The Buying Process A Walkthrough of Spotify and the Online Music Streaming Buying Process/Cycle

Every product and service has a buying cycle. This buying cycle consists of five stages, which include problem recognition, search and determination of alternatives, evaluation of those alternatives, the purchase decision, and the post purchase evaluation. For the purpose of this analysis we will breakdown the product offering presented to consumers seeking an alternative to conventional music listening. The alternative to traditional music ownership being a subscription to an online music streaming service. In this report we will discuss the reason why a consumer would choose the Spotify Music Service over its competitors through the buying process/cycle. Spotify is an on demand music streaming service that allows users to access a library of millions of tracks through a multitude of delivery channels. In this discussion we will breakdown the so-called problems that Spotify solves and explore how it differentiates itself from its competitors. Furthermore we will see how they affect the consumers purchase decision and as a user of the Spotify service I will give a post purchase evaluation of their product. First, in the buying cycle is problem recognition or awareness. Spotify as well as many other companies have recently discovered a new need where people are seeking to increase their exposure to music as well as the desire to discover new music that they normally would not listen to. “The first step in virtually all buying cycle depictions is awareness. This is the point at which a buyer recognizes that he needs something or the point at which he recognizes your product or service and views it as a possibility.” (Kokemuller, 2013) The music industry since the late 1990’s has been in turmoil due to the increase in technology and how it affects its delivery systems. Previously if you wanted to purchase a song or an album, you would go to your local music store or online retailer to make that purchase. But with the Internet came a network of sharing. Soon there were services such as Napster that allowed individuals to share their entire libraries of music with the entire world for free. Granted this was illegal it took a massive chunk out of the revenue stream of the music industry. Seeing this change Apple launched the iTunes music store in 2003 with an unrivaled model of selling single tracks from albums for a fraction of the price of the full album. Suddenly the consumer had the ability to pick and choose just the songs they enjoyed from albums to grow their libraries. Soon other companies such as Amazon and Google followed suit after seeing the virtually unrivaled success that Apple enjoyed. This new model however did and still does have its limits. Those limits included limited storage space for tracks since hard drive space on computer and mp3 players are finite, lack of being able to share your music with your friends, and the inability to really discover new music that would be relevant to your current music tastes. This is where Spotify seeks to capitalize by offering a service where users are not limited by their hardware to how much music they can have or listen to, a service that is connected to your social networks to allow sharing of your music, while also allowing the listener to discover music that they would normally not listen to by giving suggestions based on what they currently have in their libraries. However, Spotify is not the sole provider of music streaming services. There is an almost never-ending list of alternative streaming providers including Pandora, Rdio, Napster, Rhapsody and iTunes Radio. However the question of how a consumer discovers these alternatives come about. This is where a consumer will actively seek out ways of solving the problem at hand, in this case the way they listen to music. According to Philip Kotler and Kevin Keller, consumers will look to four resource groups to gather information on their options. These four categories are personal, commercial, public and experiential. In the personal sphere you have friends and family who will give recommendations. These recommendations will carry more decisive weight because the information is coming from individuals we know and trust. Then we will see commercial spheres that will consist of the actual sites of alternatives and their advertising to see the benefits that they offer. Spotify is an aggressive advertiser that is seeking to control as much market share as possible to edge out its competitors. “Spotify is going where the eyeballs are, aggressively trying to court as many new users as possible before the already competitive streaming space…becomes even more competitive. And that requires exposure, even if that means writing a check to a competitor.” (Stenovic, 2013) Another information source will be public outlets of information, which include rating organizations such as the Better Business Bureau and Consumer Reports. These outlets will show an unbiased review of products and services that allow a user to judge a specific product. Finally, an avenue to gather information is experiential that includes actually using the product or service. “The next broad stage in the buying cycle is consideration. This is one of the most impacting stages in terms of your company's status with a buyer. During this stage, the buyer formulates a consideration set and evaluates each option on factors important to him.” (Kokemuller, 2013) These factors can be broken down into internal and external influences and these influences vary in degree of impact and consideration given to the ultimate decision. “The next broad stage in the buying cycle is consideration. This is one of the most impacting stages in terms of your company's status with a buyer. During this stage, the buyer formulates a consideration set and evaluates each option on factors important to him” (Koklic & Vida, 2009). In this case with Spotify, some of those factors would be culture, social class, prices and general internal feeling towards the company. Once the information gathering and identification of alternatives is completed, the third step of the buying process is the evaluation of the alternatives. To evaluate the alternative solutions we seek certain benefits from the sought after services. One method is to breakdown the attributes of each service and its ability to deliver the sought after benefits. In the online music streaming industry the benefits that we seek are ease of use, availability (online & offline), and music discovery. These benefits that we look for combined with the previously identified alternatives such as Pandora, Rdio, iTunes radio and Napster can be put together to create a matrix that can be used to establish an expectancy-value model. In doing so, the consumer could place a percentage of importance to each benefit that they seek. In our case we have three benefits and 5 possible services that are viable contenders. In order of importance I would place a degree of 30% to ease of use, 45% to availability of music, and 25% to social connectivity/discovery. The previously mentioned external and internal sources of information such as Consumer Reports and friend/family can give us grades or values to assign to each of those categories that we could then turn into an equation to see which service would give us the highest perceived value. Many companies will alter their product offering to align with the most heavily weighted attribute that a customer chooses. In the case of streaming music, it has become very evident that it is the availability and variety of music offered. Currently Spotify offers a music library of around 16 million tracks. After the various alternatives to the consumer’s perceived problem have been evaluated, it is time to make a purchasing decision. “The point of purchase is essentially crunch time in the buying cycle. This is the point at which a buyer has determined which product or service best matches his needs at the most affordable price. If your product, price and promotions have effectively wooed enough customers during the consideration process, you should be in good shape at crunch time. Capturing customer contact information to develop an ongoing relationship for future sales is important if you are the winner of the customer's purchase decision.” (Kokemuller, 2013) By using the elimination-by-aspects heuristic outlined in the noncompensatory model of consumer choice, the consumer will eliminate the services that do not offer an acceptable level of benefits that are sought. In this example, we chose Spotify as our ultimate preference for online music streaming. The benefits drivers of having availability of content (16 million tracks), availability of songs while not being connected to the internet by allowing the user to download playlists for offline use, as well as being able to discover new music by giving recommendations based on the users listening habits as well as social circles made Spotify the preferred choice by a wide margin. Competitors such as iTunes radio and Pandora do not allow for social connectivity or offline listening, which defeats many of the main attractions that a consumer is seeking. Also, Spotify allows it’s users to pick certain tracks with unlimited playback where the competitors do not allow users to pick a specific track and instead are in more of a radio format where you have no real control over what you can listen to. Because all of these services are mostly subscription based for the services that most users are seeking such as unlimited listening and creation of playlists with no advertisements to offset costs of providing services, post-purchase management becomes a very important business matter. “While most buying cycle models include awareness, consideration and purchase stages, not all go beyond those three steps. Those that do depict after-sale buying activities as ranging anywhere from one to four additional steps. In general, after-sale buying cycle stages include application or use of the product, discussions on additional uses, advocacy of the brand or product with others and intention to repeat purchases. Follow-up support, inquiries and genuine customer care are keys during these stages. Customers assess their experiences, which impacts future buying and the positive or negative word of mouth they spread to others.” (Kokemuller, 2013) In most business’s opinion the post purchase actions made by a customer are the most important. Considering that word of mouth and reputation marketing are becoming the most influential marketing tactics, it is increasingly important to provide positive customer service after the sale and during the subscription. Spotify consistently updates it’s software by listening to user requests for improvements. By staying proactive Spotify ensures that consumers of its service such as myself will promote their service over their competitors. If they were to just create a service and not make any updates or provide support to a customer who might encounter issues, this would open them up to a reputational risk, which would then damage their brand and reduce ultimate market share. Spotify’s existence is reliant on continues subscriber growth while maintaining existing subscribers for increases recurring revenue. Considering that Pandora, iTunes Radio and Rdio are not nearly as robust as Spotify is since they were not able to enter the market with the speed in which Spotify did, they will continue to struggle against the dominance that Spotify is currently enjoying in the streaming market. In conclusion, Spotify is in the forefront of online music streaming and making its competitors scramble to keep up. “The decline in digital-track sales isn't good news for Apple, the top music retailer. Downloads are the backbone of iTunes' music business. The good news is that the slide in downloads can be traced to the shift among music fans to streaming services, such as Spotify, Pandora, Rdio, and YouTube.” (Sandoval, 2013) Spotify has managed to increase paid subscriptions, increase brand awareness, provide consistent service, be the most socially linked provider (Facebook), as well as the most robust in making its content available. Because of these reasons, I chose their service after using Pandora, Rdio, and iTunes and will continue to sing their praises along with the millions of other happy customers.

