• What is the strategic vision of CCM in the long term (5 years time)?
• What is CCM’s competitive advantage?
• What is the optimal product positioning strategy for the record label
• How will Darren realize his dream of creating the sales required to compete with major record labels?
• What role should Darren play in the business?
• How should the sales/marketing side of the business be run?
• What other opportunities exist for CCM in its niche market?
3. Analysis
3.1 Industry analysis
Dominant market features - The music industry deals with increasing market growth, especially from smaller labels. Although movements between record label categories are uncommon, there is potential for CCM to grow to an independent label in future.
Competition/ competitive forces - In today’s music industry there is intense rivalry within all four record label categories. However, breaking into the “established business machine” will provide significant opportunities due to economies of scale.
Driving Forces of change – There is potential for the internet to force change in the music industry, bringing new opportunities in the areas of downloadable MP3 music and e-commerce sales. Analysis of CCM’s balance sheet highlights this potential, with web sales increasing 745% from 1999 – 2000 (figure1).
3.2 Environmental Analysis
Technology - CCM will need to continually monitor industry changes in technology that could provide decreases in costs of production or new and exciting opportunities.
Population Demographic - At present CCM has only targeted its home state through art festivals and shopping malls. The main target group of CCM’s light classical music are women aged between 40 and 60. CCM needs to continue to market their products towards their target market, continually searching for new ways to reach their audience, such as classical radio stations or advertisements on television through the day.
3.3 SWOT-Analysis
Strengths
• Cost advantages with new technology arising from the digital revolution.
• Positioning of CCM in a distinctive market niche
• Growing customer base and customer loyalty within target group.
• Good customer service shown through the direct contact between Darren and his fans.
Weaknesses
• No clear strategic vision - CCM needs a long term vision which includes all areas of the business, from marketing and management to distribution and human resources.
• Competitive disadvantages - CCM are not able to enter the retail market due to its current level of sales. Competitors such as major labels have an advantage because they have major market power and influence. Such firms can specify when their music should be played on radio and negotiate large contracts with distributors and retail outlets, hence giving themselves broader appeal.
• CCM is short in financial resources to pursue new opportunities (see figure3). Profits are thin, meaning new opportunities may be unobtainable and long term improvements may not be afforded due to initial costs.
• CCM is losing ground to larger firms because of limited exposure. CCM at present do not reach a global or national audience like independents and major labels. CCM needs to broaden its reach and widen its customer base.
Opportunities
• Serving additional customer groups by expanding co-operation with other artists and enlarging the Acoustitherapy and other segments with new marketing strategies.
• Internet through expanding e-commerce and releasing MP3s (see figure2)
• Expanding sales nation wide.
• Opening to new technologies to cope with the driving forces of the industry.
• Releasing compilations with other artists has proven popular. One strategy could be to assembly the songs (say for Accoustitherapy) at the studio, and sell the completed disks at a discounted rate back to the performing artists in their hometowns. This method would cover the costs up front and give the players a financial incentive to push the product.
• Pushing sales into non-traditional areas such as weddings, shopping center music etc.
Threats
• High number of new entrants and growth of other smaller labels due to the digital revolution. In addition, major labels or independent labels could decide to enter into CCM’s domestic markets and try to drive the smaller labels out of the market.
• Lose sales to substitute products like mp3s or internet downloads
• Vulnerability to industry’s driving forces because of CCM’s weak position in its industry.
3.4 Accounting Analysis
CCM could improve its financial position by looking at ways to reduce its expenses (see figure5). Strategies could include the purchase of an automated postage system, decreasing its supplies expense and reducing professional fees, such as hiring cheaper backup musicians at live performances (like uni students). One positive is that web sales have increased, but Darren indicates this is from the art festivals where he performs. As shown by figure4, gig sales still represent the bulk of CCM’s sales (85% in 2000).
4. Alternatives
Do Nothing - The first alternative involves not making any strategic changes to the way CCM conducts business. This option has to be considered, for CCM has operated profitably for the past four years, experiencing an average increase on total sales and total income of approx 13% (see figure1). However, rate of return on sales has decreased dramatically over the last three years, mainly due to ballooning expenses (see figure3). This coupled with the injury Darren sustained will have a major impact on the sales and profitability of CCM, and does not address the sales/marketing issues.
Hire New Staff and Restructure – As acknowledged by Darren, CCM has staffing issues that are affecting the way CCM manages its growth. One option would be to turn the business over to professional managers, while Darren concentrates on the music side of the business, managing the studio and his own recordings. This may involve a significant restructure and may require additional funds from investors.
Form a Strategic Alliance With a Competitor - Alliances are very popular in industries where change is rapid. The music industry relies on technology which changes rapidly. CCM could form a strategic alliance, a partnership or sell out to a major label. Overheads and expenses would be reduced, and CCM would be in a strong position to continue to grow and diversify its product range and reduce its expenses.
Develop a Marketing and Business Plan – This would involve a detailed analysis of CCM which would provide a strategic direction and recommendations to realize Darren’s goals for CCM. This report would address each section of the business, making recommendations regarding human resources, sales/marketing, distribution, competitive advantage, product positioning and reducing expenses.
5. Recommendations and Conclusions
It is recommended that CCM develop a business/marketing plan to establish a long term strategic direction. The plan will include the following recommendations:
Competitive Advantage – Competitive advantage will be created by CCM positioning itself carefully in its niche market segment (“soft acoustic sounds and familiar classical tunes”) where there is minimal competition from rivals. Tailoring products towards the target market (white, middle-class women) is also important. Competitive advantage will be further obtained by growing a diversified range of artists within this market segment to increase long term sales and cash flow.
Product Positioning/Distribution – It is envisaged that Darren Curtis Skanson will be positioned to compete with artists on a recording label, such as Sony Classical. Achieving this will involve generating sales through the established business machine (distribution through music stores). While this is happening, other musicians and product lines need to be continually developed in order to generate profits. This will come from distribution through one-stops and direct selling. Direct selling through website, mail and phone orders should be pursued due to its fast growth and large profit margins. Seeking other artists that fit well into the CCM system will diversify and strengthen the company and potentially provide additional funds for Darren Curtis Skanson to break into the traditional industry distribution network. It is envisaged that for Darren Curtis Skanson to generate the sales required to compete with artists on recording labels, a significantly different strategy will need to be formulated. With Darren not able to travel and perform as much as he has done previously, it may be beneficial to limit his performances to larger art festivals. Daren could perform with other musicians as he did previously, as this was found to be extremely popular. Further, Darren needs to try to branch out from local areas into other states to broaden his appeal.
Human Resources – It is recommended that a professional sales/marketing manager be employed by CCM on a full time basis. This person ideally will have a background in the music industry and a network of contacts, and will be responsible for the marketing of the products, organizing promotion, sales to one stops and distributors and exploring alternative performance venues. In the medium – long term there may also be scope to obtain the services of a promotional company that specializes in getting music airplay, once sufficient funds are available. Darren should focus on refining the CCM system, managing the recording studio, performing and recording music.
Reducing Expenses – CCM needs to aim to reduce its expenses. This will be achieved through the methods explained in the accounting analysis. It is envisaged that if the above steps can be taken then CCM will grow to become a strong company, allowing Darren to fulfill his goals and reach his potential as a musician.
