MASTER OF MANAGEMENT

GADJAH MADA UNIVERSITY

MARKETING MANAGEMENT

DEVELOPING PRICING STRATEGIES AND PROGRAMS

CASE STUDY : RADIOHEAD – IN RAINBOWS

Lecture : Prof. Dr. Basu Swastha Dharmmesta, M.B.A

Group 4

Anne Stam [Student Exchange]

Febrini Wulandari 08/277511/PEK/12841

Irwan Arfandi Bachtiar 08/277521/PEK/12851

“IN RAINBOWS PRICING STRATEGY”

In Rainbows [2007] Radiohead’s 7th Albums [double disc]

CASE SUMMARY

Radiohead, a super famous band in the world, launched their new

album, In Rainbows in unusual but attractive way. It is called name-

your-own-price. The procedure is simple, yet unusual, but demanding.

Potential buyers are given options to set their own desired price of a copy

of album and buy the album in any price which is already being set. At first

glance, this strategy seemed to be unprofitable. But if close calculation is made, this strategy is emerging

new jargon, lower-price-means-higher-profit.1

“Assume that there are thousands of potential buyers who are willing to pay for a copy, ranging from $0

to $10, and costs for producing a copy is very low. There are few possibilities :

1) Potential buyers will set price as low as possible, even equals to zero dollar.

2) Potential buyers will value price above its intrinsic value and pay more dollars.

3) Potential buyers will value price equally with its intrinsic value and pay required dollars.

If points (2) and (3) do happen, the profit are extremely high when the demands keeps growing and

growing. If point (1) happen frequently, it will create profit in the future when potential buyers who have

bought the album without paying any dollar, become huge fans of Radiohead and afterward, decide to

buy every album of Radiohead at any price.”

MAIN ISSUES

Pricing strategy.

Its impacts in creating higher profit.

Its impacts in creating more demands.

PROBLEM STATEMENT

1 Data is accessed from http://www.freedom-to-tinker.com/blog/felten/radioheads-low-price-might-mean-higher-profit

“Is it a good pricing strategy?”

ANALYSIS

There are positive and also negative comment toward this new marketing strategy2 :

RADIOHEAD RELEASE’S OF “IN RAINBOWS” WILL SIGNIFICANTLY CHANGE THE WHOLE BUSINESS MODEL OF THE MUSIC INDUSTRY

For Against

the sale strategy results also in positive feebacks from artists

as below-par, expensive but unworthy music prevails nowadays; notable Radiohead's 'free' album is certainly a bold action

free from any deal with record label, In Rainbows proves also an artistic success, receivng widespread critical acclaim upon its release with little promotion

the self-release of In Rainbows signifies the breaking down of the long established rlationship between big name artists and major recording labels

downloading music for a fixed amount/free online isn't entirely new to the music industry

junior artists sometimes offer free samplers to attract attention

Radiohead, in allowing everyone to pay zero or whatever they please up to £99.99 for the album in mp3 format, indeed commit commercial suicide

Downloading music for a fixed amount/free online isn't entirely new to the music industry

For Against

2  Data is accessed from http://goodpoint.elc.polyu.edu.hk/print_proscon.php?mapid=4899

placing a 'pay-as-you-wish' tag over the album doesn't change the nature of 'e-sales'

Radiohead, in allowing everyone to pay zero or whatever they please up to £99.99 for the album in mp3 format, indeed commit commercial suicide

For Against

it proves only a financial disaster: it can be imagined that profit from the sale of album is significantly harmed by adopting such a marketing strategy

this anti-marketing strategy adopted by the band in fact makes perfect business sense under current situation of the music industry

Thom Yorke3 Says Pricing Optional Strategy Was 'a One-Off'

As word traveled about Radiohead reinventing the music industry with its pricing-optional release of In Rainbows, the band's manager made it a point to clarify that strategy was not a reinvention of the music industry. Now, Thom Yorke says he doesn't see it as a reinvention of Radiohead's plan to distribute music in the future, either.

Yorke told Hollywood Reporter that the band will not likely return to the widely-hailed pricing-optional strategy it used to release In Rainbows on subsequent albums. "It was a one-off response to a particular situation," he said. "It was one of those things where we were in the position of everyone asking us what we were going to do. I don't think it would have the same significance now anyway, if we chose to give something away again. It was a moment in time."

However, one aspect of the In Rainbows campaign will remain: "We are about that direct relationship (now) because we are big enough to establish that." He's right, of course, and we can't wait to see what they come up with next.

3 Thom Yorke is Radiohead’s lead vocalist and also playing guitars.

The band is currently gearing up for a North American tour, and four years elapsed between Hail to the Thief and In Rainbows. We may have to wait a bit, but all signs indicate that it'll be interesting (as long as the music is as good as what's on In Rainbows).4

This anti-marketing strategy adopted by the band in fact makes perfect business sense under current situation of the music industry

For Against

it can be viewed as the band's strategy to experiment releasing an album in this relatively new media: the Internet

such free releasing strategy makes it easy for Radiohead to manage distribution

the band's vocal Thom Yorke actually offered free download of several remixes of his individual album 'The Eraser' after the release of 'The Eraser'.

