Capital Ideas Blog


By Pradeep K. Chintagunta

From: Blog

This post originally appeared on the Kilts Center Faculty Blog

Beyoncé Knowles-Carter—or just Beyoncé to her millions of fans—dropped her eponymous fifth album about a month ago. As my previous post was all about innovation, I thought it might be instructive to look at how “innovative” the new album is. I will stay away from the artistic content of the album—as my 10 year old constantly reminds me, my tone deafness is only surpassed by my stubbornness in not admitting to it. I will focus instead on its innovations in product, pricing, promotion, and distribution.

From the “product” perspective, the album has its innovative features. It moves away from the notion of an album merely being an expression of the artist’s audio capabilities to one that also reflects the visual imagery of the individual song. My generation may protest that the picture of Aretha Franklin on the cover of the Live at Fillmore West LP more than effectively conveyed the magnificence of her voice, or that Martin Sharp’s attempt to capture the “warm florescent sound” of Cream’s Disraeli Gears vinyl was very successful with the psychedelic artwork. Ultimately, however, the visual dimension represented by cover art is limited. Importantly, in most cases the musical artist does not create it.

In the case of the Beyoncé album, the artist plays a prominent role in communicating her interpretation of the lyrics via the music videos. When she croons “And tell me how I’m looking, babe (looking, babe)” on “Yonce,” the video makes it clear that the question is purely rhetorical! Of course, since the launch of MTV, music listeners could also be video viewers. What is innovative about this album is that it bundles the audio (14 songs) and visual (17 videos) experiences in a way that has not been done before. In doing so it recognizes the mobile technology that is at the disposal of today’s consumers that gives them the ability to enjoy the audio-visual experience.

The second innovative aspect of the album is how it was priced. Rather than the $9.99 that listeners pay when downloading an album on iTunes, Beyoncé cost the music fan $15.99 for the entire audiovisual experience. Importantly, for the first week that it was available on iTunes, consumers could not download the individual songs. If you wanted to purchase it the first week, you had to purchase the entire audiovisual album. This pricing strategy is consistent with markets where there are high and low “valuation” customers. High valuation customers are willing to pay a higher price for getting early access to the product—think hard-core gamers and new video game consoles. The album is supposed to have sold over 800,000 copies in 3 days on iTunes. That’s a cool $15MM in revenues.

A week after the initial release, customers could purchase individual tracks on iTunes for $1.29. This allowed for more price-sensitive and selective consumers to purchase individual tracks rather than spending $15.99 on the entire download. Another important aspect of the pricing was the (upfront) monetizing of the music videos. By making them for the album instead of making them for MTV, Beyoncé has been able to effectively make revenues upfront from an activity that previously brought in very little. Again, the idea of bundling to extract value from high value customers and then pricing the videos individually for $1.99 on iTunes was innovative. (Of course, as I noted in an earlier post, Jay Z also has found innovative ways to extract this value, such as in his deal with Samsung).

The third innovative aspect of the album is how it was promoted. Unlike the usual single released for radio or video on MTV, Beyoncé “casually” announced the release on Instagram. “I didn’t want to release my music the way I’ve done it,” Beyoncé said. “I am bored with that. I feel like I am able to speak directly to my fans. There’s so much that gets between the music, the artist and the fans.”

News of the album’s release spread like wildfire on Twitter with 1.2 million tweets about the album in just 12 hours. Not only was very little spent on promoting the album, Beyoncé was able to exploit the power of social media to spread the word. The next day the news media was agog with the news.

With the help of my research assistant, Yogesh Kansal, I looked at how Beyoncé’s announcement changed the very nature of conversations about her on Twitter. We looked at the top tweets about Beyoncé the week before release, the day of the launch, and the week after. Using Wordle, we generated the following pictures. Twitter defines top tweets as “Tweets that have caught the attention of other users,” and they have an algorithm to determine this.

Tweets with "Beyoncé" Dec 3-12

Tweets with "Beyoncé" Dec 13

Tweets with "Beyoncé" Dec 14-23

As the above figures make clear, folks were no longer tweeting about Jay-Z and vegan but were heavily focused on the new album. This generated the buzz needed to propagate information about the album very rapidly among her fans.

The fourth innovative aspect of the album is how it was distributed. To maximize rapid uptake among early adopters, the album was released exclusively on iTunes—a physical album was released a week later. Target, which had collaborated with Beyoncé on her previous album, was miffed and announced their decision not to carry the album at all. Not only did this not temper enthusiasm for the album, Beyoncé rubbed it in by shopping at Walmart, which did carry the album, and dropping free gift cards for several of its happy customers. The combination of the “go-to-market” strategy via iTunes, combined with the pricing and product design strategy, maximized the album’s potential while investing little in promotion.

There are other innovative aspects to the album, such as the contract between Beyoncé and Columbia Record that created it. These aspects are less transparent and so more difficult to evaluate. But to paraphrase one of Beyoncé’s earlier songs, not only will she be able to “put a ring on it,” she may end up wearing the crown!


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