A Holiday Tale...

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A Holiday Tale...
1 in 10 bought music
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Connecting With The Consumer
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Connecting With The Consumer

• Demographics...
• Targeting At Retail...
• With A Compelling Price Value Story

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Who Buys Music?
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Reality ...
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The other reality
Difference due to rounding
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The Lost Generation
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The next Lost Generation
Full-length Units-Total
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Why are you buying less?
Age
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Population growth 14 million or 5-10 million
in the 45-64 year segment
Population Percentage Change2007 Versus 2002
9 And Under
2
10- 14
No Change
15-24
7
25-34
2
35-44
-6
45-54
11
55-64
23
65 and Older
5
-10
0
10
20
30
Source Claritas Corp.
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The Lost Generation

• One album sold 1MM units to consumers 36 - 50
  years old in 2002

Sold 1MM or more units to 36-50 year old music
buyers-excluding gift purchases
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What do they want?
Top 10 Sellers Bought It For Myself 4Q 02
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Connecting With The Consumer
When is the last time you did a focus group with
45 yr old consumers?
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Connecting With The Consumer

• Demographics...
• Targeting At Retail...
• With A Compelling Price Value Story

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Every shopper is an analyst
I just pretend I'm a consumer instead of look
ing at things as an analyst. ... it lets you see
the little things that help you get a sense of
the organization. Jeff Matthews, president of he
dge fund Ram Partners
CNN/Money Feb 26, 2003
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Excellence In Customer Satisfaction 40 Retailers

• Saying Music Shopping Experience Was Excellent

56
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Customer Satisfaction Drivers
Predicting Excellent Customer Service
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Where else do your shoppers buy music?

• of 13-25 Yr. Old Tower Music Buyers Also Buying
  Music At

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Premium on Targeting Micro-Merchandising
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Segmenting Teens
CD/RecordStores

• Downloading
• Rap/Hip Hop
• Hard Rock
• Male
• Eastern US

MassMerchandiser

• Radio
• Music Videos
• Female
• Pop
• Country
• Central, South

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Connecting With The Consumer

• Premium on satisfying your customersbecause they
  are their customers too
  
• Payoff for targeting shoppers- just ask the teens
  who grew Mass Merch sales 3

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Connecting With The Consumer

• Demographics...
• Targeting At Retail...
• With A Compelling Price Value Story

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Average price of a full length
-1
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The Paradox

• High prices cited for purchasing less music,
  even among buyers
  

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Why are you buying less?
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The Paradox

• High prices cited for purchasing less music,
  even among buyers
  
• Most who actually buy music say its a good value

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Majority of buyers think music is an Excellent
or Very Good Value
Music Is An Excellent Or Very Good Value
Bought for self, Cal 02
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Music costs too much...Music is a great value

• Downloading is filtering purchases
• File sharing as a sampling platform
• Buy what I like and think its a good value
• When downloaders do not buy a CD they fault the
  music not the price.
  
• When downloaders do buy the CD its because there
  is enough content that they need to own it.
  

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10 price difference across channels
Average Selling Price 13.80
Q4 Full Length
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Price/Value by channel
Q4 Full Length
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Sacred Cow
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Lower prices score higher but 12.99 not
significantly better than 9.99
Buyers Saying Price/Value Excellent/Very Good
4Q 02
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A Perception Problem?
Excellent/Very Good Value Rating by Price Point
Total, cal02, f/l
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Segmenting Retail Shoppers
Russ Records
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Segmenting Retail Shoppers
Mass Merchandise buyers

• Desire price/value
• As much as selection
• Want to feel like valued
  customer

RussMart
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It is about the music, after all
Excellent/Very Good Value Rating by Price Point
Bought for self , 2002, full
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Connecting With Consumers

• A march to 9.99 or 8.99 or 6.99
  may be unnecessary
  
• Invest in disciplined price analysis, modeling
  and testing
  
• Music shoppers expect different things from
  different retailers
  
• A weak album is a weak value- at any price

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Connecting With The Consumer

• Demographics...
• Targeting At Retail...
• With A Compelling Price Value Story

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Connecting With The Consumer