ENTREPRENEURSHIP

THE 4 P’s OF MARKETING

Submitted By:
Laique Tauseef (FA16-BCS-129)
Sarmad Khan (FA16-BCS-099)
Waseem Ahmad (FA16-BCS-253)
M. Ali Qureshi (FA16-BCS-033)
Bilal Sohail (FA15-BCS-022)
Spotify Music Streaming Platform

Spotify Music is a Swedish music streaming platform which provides DRM-protected music and
podcasts from record labels and media companies. The exponential growth of DRM (Digital Rights
Management) has been catalyzed by the need to enforce intellectual property rights in the digital
entertainment industry. Spotify Music is a cross-platform application with a web app, desktop apps for
Windows and Mac OS and smartphone apps for Android and iOS. Together, they form a music
streaming ecosystem which provides access to over 40 million tracks, has gained immense popularity
in recent times. Like many software applications, Spotify Music offers Freemium and Premium versions
of the streaming experience. These two versions differ extensively in streaming quality, in-app
advertisements, offline playback, other services etc. The ability to provide DRM-protected music implies
a strong relationship between streaming platforms, artists, record labels/companies and the end-user.

Spotify AB has gradually excelled in their 'Partially-Agile Scaling' management methodology to expand
and improve their employee base and service provision. This method is also called the 'Spotify Tribe'.
There can be countless legal/political complications when entering into a virtual foreign marketplace,
especially if the model includes interaction/engagement with numerous record companies across the
globe. Spotify is available as of yet, in 81 countries across Europe, Asia, Americas, Oceania, Africa and
the Middle East. This paper aims to discuss this streaming service in light of the Four P's of the Marketing
Mix, namely; Product, Price, Place and Promotion.
PRODUCT

The digital entertainment industry is an example of a monopolistic market where countless record
companies, production houses, independent producers and artists produce music content. However;
this wide array of content needs to be marketed effectually in order to reach millions of customers
across the globe. Streaming applications have been a very popular alternative for the old-school, off-
the-shelf, magnetically stored digital media. Spotify Music, is a success story featuring contemporary
management styles, corporate entrepreneurship, collaborative models and innovative promotional
strategies. Spotify has managed to build enormous switching costs for a loyal customer base. The user
experience is at the heart of Spotify's model, incorporating an ongoing process of software updates,
bug fixing, user interface upgradation and additions to its ever-growing music and podcast library.

What differentiates Spotify Music from other streaming apps like Soundcloud, Deezer and Pandora is
their outreach, verified original music content and relevance. Relevance in this particular context has
been created through strong integration of digital rights management, which pushes artists to think of
Spotify as a frontrunner in the war against plagiarism and illegal music distribution which can hurt music
producers' revenue model. As a result, producers feel more comfortable in uploading their content on
Spotify which pays the artist/producer back, depending on stream-time. This background, while not
being relevant to the product features itself, is absolutely imperative to understand the growth of this
streaming platform. As a result of all the above, the final product just delivers. Peer to peer music
sharing websites/apps like Soundcloud and YouTube gives new artists a great platform to gain
relevance. However, Spotify makes sure that original targeted music content isn't lost amidst millions of
experimental renditions of previously published music content.

Furthermore, Spotify has built a reputation as the best streaming platform for 'New Music Discovery'.
This has been made possible by their consistent and cross-platform user interface, exposing millions of
listeners to customized playlists through sophisticated algorithms, which can suggest content based on
the user's listening history. It features a highly interactive user experience, with aesthetic visuals, fluid
animations and integration with other digital content producers like 'Genius' for lyrics and general trivia.
YouTube still takes the lead as the most widely used streaming service for music, however; this is largely
due to availability. Music listeners generally feel more comfortable if the streaming interface is centered
around audio content strictly instead of an audio/video amalgamation which can be seen with
YouTube's model. YouTube's model carries an unfair advantage over Spotify for music streaming not
only because of less geographical limitations, but also because it combines two target markets of music
streaming and music video streaming. Spotify Music can save a lot of data consumption for regular
listeners who view repetitive listening as a wastage of data resources if video data is downloaded every
time the user wants to simply listen to the same music track.

Not too long ago, due to the popularity of Apple's iPod as a revolutionary device for music listening,
Apple Music was also a streaming service which gained immense popularity among users, however it
can be seen that this popularity was more about hardware dependence, as cross-platform services like
Spotify and Soundcloud managed to increase their market share due to a larger target audience
carrying different hardware devices. Amazon Music also shares some of the same traits as Spotify,
focusing more on music content as a product, instead of the whole streaming experience. Due to the
virtual nature of this streaming service, many product features will be discussed as part of the rest of
the 3 P's of Marketing, like the differentiation of in-app advertisements because they are more relevant
to promotional strategies and pricing etc.

