2013-08-21

Co.Labs

If You Want To Sell Digital Products, Bundle Them With Physical Ones

We’re not yet a society that values digital products as much as physical ones. Just like it took an iPod to sell music downloads, it will take headphones to sell music streaming subscriptions--and several companies are already deploying the strategy.



Digital products have many benefits--frictionless buying, immediate delivery, and no shipping. But marketing isn’t one of them. Digital products have no glossy product shots, no features in gift guides, no celebrity photo-shoot endorsements. So increasingly, companies are pairing digital downloads with physical goods to try to piggyback on their go-to-market strategy. But is it working?

Digital products do almost nothing to sell physical ones. A customer looking at a shelf full of headphones, of course, might pick the ones with a 60-day Rhapsody trial attached, but certainly not because of Rhapsody. Presumably, someone looking for new headphones already has music they’re anticipating pumping through them.

Physical products, however, can sell digital content as Apple showed with the initial iPod/iTunes relationship. Beats is the latest company looking to take their market lead (70%) in the premium headphone space and turn it into success online in streaming music, something no one, arguably, has successfully done yet. Spotify, with the most awareness, still hasn’t appeased both customers and artists to the tune of financial stability.

Rhapsody claims the new partnership with 50 Cent’s headphone company SMS is not a reaction to Beats buying the streaming service Mog. “If we were going on an offensive, this is not the tack we'd be taking,” says Jaimee Minney, head of PR for Rhapsody. As much as the timing of Rhapsody partnering with SMS does closely align with the MOG re-branding and launching of Beats’ own streaming music service, this type of deal is par for the course. “In recent history, we have inked similar deals or bundles with Sonos and Jambox” says Minney. Clearly though, we’re not yet a society that values digital products as much as physical ones with HTC trying to use Facebook, Best Buy and Walmart trying to use CinemaNow and Vudu, Roku using Netflix, and Sonos using most digital music services.

A natural fit to partner a digital product with a physical one, but most actually don’t work out. Within the first month of HTC’s Facebook phone arriving, it was discontinued. Best Buy and CinemaNow have not seen the success they were expecting, and clearly Napster’s attempt to partner with MP3 players didn’t pan out.

How do you determine the value for a streaming music service to partner with a headphones manufacturer though? Just as you might expect, the amount headphone buyers that end up subscribing to the service. Breaking that down, Rhapsody’s Minney says “We calculate the economics of all these deals as a subscriber acquisition cost. Our economics (which we do not disclose) assume that it costs us a certain amount in marketing/trial to convert a subscriber, and we model our trials accordingly. This is not a loss leader, nor is it any different than the kind of co-marketing deals we do with anyone.”

Rhapsody’s theory that “Anywhere people are spending a premium to listen to music, we want to be there with our premium music service,” makes sense, but unless you’re Netflix, the bundled digtial service is still seen as a second-rate citizen.

[Image: Flickr user Kelly Teague]




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