Polyphonic HMI is in the process of establishing their Hit Song Science technology in the music industry. Major issue is the choice of a target market that would make most effective use of limited $150,000 marketing budget. Following this decision, Polyphonic HMI also needs to determine its key marketing strategies such are pricing, positioning of the product for the target market in order to maximize the profits.
ANALYSIS OF INDUSTRY (based on Porter’s 5 Forces)
The music industry is highly competitive. The key players in the industry are the artists who write, compose, and perform the music; record companies who publish the music; and producers who help the artist select music and develop the style. Buyer power is high in the music industry as consumption patterns and consumers’ preferences of artists and styles directly affect revenues and profits of retailers, record companies and also determine the success of artists, songs and albums. Conversely, supplier power in the music industry is relatively low as majority of the successful albums and singles are created by the limited amount of contracted established musicians (page 6). The threat of potential entrants in this industry is low since regardless of thousands musicians trying to get into the industry, very few would pass screening process and will get even an opportunity for success. Nowadays there are issues of on and offline piracy that have direct negative effect on the growth of the music industry, especially in USA (-10.4%). There are currently five big companies that dominate the recorded music business; however, other smaller labels exist. (page 5). Lastly, the threat of substitutes is low; music is a source of entertainment that cannot be easily substituted. Due to emotional connections loyal music fans of certain artists and genres of music will not look for and possibly will not find a replacement.
COMPANY ANALYSIS (base d on SWOT)
Strengths: Polyphonic HMI’s top management team is a strong asset of the company that has essential for success experiences and knowledge regarding the music industry. The first mover position of the company increases competitive advantage. Assuming that HSS has a patent for its technology, potential competitors will have difficulty entering the market, especially after Polyphonic HMI will establish itself as a market leader. Lastly, Polyphonic HMI’s HSS has a prediction success rate of 80% making product appealing for the targeted consumers. Weaknesses: Polyphonic is a new company and therefore lacks vital market research and general market information about consumers. In addition, they are a subsidiary of Grupo AIA who are currently unfamiliar with the industry. Limited marketing budget of only $150,000 hinders company’s ability to fully position and promote itself in the industry. Opportunities: Since USA record music sales are declining and other research alternatives are expensive (costing up to $10,000 per song), Polyphonic could potentially capture the majority of record companies’ labels to provide scientific predictions and estimates for making better business decisions. First mover position increases competitive advantage. Threats: Expiration of the patent in the next few years will allow competitors to encroach in the market and engage in price wars. Currently, other versions of market research already exist and are well-established in the music industry such as calling-out (page10. Lastly, because of the novelty of HSS, many potential consumers who are used to “gut judgements” are sceptical of HSS ability to accurately pick out hit songs.
EVALUATION OF ALTERNATIVES
Alternative 1: Target Record Labels (potential market size 30,000 albums/ year. Pros: An average of 80% of albums identified by HSS software materializes into financial success, as opposed to the industry average of only 10% where traditional ‘hit’ identification methods are used. HSS...