EMI Group plc is the third strongest competitor in North America. The company, like its competitors, is seeking ways of maintaining its competitive position amidst the challenges facing the industry. The paper considers the strategic response of EMI Group plc following the price cuts in retail price by Universal Music Group, the leading competitor in the market. EMI Group plc The purpose of this paper is to consider the dilemma faced by EMI Group plc in responding to the price cut implemented by UMG, the strategic options available to EMI, and the recommended conditions for selection.
In 2003, the U. S. recorded music industry realized that the decline in sales it experienced in the previous years was likely to continue in the future. The major culprits for the decline in sales were the external factor of file sharing in the Internet, CD burning or piracy, competition from other entertainment formats, and economic downturns (Harmon, 2003). This threatened the competitive position of the top five recording companies operating in the United States.
The need to maintain its leading position was a reason for Universal Music Group (UMG) to lower the retail price of its CDs as a means of turning around the expected continuing slump in sales. The strategic move of UMG required a response from the other recording companies. The industry-reinvigorating scheme of UMG involves a two-stage process. First, UMG commences price cuts on its CDs to a standard retail price of $12. 98. This involves a jumpstart agreement with retailers to purchase CDs at the wholesale price of $9. 09 for regular CDs or $10.
10 for superstar CDs to give them a reasonable profit margin but in exchange for allotment of around one-third of store space to the company’s CDs. This also involves the cancellation of cooperative advertising in favor of direct market advertising. Second, other recording companies such as EMI should follow the price cuts. (Conniff, 2003) Lower prices of CDs from all the recording companies should comprise compelling incentives for customers to purchase CDs. The basic idea of the reinvigoration plan is to influence consumers to purchase CDs because of the lower price.
Even with lower prices, the expected increase in sales should translate into profit for the major recording companies. Consideration of all factors affecting the reinvigorating plan shows that the decrease in price by UMG would increase its sales during the period when other companies have yet to decrease their price. However, this is only in the short-term. This plan assumes that price is the sole determining consideration of the recorded music market in their decision to purchase CDs.
If this were so, then the price cuts would solve the problem. However, this is not so. Taste in music and quality are equally important determinants of consumption decisions (Simon, Bilstein & Luby, 2006). UMG records the music of many popular artists in different genres but so do the other four leading recording companies. The popularity of artists influence the purchase of records and UMG can only provide a limited number of options. The recorded music of an artist is not like other products susceptible to substitution with another artist.
There is no substitute for the Beatles so the recording company with exclusive rights to sell Beatles music gets the Beatles fans as its market. Despite the price decrease, the significant increase in the sales of UMG would only be for the CDs of artists with a wide following. Quality of the CDs is another consideration to create the impression that customers are receiving value worth their money. The problem with file sharing and CD burning is that these almost top the quality of original CDs, which do not provide much support for differentiation.
The impact on UMG of the reinvigoration plan may not be as huge as it expected. The initial impact on EMI of the announcement for low prices is a drop in its stock prices (Brandle, 2003). This led to the serious consideration on whether the company should follow the price cuts. If the impact of the price cuts on sales and market pull is significant, then EMI should follow suit. However, this is not the case. The reinvigoration plan will slightly increase the sales of UMG in the short-term. After this, the wait-and-see move of other recording companies leaves UMG with an uncertain financial prospect.
EMI should consider other competitive options to wither out the strategic move of UMG and provide a platform for a long-term strategy. Differentiation by creating and adding value are likely to improve sales more than price cuts (Simon, Bilstein & Luby, 2006). Active involvement in collaborative strategies with companies engaged in online music distribution (BusinessWire, 2007) such as Apple also comprises a strategic option. In conclusion, the plan of UMG to reinvigorate the record business was a desperate move to increase its market share as a solution to its impending financial problems.
This would not reinvigorate the recorded music industry because it is based on inaccurate or insufficient assumptions on the problem and the factors affecting market behavior.
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Conniff, T. (2003). UMG cutting prices on its top-line CDs. AllBusiness. Retrieved February 5, 2009, from http://www. allbusiness. com/services/motion-pictures/4886492-1. html Harmon, A. (2003, September 4). Universal to cut prices of its CD’s. The New York Times. Retrieved February 5, 2009, from http://query. nytimes. com/gst/fullpage. html? res=940CE6DC1038F937A3575AC0A9659C8B63 Simon, H. , Bilstein, F. , ; Luby, F. (2006). Low prices = more customers? Not always. Harvard Business School. Retrieved February 5, 2009, from http://hbswk. hbs. edu/archive/5314. html