March 2, 2011

Where to Look

Filed under: business,marketing,music — Erik Dobberkau @ 08:05

The other week German IT association BITKOM published 2010’s legal music download numbers, proudly speaking of a record result. The interesting part was their interpretation of the age structure of customers, accompanied by a lot of hoopla and (inappropriate) [self-]praise. Since I don’t have the proper numbers, I just made up my own to illustrate my point.

spreadsheet - music downloads

Fig. 1

In Fig. 1 you can see the numbers of downloads for each age group in the years 2000, 2005 and 2010. At first glance, everything’s looking good, aye? Reading left to right, some of the groups are growing, some stagnating, only the youngsters seem to be shrinking in 2010. Or are they?

Fig. 2

Fig. 2 helps visualize what I was talking about in the above paragraph. It may look like your product is growingly attractive for the older groups. It also appears that you have massive growth in the late 30s group and with a little less scale in the early 40s group. The younger groups seem to be stagnating after the initial growth in the first 5 years. And all of these conclusions are wrong. Fig. 3 may give you a hint why.

Fig. 3

Still no idea? Maybe Fig. 4 makes it clearer.

spreadsheet music downloads with illustrative arrows

Fig. 4

All this age group-based thinking easily leads into a trap of silo thinking that doesn’t match reality. Your customers are getting older, so the ones that bought something ten years ago are ten years older today. The risk is of course that your company would say “we only cater to the young audience” which means a lot of more work, because turning a stranger into a customer requires a lot more work and is thus more costly than keeping your customer. So how to interpret this example?

  • Your popularity with the very young audience is falling, yet growth relatively solid.
  • Today’s middle age groups (30-44), who were your young audience ten years back, are your best customers, spending ever more money on you. Large potential.
  • Current older audience is not that attractive. ROI not safe.
  • Conclusions: Do what it takes to keep your core buyers. Don’t overthrow what you’ve built up just to attract a younger audience, but they’re the ones you must find a way getting them excited about you and become your customers, and do this continously. Then, over time, you’re likely to have a solid customer structure distributed over all age groups.

What you might discover when you look at charts this way is your business works differently than you expect. For instance, you could save a ton of money when you realize there is a customer lifecycle and embrace it. Which, on the other hand, requires you to see your customers as your most important asset, not only as average consumers who buy your stuff. The record industry would be better off if they realized that they’re selling commodities, not fashion. Their artists are fashion, but the products shipped are all the same. So why waste advertising space like they used to (and still do)? But that’s a different topic, and it’s already been written about a lot.

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