Case Study on Music World

CASE SUMMARY: It’s a classic case of a company who has proved itself since inception that it was built to last and how long term planning of a company can help it sustain against all odds. Music World is a part of the Rs. 65 billion Rama Prasad Goenka [RPG] group of companies. In a very short span of time after its launch in the 1990s, Music World had reportedly become a major factor that changed the way music was sold in India.

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In setting up of Music World a lot of planning and strategic thinking was used like conducting a survey for the ambience of the store, selection of location, suitable mix of music, tie ups with music companies as well as promotional companies. QUESTION FOR DISCUSSIONS: *Q1. Critically comment on RPG group’s decision to focus on the retailing business in the 1990s. Would you agree that the decision to set up Music World was mainly due to the existence of Saregama* and its existing product portfolio? Give reasons to support your stand.

THE MAJOR REASONS FOR RPG GROUP TO FOCUS ON RETAILING BUSINESS IN THE 1990 WERE: Change in Strategic focus: With liberalization & the global companies knocking at the doorsteps of the Indian market, It was the right time for RPG to enter retailing. RPG was able to develop a strategy which made them diversify into Retailing in Grocery & Food Items Retailing in Drugs, Cosmetics & Health Products Retailing in Music They realized promising growth prospects in organized retailing industry in India. They were right in realizing this.

We can see the growth rate in Indian retail from 1998 in the following graph. {draw:frame} By slowly phasing out the under-performing and the loss-making divisions from the main Retail business they wanted to concentrate on certain core competencies. Moreover, Spencer which was faring badly was attractive in terms of An Undervalued Real Estate Distribution Infrastructure Profitable Travel Agency Diversification of Business: RPG (Rama Prasad Goenka) Group of Companies had a portfolio of highly diversified businesses.

RPG group has a history in the retail business dating back to early 1865 when it entered the retail business through a company named Spencer’s selling imported specialty items to the British & military population. Having lost focus in the mid 1970’s having to sell off Spencer’s, RPG re-entered the retail market at the right time in 1989 by buying back Spencer from an entrepreneur. *Advantage of Distribution and Combating Piracy*: Distribution was the most profitable part of the music business. The average price of a cassette for the distributor was Rs. 19 which was sold to the customer at Rs. 50 to Rs. 60.

Another point which came into consideration for the setting up of MusicWorld was the problem of piracy. Direct Distribution & Retailing by the music companies enabled them to combat the nexus of music pirates head-on Existing Product Portfolio: One cannot agree that the establishment of MusicWorld was due to the existence of Saregama, as MusicWorld was established in the 1990’s much later & therefore it was HMV which made first transition into Saregama India Ltd. But one cannot discount the fact that it was the diverse product portfolio held by GCIL which gave them confidence to enter the Music Retailing business.

SCENARIO THAT LED TO MUSIC WORLD – In the mid 1990s, the Indian music industry was not faring well with regards to volume off-take. While a majority of Hindi film tracks were flopping, the business in the non-movie music area had fallen below expectations. The company realized that the intellectual property base under the HMV brand could be leveraged for great advantages. Gramophone Company of India Ltd. or GCIL (a wholly owned subsidiary of Electric and Musical Industries or EMI earlier and now known as Saregama India Ltd. , since November, 2000) owned almost 50% of all Indian music ever recorded.

Music piracy and problems with distribution also contributed to RPG and GCIL’s decision to establish Music World. Distribution was the most profitable part of the music business and 50 distributers had absolute control over the Indian music industry’s distribution network. Another issue with the distribution was that if it did not happen on a timely basis, the demand shifted to pirated versions. (India is the world’s 3rd largest music piracy market in volume and 6th in value) STEPS TAKEN PRIOR TO SETTING UP OF STORES – A lot of planning and strategic thinking went into the conceptualization of Music World.

The company decided to adopt the retail format idea of a “specialty store”. A lot of thought went into selecting the locations for its stores keeping in mind the customers’ convenience and being located in an area that had a lot of scope for business. As a result they short listed prime commercial locations for their stores and also went into tie-ups with shopping arcades (Shoppers’ Stop and Lifestyle) to set up stores in some of their retail outlets. Music World gave prime importance to the store layout and visual merchandising to create its own identity.

For this it hired Fitch (UK) to survey the preferences of youths and then design stores that would carry “an attitude”. On the merchandising front, it worked out a suitable mix of different kinds of music genres as well as product formats. It tied up with around 116 music companies such as Sony, Tips, T-Series, Universal and BMG to sell their global repertoires exclusively to Music World. Special attention was paid to “signages” and “atmospherics” in order to enhance the overall shopping experience of the customers. MARKETING STRATEGIES ADOPTED THEREAFTER –

Celebrity visits were made an integral part of Music World’s promotional activities. This helped in attracting a lot of attention towards the concerned outlet. To sustain and enhance the retail off-take, the company offered discounts on the regional language cassettes and CDs during festive seasons. By associating itself with the cause of promoting local artists it did a lot of good to its image in the eyes of the public and created market credibility for itself. Its “Music World Unplugged” series of events, wherein local artists were invited to perform inside the store gave them a lot of mileage.