in nowadays, it is in fact more rewarding for an artist to allow his or her album to be downloaded by anyone at a low price or even for free

the band could even benefit from those who ignore the box set and choose to pay nothing to download the album from its online shop

this strategy helps to band/its future label to evaluate the band's popularity and gives a better idea of future pricing of any merchandise by the band

this novel pay-as-you wish or donation-style sale mechanism in fact draws attention from all over the world to the album, thus helps promote it

such marketing strategy is not applicable to many other less famous artists

4 Data accessed on http://blog.wired.com/music/2008/04/thom-yorke-says.html, March 6, 2009.

Such free releasing strategy makes it easy for Radiohead to manage distribution

For Against

future demand of the album will be low

Future demand of the album will be low

For Against

most fans would have purchased either the box set or entire album online

Such marketing strategy is not applicable to many other less famous artists

For Against

all the seeming advantage in adoping this novel donation-style style is possible only given Radiohead’s reputation and the size of their fanbase

In nowadays, it is in fact more rewarding for an artist to allow his or her album to be downloaded by anyone at a low price or even for free

For Against

popularizing the album through free download gives audiences a chance to acquaint with the songs-- they may eventually purchase the CD for a better quality

the profit from the sale of album is

significantly lessened nowadays due to pirate copies and illegal sharing on the internet

records, CDs or downloads now have all become transformed to the status of promotional tools for the sale of concert tickets and fan souvenirs

Records, CDs or downloads now have all become transformed to the status of promotional tools for the sale of concert tickets and fan souvenirs

For Against

The Charlatans gives their new album away as a free download through the XFM website, sold out their latest tour within an hour

Prince, who in July gave away his album 3121 for free in the UK through the Daily Mail, has all his 21 tour dates in London subsequently sold out

The band could even benefit from those who ignore the box set and choose to pay nothing to download the album from its online shop

For Against

those who have downloaded the album from the band's online store will become targets for future marketing campaigns

Those who have downloaded the album from the band's online store will become targets for future marketing campaigns

For Against

they are required to register their personal information for downloading the album

This strategy helps to band/its future label to evaluate the band's popularity and gives a better idea of future pricing of any merchandise by the band

For Against

with the personal information fans registered for the download, the band can schedule its coming year's world tour to maximize the profit from tickets sale

such strategy turns the sale of the album into a somewhat moral issue by giving the fans freedom to express honestly how much they are willing to pay for it

Radiohead’s live performance during promotion “In Rainbow”, Medison Square Garden, New York, USA

It proves only a financial disaster: it can be imagined that profit from the sale of album is significantly harmed by adopting such a marketing strategy

For Against

it's a common phenomenon: people tend to get things free if they are not asked to pay

Internet research group ComScore found that more than 60% of fans pay nothing at all for the album, and the average amount paid was just £2.9

Internet research group ComScore found that more than 60% of fans pay nothing at all for the album, and the average amount paid was just £2.9

For Against

without middlemen, and with zero material costs for a download, £2.9 per album would work out to Radiohead’s advantage

Without middlemen, and with zero material costs for a download, £2.9 per album would work out to Radiohead’s advantage

For Against

but there are still costs for the making of the album, regardless of its release medium

The sale strategy results also in positive feebacks from artists

For Against

Alex Turner of the Arctic Monkeys and David Bowie also show genuine interest to Radiohead's novel strategy

John Marr of the Modest Mouse thinks it's fantastic as it puts the responsibility back on people’s own consciences, deals with people as grown ups

James Blunt thinks that Radiohead’s approach could undermine the principle that artists should be rewarded for their work

James Blunt thinks that Radiohead’s approach could undermine the principle that artists should be rewarded for their work

For Against

I suppose Radiohead is still well-rewarded even if the 'reward' is in terms of money

As below-par, expensive but unworthy music prevails nowadays; notable Radiohead's 'free' album is certainly a bold action

For Against

you just don't get it why a Twins' album can cost up to a hundred HKD

Free from any deal with record label, In Rainbows proves also an artistic success, receivng widespread critical acclaim upon its release with little promotion

For Against

staying independent from big record deal allows artist to make their works till it's perfect, and allows them more freedom to pursue their own materials

the Guardians wrote that In Rainbows "represent the strongest collection of songs Radiohead have assembled for a decade"

In Rainbows is hailed as the band "most rapturous, touching, and human record" since their acclaimed OK Computer

even Thom Yorke admitted that, without any deadline imposed by a record label deal, artists will find no motivation to materialize their works

the self-release of In Rainbows signifies the breaking down of the long established rlationship between big name artists and major recording labels

For Against

Radiohead hadn't signed to any major-label in making In Rainbows

other famous artists, such as the Eagles, Paul McCartney, Joni Mitchell and Madonna also abandoned major labels and moved to independent labels

Can be concluded that :

A. Pricing strategy5

This pricing strategy is definitely a good strategy because it gives psychological effect to

customers that they are not sacrificing for anything, therefore they got an album, with

much lower price but with equal quality.

Because of this strategy, both producer and customer have the optimum level of

bargaining power without violating each other.

B. It impacts in creating higher profit

5 Phillip Kotler & Kevin Keller, “Developing Pricing Strategies and Programs”, Marketing Management 13th Edition¸ Prentice Hall.

Distributive profit : which means that the higher the customers with vary buying

price, the higher the profit margin.

Lower price means attracting more costumers, means more revenue, means more

profit.

C. It impacts in creating higher demands.

Cheaper price means more consumers market willing to buy and pay.

RECOMMENDATION

Setting starting price instead of letting people set zero dollar price.

Giving additional bonus every time customer set higher price than other customers.

- Fin -

Radiohead are :

Thom Yorke (lead vocal & guitars)Johnny Greenwood (lead guitars, keyboards & others)

Colin Greenwood (bass guitar)Ed O’Brien (rhytm guitars & back. Vocals)

Phil Selway (drums & percussion)