Sometimes market Challenges wipe out large numbers of businesses. As I posted in my last blog, Amazon’s approach to internet retailing of books wiped out thousands of independent booksellers, as well as most chains (anyone remember Crown Books?) When such a Challenging tsunami appears on the horizon, trying to Defend & Extend your old Success Formula simply makes no difference.
Yesterday the National Association of Recording Merchandisers met in Chicago to try and figure out how they should respond to the Challenge posted by MP3 technology. These are the people that retail CDs. Do you remember going to the "record store." Their top solution is to install machines in their stores allowing consumers to download songs onto a CD (see article here.)
Never mind that any one of us can already accomplish this task at home with an internet connection, and a computer with a CD burner. These in-store kiosks charge $.99/song (just like iTunes), then add on another $3.00 for the case and label. On top of that, the process is intentionally extended out 5 to 15 minutes to force additional time in the store and encourage shopping. So using this in-store process costs more, and takes longer than doing it in the comfort of your home. And, at the end of this you get a CD. When was the last time you saw someone on the street listening to music with a Walkman instead of an iPod or other portable MP3 player? These retailers do hope to give access to downloading songs to an MP3 player in the future, but they intend to put software on the songs so they can’t be duplicated. And the cost will remain at $.99.
Why would any music retailer think this is a good idea? Because he’s trying to find a way to Defend & Extend the Success Formula he built when music sales required a physical product. Once Locked-in, this manager is most likely to deny the depth of the Challenge, or tweak the Success Formula in hopes it will somehow work. As one retailer said "this machine…puts me back in the singles business." Oh yeah, he admitted to starting 38 years ago selling 45s (for those too young to know, those were 6 inch vinyl records with big holes in the middle.) To say he’s hoping the past will return would be an understatement.
The fact is that the percentage of people buying CDs has declined 15 percent since 2002. CD shipments in the first quarter of 2007 were down 20 percent. While digital downloading of songs keeps growing at 24%/year and greater. Trying to overlay the cost and effort of an old approach on a new solution won’t meet the market Challenge, instead it just moves the competitor another step toward the Whirlpool and disaster.