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Why-ology News: Trend Go beyond the what to the why of consumer behavior. October 2016

Streaming Music

How do you respond when the competition changes its pricing? Find out if lower or higher prices will affect your customers. Contact us to learn more.

If you don't use a streaming-music service but would like to, you may be in for a nice surprise in the near future: more services and some lower-priced services to choose from. Streaming services differ. For example, Pandora offers music tailored to listeners' taste but is not song specific. Spotify and Apple Music offer users the option to choose songs and develop playlists. In the age of the internet, many stream-for-pay services have cost $10 a month. That pricing is about to change, reports the New York Times (12 September 2016). By Christmas, Pandora and Amazon plan to offer streaming services to casual listeners for as little as $5 a month.

The retail philosophy that lower price will generate more volume to maintain profit margins may not be true in a category in which songs are free on YouTube (reportedly the largest music provider) and Google. Artists are angry because YouTube and Google do not compensate them for use of their material (intellectual property). The cost of streaming services is not at the discretion of the streaming provider; record-company negotiations to reach agreement about price are necessary. Apple Music wanted to offer its service for $8 a month, "but the labels balked and held out for $10 giving Apple no price advantage." Streaming providers must engage in arduous negations with music labels before they can lower cost to consumers.

A five-year trend of monthly visitors to illustrates that although services are growing—from 10% in 2011 to 28% in 2015—they may not be growing fast enough to satisfy investors; with only 28% of all adults visiting Pandora in the past month, a growth opportunity for Pandora remains.

Trend: Visited in the Past 30 Days

Lower-cost streaming services sounds attractive. Everyone appreciates a bargain. Streaming services that offer more choice should appeal to some consumers; no guarantee exists, however, that some customers currently paying $10 a month to Pandora will not switch to a $5 monthly service. From a VALS™ perspective, which Pandora core customers will be most at risk?

Four VALS consumer groups are more likely than average (in comparison with all adults) to have visited Pandora in the past 30 days: Experiencers, Innovators, Strivers, and Achievers.

Experiencers use music as a soundtrack for their lives and rely on music to alter their mood of the moment. Experiencers will switch to a lower-cost service that provides at least as much choice as they have currently. Experiencers may upgrade to a service that allows them to customize a playlist as long as it remains at, or about, $10 a month. Experiencers (48%) are more likely than Innovators (35%) to visit Pandora. Innovators look for choice and are the most willing and able consumers to pay for the privilege. For example, they are twice as likely (18%) as Experiencers (9%) to use Spotify, which allows them to choose the songs they want to listen to. If Spotify lowers prices as well, Pandora risks losing this group.

Both 38% of Strivers and 38% of Achievers have visited Pandora in the past 30 days. These groups are always looking for a better deal in efforts to save money. Only 9% use Spotify. Strivers are more interested in music than are many Achievers; they will likely opt for a lower-price offer for the same or similar service. Achievers who are satisfied with Pandora's new offer will likely remain and suggest that friends give the service a try—a growth opportunity for Pandora.

Other growth opportunities exist among some members of the remaining groups: Makers who are heavy traditional-radio listeners, Thinkers who appreciate many types of music genres and talk radio (but likely own CDs and vinyl records), and Believers if religious music, oldies, and ethnic choices are options. Survivors are the least likely to be interested in any streaming-music service at any price.

To learn more about how your customers will most likely respond to pricing changes, contact the VALS team.

Why-ology News was a periodic newsletter highlighting free content from the VALS team. Visit the Why-ology Library for additional featured content.