Universal's CD Price Drop Doesn't Get Very Far

from the so-much-for-that-plan dept

Last fall, Universal Music made a stunning announcement. For the first time ever in the history of CDs, they were going to drop the price of their CDs. It got a lot of attention, and many assumed that other music labels would quickly follow suit - admitting that the traditional CD business was not competitive with online music (both legal and illegal). Instead, the price drop has turned into a classic marketing blunder that should be useful for business school case studies for years to come. First, the price cuts pissed off their retail channel, who felt they were being forced into it. After some initial arguments, Universal finally agreed not to put the lower recommend prices on the CDs themselves, leaving it up to the retailers. At the same time, Universal cut out many promotional programs for the retailers, opening a door for other labels to improve their promotional programs while keeping CD prices higher. Many retailers, in turn, bought the new CDs at the cheaper wholesale prices, but kept charging the higher retail prices to boost their own margin. Since no other record label followed, the competition on pricing never showed up. Of course, this is all short term thinking by the retailers, who are simply driving more customers to online music alternatives. Especially since those very same retailers have now pulled the plug on a plan to build a giant online music store, they're setting themselves up to continue down the trail to irrelevance.
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