PRICE

As per 'Business of Apps', Spotify has 217 million active listeners, 100 million of which are Spotify
Premium customers. Around a third of Spotify listening time is spent on Spotify-generated playlists,
with another third going on user-generated playlists. As discussed earlier, freemium users have to
compromise on audio quality and uninterrupted streaming. Spotify also offers Family and Student
discount packages. 'Spotify gets its content from major record labels as well as independent artists, and
pays copyright holders royalties for streamed music. The company pays 70% of its total revenue to
rights holders. Spotify does not have a fixed per-play rate, instead it considers factors such as the user's
home country and the individual artist's royalty rate. Rights holders received an average per-play payout
between $.006 and $0084.'
(Source-Spotify for Artists)

Pricing differs very minutely based on currency valuations across stable markets. For instance, Spotify
Premium Membership costs $9.99/month in the United States of America and £9.99/month in the
United Kingdom. "The cost of Spotify varies across select-regions. In order to meet market demands
and conditions..." This official statement was accompanied with a price increase in 2018 from 99NOK to
109NOK for Spotify Premium in Norway. Due to the differentiated nature of its product/services, Spotify
has great control over pricing. Freemium In-app advertisements for instance, differ greatly from mass-
generated advertisements in other freemium applications. These are audio advertisements specially
created for the Spotify Music platform to promote products in a very targeted manner.

Most of the in-app advertisements promote new music which can be found on Spotify by simply clicking
on the advertisement. This is relatively very intuitive instead of having to switch between apps. This is
obviously not true with non-music content, however even those in-app advertisements are tailored to
be as consistent as possible with the audio streaming experience. Offline Playback is also a Premium
feature which lets users listen to their select playlists even when they are not connected to the internet.
All these differentiated services and features allows Spotify to charge Premium users accordingly. Spotify
comes bundled with Hulu, another streaming service in select markets with increased pricing. All such
collaborations with other corporations like Facebook have allowed Spotify Music to improve their
services and customer engagement immensely. This control over pricing, direct engagement with
producers, a contemporary agile management strategy and an ever-growing user base across many
regions, is proof of potential for immense future growth of this streaming service.
PLACE

Spotify is still not available in many regions like Pakistan, Romania, Ukraine etc. This is generally due to
licensing constraints and unfavorable environments for Spotify's model to work. However, they keep
working towards expanding their availability to include the rest of the globe. Since the only distribution
channel of this service is the World Wide Web, this section of the marketing mix talks very less about
the virtual schema of Spotify in an attempt to avoid a technical-writing style of this paper. In short, many
challenges concerning physical delivery are avoided by Spotify through this channel. However, the one
challenge which comes with different geographical regions is varying policies, licensing agreements, fee
collection and royalty payments. Due to our increasing dependence on online payment measures, a
majority of this end is also managed via the Internet.

Some things like direct engagement with record companies are however not that easy to escape for
which the partially-agile management strategy for growth as discussed earlier, has proved to be quite
successful. It has to be understood that in every market region, the online marketplace still differs from
the conventional marketplace. Taking the example of Bata Shoes for instance, which competes with
Service Shoes, Hush Puppies etc. locally in Pakistan; Spotify competes directly with global streaming
services like Soundcloud and YouTube. Geographical differences only account for minor variations in
price, licensing models and engagement strategies. Other than that, with the advent of the
technological revolution; all users are more or less exposed to a global marketplace where engagement
strategies in one country resemble greatly with that in other countries.

PROMOTION

Spotify AB has been able to maintain a huge customer base through a variety of promotional strategies.
From uploading sponsored promotional content, to collaborations; their promotional strategies have
been very successful in building high switching costs for the end user. Guerilla Marketing tactics have
also been used in this endeavor. An example of one of these mechanisms is Spotify integration in other
apps/games. 'Rocket League', a gaming franchise which has nothing to do directly with music
streaming, brought together Spotify and 'Monstercat' (an electronic music label) to produce a custom
playlist for Rocket League's in-game experience. Because of this collaboration, when the game is
paused, the name of the song and its Spotify link is accessible. Seeing the Spotify icon in the game is
more than satisfying for loyal Spotify customers and it makes other streaming app users feel left out of
the experience.

Another collaboration with Facebook at the very beginning of their entrepreneurial plight, meant that
social media integration could help friends connect more intimately through the music they listen to.
Furthermore, linking Spotify and Facebook accounts meant that finding Facebook friends on Spotify
became much easier. Any activity on Spotify could be shared on Facebook which gave rise to a highly
effective, virtual word of mouth effect. Many video platforms like YouTube often provide Spotify links
in the description if a partnership contract with particular artists and record labels requires them to do
so. However, the biggest promotional strategy of Spotify which has significant circumstantial evidence
is their 'freemium model'. As discussed above, roughly 117 million users are freemium users and 100
million pay for Spotify Premium. This implies that active users who feel like getting to know the
application features before they pay for the entire experience, keep engaged with the application. They
may decide at a later stage to pay for premium services. Freemium users are exposed to advertisements
which keeps the model running.

CONCLUSION

A SWOT Analysis of Spotify will predictably feature Strengths and Opportunities (mentioned above)
which easily outweigh Spotify's Weaknesses and Threats. However, a significant amount of potential
premium members is lost with the availability of advanced hacked versions of Spotify, which bring a
majority of premium features, free of cost.

Spotify AB has attempted various crackdowns on these hackers and users of these versions in the past,
which had little/no success. Spotify's security mechanisms can use some improvement, especially on
the AndroidOS platform.

While we can predict future crackdowns, which hopefully prove to be more successful, the perpetrators
who illegally use/consume DRM-protected content from Spotify represents a relatively small user base
as compared to the 217 million users. Spotify's marketing model works and it may inspire other
corporations to adopt similar management structures and promotional strategies in years to come.

References:

http://www.businessofapps.com/data/spotify-statistics/
https://community.spotify.com/t5/Subscriptions/Spotify-is-raising-its-prices-in-Norway/td-p/4456400