Group assignment - Polyphonic HMI Case“The challenge of marketing a highly innovative product in the music industry” ERASMUS UNIVERSITY ROTTERDAM Erasmus School of Economics Seminar Innovation & Marketing, 2015 Prof. Dr. S. Stremersch Date: 26-01-2015 Xiao Li: 414257xl Arjan den Besten: 415298ab Thomas van Huijgevoort: 415028th 1.Introduction . This case study solution will address the challenges faced by the company and will provide recommendations for solving these challenges. The initial sales pitches of Polyphonic HMI met with resistance. is charged with applying the parent company’s artificial intelligence and natural science ideas and products to the music industry. Many people simply can’t imagine that science might play a role by investigating whether a song becomes a hit or not.Polyphonic HMI. 2. first the challenges that Polyphonic HMI is facing will be looked at and then a number of recommendations will be given considering the future operations for Polyphonic HMI. a subdivision of Barcelona-based Grupo AIA. and which marketing strategy should the company use? To find a solution to this issue. can’t convince the decision-making unit within target customer firms that science is a great option to forecast whether a song becomes a hit or not. Polyphonic is releasing Hit Song Science (will be referred to as HSS). a software product used to predict the potential success of songs by mapping their mathematical properties and matching those to previous hits. up until this point. The aim of this group assignment is to find a clear answer on the following question: What is the target market that Polyphonic HMI should be pursuing with HSS. Challenges There are two challenges that Polyphonic HMI currently faces. The biggest challenge for Polyphonic HMI is that the company. Recommendations 3. A&R (artist-and-repertoire) people who work for the Record Labels might be a more suitable group to target as DMU. Polyphonic HMI created a new piece of technology. Polyphonic HMI has to target a different DMU where they can more easily sell their product to.1 Target market Competitor Analysis: Looking at the product Polyphonic HMI has to offer. Customer Analysis: Market segment for HSS The HSS technology works best for the mainstream music audience. As McCready is saying in the case on page 1. Polyphonic HMI was targeting their product at the record company executives and they were not very enthusiastic about the product. This DMU (Decision Making Unit) was not convinced of the involvement of science to find out if a song becomes a hit. which provides the company with significant opportunities for quick expansion. the company is in fact a pioneer. This is elaborated in our recommendations. Polyphonic HMI has a first-mover advantage.Secondly. It is a new product in the music industry and it will take some time before it will be adapted in the market. 3. Polyphonic HMI must make . as in the past. many comparable songs have been indexed by the technology and therefore it serves as the best predictor for future success with these types of songs. In exhibit 6 of the case study. A suggested solution is to target a different DMU within the company. is $1. The reason for this is that A&R executives are the people who are responsible for assigning artists’ work to the record company and who are continuously looking for new talents.sure that it chooses the specific segment. Specifically. which is exactly the segment that Polyphonic HMI is targeting for HSS. it can be seen that in the U. that has the highest market share in the mainstream music market. In this case it would be best to contact the A&R executives within the five major record companies. From this. it will be able to capture the largest part of the market. In the end HSS technology could support the A&R executives in accomplishing their goals.S.. it can be concluded that if Polyphonic targets the five largest record companies. this figure is 75%. Polyphonic has ran into the challenge that the decision making unit (DMU). these people get judged upon the quality of the work of new artists. in this case the CEO’s of record companies. the five major record companies have 84% market share in the market of music sales (2002). On a worldwide basis. This problem has already been mentioned in the ‘challenges section’. This 15% of the total estimated revenues coming from the 2500 albums that are annually estimated to be sold by the five major record companies. Market segment size In the case. Acquiring these five companies as key customers seems like a straightforward first step for Polyphonic HMI. In previous attempts to market the HSS technology. couldn’t be convinced of the potential need and benefit for the HSS proposition. it is said that 15% of all the revenues of the five major record companies are spent on A&R activities.35 billion in . and then times 15%). Market segment growth The growth that Polyphonic HMI can achieve in this segment is significant. As this is the total A&R spending of this segment and taking into account that HSS is a complementary market research activity (as mentioned in the case). the artist and the company itself. for the HSS technology in this market segment. The A&R executives play the role of an in-house producer.total. 3. Of the 15% of expenditures on A&R activities. and act as a pivot between the label. the total market potential lies slightly above or below $1 billion. it is very important to stress the key features to the target group. in quickly generating new business out of this segment. To emphasize the . this market segment displays significant growth opportunities. The company can charge a fixed upfront fee (around $1500 . For these reasons and looking at the competitive position of Polyphonic HMI.$3000 per song) for analyzing the song and a royalty fee of 1% to 2% of the total revenues earned by the song. the segment consists of only 5 major record companies.2 Marketing strategy Positioning: emphasis on the value proposition To launch the HSS technology. who are responsible for a lot of things enclose the “scoring-hit” process. namely the A&R executives. Next to this. which suggests that it is overseeable how much effort has to be put in. the fixed upfront fee is a relatively small proportion and can easily be budgeted by the A&R executives (as can be calculated by multiplying the market value from exhibit 4 by 84% out of exhibit 6. For producers: A producer is expected to be able to see the characteristic of an artist and match him/her with a suitable song that has the potential to be a hit. Promotion strategy: To promote HSS. When customers are satisfied with the . MRS offers a reliable reference for the producers other than their “gut instinct”. which is a primary way to advertise. HSS could add value here. because free trials provide zero risk towards testing the product. HSS can help examine the whole album and offer advice on the potential of certain singles. For companies: HSS benefit companies in a similar way that it benefits artists. The fact is only few hundreds out of thousands can have a hit once in a while. 3. For artists: Given the fact that the first single can generate a make-orbreak situation particularly for new artists. The benefits of HSS consists the following aspects: 1. thus increase the chance of “make” and reduce the risk of “break”. MRS assists the company to achieve higher expectations. 2. the usage of real life examples is highly recommended. by simplifying the process of selection of songs and enhancing the accuracy in prediction of potential hits. in which the previous analysis of Maroon 5 is presented and compared with the real outcome. So. Brochures can be used to raise awareness among labels and A&R’s. By helping to decide which song of the album to release first.benefits for A&R thus becomes the first task to commence with. and hence can encourage potential customers to get to know the product better. Another suggestion is offering free trials to perceived customers. the decision of choosing the first single to release becomes crucial. and to get on the radio. Lastly. based on the fact that there are only five major record companies. given the average of the callout studies ($6000) and the average cost of internet polling studies ($3000). ten singles) should be lower than the accumulated 10 song charge. For example. rather than a replacement of an A&R executive’s tools to evaluate songs’ potential. Price strategy: A two-stage charging process is suggested. his “experience with Hit Song Science has been fantastic”. With direct marketing Polyphonic can reach its perceived customers most efficiently. The suggested price is set lower than the average cost of internet and callout studies. Moreover. the bundle price for an entire album (e. words will be spreaded. First stage refers to the fixed charge of using the HSS. as Bunt from Hollywood Records described. given that an outside producer normally gets a royalty from 1% to 5%. promote the product via word-of-mouth.outcome. therefore encourage customers’ interest and motivation in free trials. if HSS has successfully predicted the hit. recommended charging range is from $1500 to $3000 per single. because the HSS is considered as an supplement reference to the labels. For the second stage. for instance. a negotiable minimum royalty of 1% of the suggested retail price should be charged. when customers request a whole album test. Distribution strategy: Direct marketing would be the optimal approach in selling HSS. . and eventually lead to possible long-term cooperation.g.