Personal touch with the customers was another successful strategy adopted by Music World. It launched its own website which not only provided details of each track, its credit and reviews but also gave them a chance to personalize the website and explore different genres of music and the greats in each genre. Continuing with the “personalization” approach it even set up a mini studio in its Pune outlet, where customers could sing a song in their own voice against a song’s music store and get it copied onto a CD.

Music World outlets across the country also associated themselves with various events that helped promote the stores a brand. Because of the company’s focused approach to providing Indian music lovers a radically different and customer-friendly shopping experience, almost all the outlets in the country became a huge hit. MusicWorld’s rational behind launching www. musicworld4u. com isthe re-invention of Music distribution Business model. On the time of launching MusicWorld retail outlet was success in many cities of India. But to increase its reach to more people they have to change their business distribution model.

There are few reason for which they went to online retailing , which are as follows: Large no. of customer Base:India has large potential in terms of internet users which can be seen in following table: {draw:frame} Customization: As explained above online facility give opportunity to customer to select music according to their choices, not on pre –recorded basis. Which attract new customer to their online model. Place and Time utility: According to facilities given on the website, MusicWorld give their customers both place and time utility.

Which was very much required for increasing customer satisfaction. Strong customer relationships: Ability to maintain strong customer relationships with direct interaction and ability to create one-on one relationship with seller help them to build strong customer relationship. Cost Structure: Two things are very revelent while examine the cost structure of their business model. One is recording plus copyright cost and other one is distribution cost. For cost cutting it was very desirable to go online. Merger of www. hamaracd. com and www. saregama. com Saregama. om was selling about 50-60 cds/cassettes per day while hamaracd. com was selling around 75-80 cds. The revenues received from these e-commerce models were far below the initial estimates and to add to the woes, the income accrued from advertising was inconsequential. Moreover the company was incurring upkeep costs of about 50 million each per website. Thus to reduce costs and to negate the poor individual performances, in March, 2001 it was decided to streamline the Supply Chain Management Practices and integrate the two websites & their management into one with hamaracd. com continuing to operate as the sales portal.

Prospects of online music distribution in India According to comScore Networks India, China and Russia experienced the highest year-on-year growth rates in terms of Internet users. The Indian Internet population grew at 33 percent, making it the fastest-growing country of Internet users. India had over 21 million users aged over 15 years at the end of January 2007, as against 16 million a year ago. On the other hand Future prospect of online music distribution in India is very attractive in terms of growth. The total percentage of people who use e-retailing is still less as compare to people who use internet.

So there is ample scope of increasing of increasing customer base through this distribution model. In addition to this a well coordinated e-retailing plan and a highly streamlined online distribution system will ensure that piracy can be combated by delivering good quality music, keeping in mind the problem of e-piracy. With the younger generation leading the trend, more and more people are increasingly taking to using the e-model of shopping. Also music company in future can provide innovative products through online medium only because of the cost factor, wide range of music base and more customer interaction on online platform.

Forces which will shape the industry’s future course of action Lack of Understanding with artists: Many Indian artists feel that the record companies are not paying them a fair share of the profits. As technology continues to advance, more Indian musicians want their music to be heard in a wide variety of different formats. They don’t want to be limited to CDs or cassettes. Most consumers are no longer buying CDs or cassettes, and are choosing to download their music online. This will force music companies to adopt new revenue models, keeping in mind the demand from artists, and customers.

Copyright issues: Problems of royalty payments to musicians is major issue which is controversial within the industry. Many experts feel that the industry should market artists properly and take advantage of new technology. It is likely that some Indian musicians may simply have to cut out the middleman altogether and begin marketing their own music online. This will be major threat for music industries as they have to compete against artists also. Technology: Of course the technology is the most important governing factors in this industry .

For example Apple ipod has changed the way people listen to music. Music companies have to adopt such a business model which will be compatible to changes in technology without affecting their revenue model. THE “FIRST MOVERS” ADVANTAGES WERE: Ownership of more than 50% of Indian Music ever recorded with 45K albums & 0. 65mn songs in 12 different languages. Specialty Stores & Outlets to sell GCIL music repertoire. Tie-Ups with various Outlets like Shoppers Stop & Lifestyle. occupation of prime retail locations

The ability to register patents and trademarks that will protect the first entrant from future competition. Early profits can be re-invested in improving the resource base. Reputation will likely have the advantages that come from suppliers, distributors and customers who are familiar with and loyal to their products Nation-wide network in Strategic locations. RECOMMENDATIONS TO INCREASE MARKET SHARE: CD Market should have more penetration. Tie-Ups with Mobile Service Providers can enable earning royalty on Jingles used by customers.

E-commerce model should be efficiently utilized with more focus on educating the customer about their effectiveness. Retailing & Distribution should also spread to Tier-II & Tier-III cities and must also include a diversified variety of genres of music to select from. Must try and actively try to promote the birth & sustenance of non-movie music which can provide a higher value. Use of innovative technology such as touch screen to be deployed in retail environment. As well as impressing customers, the touchscreens allow them to explore and interact with a wide variety of new

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