in the world with Internet access can be attracted to our site and make a purchase.
ar.com conducts an electronic commerce that aims to fulfill all the needs of electronic music fans and artists. The site will have an image that fits with that segment's lifestyle and tastes. This will come naturally, given that ar.com's founders are part of the target market.
Thus, in the very short term, ar.com's goal is to become the most complete online resource for electronic music lovers, regardless of whether the people frequenting the site actually purchase anything. The idea is to get consumers used to using the site for information such that when they are in the market for a new CD, they use ar.com's site as opposed to another that has not served their needs so well.
After this initial period, the site must continue to innovate and respond to the consumers needs. Even beyond this, it must anticipate what customers want before they want it. This way, it will be hard to take away the first-mover advantage that the site will have in this niche market.
ar.com will rely on some independent, unsigned artists for the site's content, however, ar.com will also target certain small electronica-focused record labels in order to add their roster of artists to ar.com's repertoire. These small labels have much to gain from partnering with ar.com. Partnership offers a way of earning 40% of sale price while incurring no marginal cost whatsoever. In fact, ar.com's site can be seen as a way of popularizing the labels' roster of artists. ar.com will find unsigned talent through posting on Internet Newsgroups, which is free of charge. In fact, ar.com already has found numerous artists through market research who are enthusiastic about the possibility of the online distribution of their music; f(y)u, for example, whose CD is included at the back of this document. ar.com will have a qualified artistic director screen submissions, and only make the highest quality music available in order to preserve ar.com's brand image.
In terms of the delivery of music, ar.com's primary market research showed that our potential customers are mainly concerned with the following:
The site will provide secured credit card transactions as well as alternative modes of payments to satisfy all customers. In the first three months these aspects are taken care of by Liquid Audio, by being a part of the Liquid Music Network. Download times will be reduced as high bandwidth connections become the norm. ar.com will ensure that the customers who so choose will be able to download their CD without running into any of the above-mentioned problems through the use of proven, easy-to-use software from Liquid Audio.
As the customer profile suggests, the target segment is very narrow and would be difficult to reach with traditional distribution methods. The spread of customers has so far made this market very small and unattractive. However, the Internet overcomes the obstacles of geography in the sense that almost everybody can be reached from a web site.
ar.com's primary market research showed that its customer have a large amount of disposable income (average income of $CAD 27,000, yet many are students), spends money on technology (81% have computers and 92% have Internet access) and is not particularly price sensitive (average importance of price on a scale of 1-7 was 4.8). The average downloadable CD price suggested by respondents was $10 CAD ($6.75 US.) At the time of the survey (Feb. 1999), there were no sites offering whole CDs available for download. Sites were offering individual tracks for $0.99 US, however. Now, Good Noise Inc. is offering full albums for $8.99 US, although they do not have any electronic (genre) music, which tends to be more expensive because of the high import rate.
The selected price-point for ar.com's album downloads will be $8 US/unit, as compared to the price of actual CDs (physical copies) sold in retail outlets for $12-16 US/unit domestic, or $17-30 USD for imports. This $8 price is composed of $4.48 US profit margin (56%), $3.20 in artist/label royalties, and $0.32 credit-card processing fees. Such a cost structure is made possible by the online nature of ar.com's distribution, which bypasses many levels in the distribution channel, and thus many overhead costs normally incurred by wholesalers/retailers. ar.com is selecting the $8 price point for several reasons:
This cost structure allows not only offering a better price to consumers (with a faster speed to market), but also better royalties to artists. Under the traditional record label contracts, artists can expect to earn 10% of sales at the most. With ar.com's method, unknown artists gain worldwide distribution overnight, and royalties of $3.20 per album sold. This offers significant incentives to artists who either aren't known enough to sign major record deals, or don't have an interest in dealing with major labels. There is also a significant opportunity for labels to be able to distribute their artists' work world-wide risk-free, with no marginal costs, no marketing costs, and no administrative hassle.
ar.com will use public relations, advertising, "personal selling" and an Associates Program to meet sales goals.
An important note to make is that it is essential that ar.com reaches all three of its positioning goals, as it is the combination of the three that will lead to success. By having the site supported by leading DJs and talented artists, it gains credibility as an authentic "place" to purchase music. This puts it way ahead of a simple retailer who is merely selling music. In contrast, ar.com should become a part of the consumer's lifestyle.10 http://www.gvu.gatech.edu/user surveys/survey-1997-04/graphs/purchase/OnIine Seeking And Purchasing.html
|Table of Contents||Appendices|
1. Executive Summary|
2. The Opportunity
4. Marketing Plan
5. Industry Analysis
6. Management Team
audiorush.com web site
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