Giving away your product for free and charging $300 for it at the same time might not sound like a great business plan, but it is one strategy that is seeing a lot of success with musical artists.
Alternative rock band Nine Inch Nails (NIN) circumvented the usual middle-man with the release of their latest album, the four-volume “Ghosts”, on their Web site earlier this week. The marketing gambit appears successful at this point, and businesses might want to take note of NIN front-man Trent Reznor’s use of the Internet.
“It shows some marketing creativity and it also shows we’ve turned a corner in terms of using new Web channels for selling products and services,” says Tony Olvet, vice president communications and segments with Toronto-based IDC Canada Inc.
Other analysts agree the Internet doesn’t hamper traditional business models, but actually complements them.
“One of the key messages is to try something unique and embrace the technology that is available,” says Michelle Warren, senior research analyst with London, Ont.-based Info-Tech Research Group.
NIN is using a free sample approach by uploading the first volume of the new album to file-sharing torrent Web sites like The Pirate Bay. Band representatives created official accounts on sites normally lambasted by the music industry to give away the tracks.
Despite the free offerings, early indications show that fans clamoured for the most expensive option of a US$300 ultra-deluxe box set. Containing a blu-ray disc and two high-quality books, 2,500 sets were sold out yesterday morning.
That’s US$750,000 revenue in less than two days on those sales alone.
Most businessmen probably aren’t fond of the band’s trademark loud, industrial sound. But sales like that are music their ears.
Thriftier fans could also opt to spend $5 to download all four volumes in a high-quality digital format. For $10, the music came on an old-fashioned CD too. For $75, there was a less opulent box set available.
The band’s Web site was so burdened on the first day of sales it went down for maintenance as more servers were deployed to help move the files.
“They’re looking for different ways to garner value for their intellectual property,” Warren says. “So they’re randomly picking numbers… NIN is trying $5 and its working.”
Having so much selection available is also an effective way to segment their customer base, Olvet says. The most expensive offering likely sold out because of its limited edition nature.
“The ultra-fanatics and collectors will buy the top of the line offering,” he says. More casual fans are still catered too with the other options. Offering different levels of service effectively exploits customer segmentation.
“It’s not just constrained to the creative or music industry,” Olvet adds. “There are possibly even scenarios where business-to-business offerings might use this model.”
London rock group Radiohead made headlines when they took their “In Rainbows” album release directly to their Web site last October. Their tactic was to allow fans to pay whatever they wanted to download the digital music files, free of digital rights management.
They also offered a box set for sale in addition to the pay-what-you-want download. Estimates on the first-week sales revenue ranged from $6 to $10 million.
But even those sales didn’t hurt Radiohead when they brought the album to record store shelves, Olvet notes. The band still topped the charts with their album sales the week of their release.
“Even though Radiohead tried this new experimental channel for distributing their product and they take a lot of risk in terms of their actual price per unit, they were still able to sell it later through their traditional channels,” he says.
But relying on viral marketing online won’t work to drive sales for everyone. It might be ideal for music, Warren says, but less so for more complicated products.
“We still want to sit on a chair before we buy the chair,” she says.
Word from NIN hints that further volumes will likely be added to Ghosts in the near future. Watch your favourite torrent sites.