References

- Kokemuller, Neil (2013) Buying Cycle Stages for Chron.com retrieved October 22, 2013 from http://smallbusiness.chron.com/buying-cycle-stages-60966.html

- Stenovic, Timothy (April 10, 2013) Spotify Aggressively Courting New Subscribers Before Google, Apple Enter Streaming Market for The Huffington Post retrieved October 22, 2013 from http://www.huffingtonpost.com/2013/04/10/spotify-new-subscribers_n_3047638.html

- Koklic, M.K., & Vida, I (2009) A Strategic Household Purchase: Consumer House Buying Behavior. Managing Global Transitions retrieved October 22, 2013 from http://search.proquest.com.libproxy.edmc.edu/docview/902847378?accountid=34899%20

- Philip Kotler, Kevin Keller (2011) Marketing Management. Retrieved October 22, 2013 from https://digitalbookshelf.argosy.edu/#/books/9781256313281/pages/49175005/id/Chapter5-8

- Sandoval, Greg (July 19, 2013) Has Spotify killed the iTunes star? Download sales slow as streaming picks up for The Verge. Retrieved October 22, 2013 from http://www.theverge.com/2013/7/19/4538094/has-spotify-killed-the-itunes-star-download-sales-slow-as-streaming-picks-up

- Imam, Jareen (June 16, 2012) Young listeners opting to stream, not own music for CNN. Retrieved October 22, 2013 from http://www.cnn.com/2012/06/15/tech/web/music-streaming/