Every industry undergoes change.
The players who devise a different and better way of capitalizing on these changes are the ones that emerge as winners.
Few arenas have experienced more change in the last decade than the music industry. It was the first mass-media industry to be hammered by the digital revolution, shrinking from $25 billion in annual revenues in 2002 to only $15B in 2014.
This industry provides a dramatic example of how revenue sources can quickly shift as new businesses and business models are introduced into the market.
New ways to sell music appear every year, and old ones whither. Years ago, performers made their money selling albums, and went on tour mainly to promote those albums. Now the economics have flipped: concerts comprise more than half of industry revenues, and bands release albums mainly as marketing pieces to attract fans to fill concert halls.
Performers now have new sources of revenue, including merchandise sales, YouTube ads, licensing to television and film productions, iTunes downloads, and royalties from streaming music services such as Spotify, Rhapsody, and Muve Music, and from Internet radio stations including Pandora, Slacker, and iHeartRradio. Music industry revenue hasn’t just shrunk; it’s coming from completely new sources.
What should you do when your industry is shrinking, or when it’s being attacked by new competitors and new business models?
- Offer new value to your customers. In the 1930s, flour mills noticed that women were using flour sacks to make clothing, and so began to package their product in colorful printed fabric. Cleverly, the label was designed to wash out. Women entered nationwide sewing contests to show off their creations, and learned to select their brand of flour based on the most attractive fabric. The packaging became a large part of the value of the product. Is there new value you could offer customers?
- Adopt new pricing models. What new ways could you price your offering? How about a subscription model? How about a low upfront price, followed by fees for ongoing services? How about offering a bundled price for a set of products? Changes such as these can not only stimulate demand for your product, they can encourage customers to buy what you want them to buy. One manufacturer I know increased its prices for low-volume, difficult-to-make products, and as a result, drastically improved its plant efficiency.
- Ally with new partners. When you are being attacked, sometimes the best course of action is to find a new friend. Look to partners who can bring new technology, provide a new channel to market, or who can influence customers to choose your product. One company I know allied with a partner who could help them gain access to the Asian market. In return, the company helped its new partner to sell into its historic home turf.
Adapted with permission of the publisher, Jossey-Bass, from The Agility Advantage: How to Identify and Act on Opportunities in a Fast-Changing World by Amanda Setili. Copyright (c) 2014 by John Wiley & Sons, Inc. All rights reserved. This book is available at all bookstores and online booksellers. Read a sample chapter here.