Sofa Analytics # 235. Six months of music as a gift – how it works

Hey.

After Spotify officially appeared in Russia, there was a wave of counter-offers from direct competitors, music subscriptions began to be offered for one ruble for three months. The story is remarkable in that the streaming music market is an almost ideal model of an OTT service, where you can look at the mechanics and tell about the pitfalls. What we will do together.

Let me remind you that Spotify is the world leader in streaming, the service is represented in almost all corners of the planet, its audience is the largest among its kind. This is the largest gorilla in this zoo.

Sofa Analytics # 235. Six months of music as a gift - how it works

Marketing from Spotify is noticeable, it is not only online advertising, but also street formats, for example, in St. Petersburg it is almost impossible not to notice these posters, they are diverse and striking in all corners of the city.

Sofa Analytics # 235. Six months of music as a gift - how it works

For competitors, this is bad news, since the Spotify service is the world leader, but, in addition, the company invests in its promotion in Russia, did not let this process take its course.

The mechanics of entering the market are not new, they are familiar to the smallest detail, as they are universal. The service offers a free version as well as a premium subscription, the latter being available for 1 ruble for three months. It’s a win-win move as people link their bank card in order to get a subscription, and the likelihood that they will end up being Spotify customers rises dramatically.

For any service, it is important that a potential client starts using it, the idea is banal, but not everyone can feel it at their fingertips. The task can be conditionally divided into several stages:

  • Inform the market (read – potential customers) that a service has appeared in such and such an area;
  • Attract a client for a test period;
  • Convert free clients to paid ones;
  • Retain paying customers, turn them into loyal users of the service.

The sales funnel looks primitive, but behind this there are several important points, the modern client is accustomed to free basic services and services. He is ready to sacrifice certain functions, watch ads, wait in line, but receive the service for free. Therefore, any service that expects to become massive is simply obliged to offer its free version in one form or another. This removes the first and biggest restriction that you have to pay something in the first step. The phrase “the first dose is free” perfectly characterizes this approach. You provide the service for free, but monetization is due to advertising, or you expect to convert a buyer into a paying one, but in the future.

It is difficult to find a balance between what to give in the free version and what to save only for the paid version. For example, Yandex decided that they would make free listening on a computer for their music service, but the mobile version would require a subscription. This is exactly the same balance that any company is looking for. In Spotify, a premium subscription gives you the ability to download music to your device and listen to it without connecting to the network, there are no ads, the ability to skip tracks in unlimited quantities. But a basic, free subscription gives exactly the same catalog of music, its quality, the ability to create your own playlists. That is, you get a complete picture of what awaits you in the future. And at the same time, you can not pay for the service, use it for free.

At several conferences I heard the widespread opinion that free users are parasites, they are harmful and you need to get rid of them, like from household pests. This says a lot about the quality of conferences and speakers, since in life everything is exactly the opposite. Free users are a wonderful audience that acts as a growth point for any service; these people will buy your product in the future. And if this does not happen tomorrow, but in a year or two, then there is no problem.

At the end of March 2020, Spotify had 286 million monthly users worldwide (active in the current month), of which 130 million are paying users, and, accordingly, 156 million with a basic subscription. The ratio of paid and free is almost one to one, it can be called unique. Usually, in services, we see a ratio of 1 to 9, occasionally 1 to 5. And this also indirectly indicates that the chosen user engagement mechanic works and shows good results.

What does Spotify do to attract customers? Absolutely nothing special, this is the usual set of marketing tools, the approach is standard. The client must hear about the company and the product, he must be reached. Unlike many companies that sell a product for a certain amount, here the offer itself is free. And this lowers the entry threshold, many can try it.

Why then offer a premium subscription for free if everything is so good and sooner or later the client will mature? The answer to this question is trivial – having a premium subscription is a catalyst for the growth in the number of paying customers. The psychology of the buyer is very simple – it is difficult to force a person to buy something, but it is enough for him to spend at least one ruble on something, and his approach changes. A person is mentally ready to buy further. Therefore, a three-month subscription for a ruble is a good story for a new service. But for services that already exist and initially have a large audience, this is not so interesting.

Yandex has made a discount on Music for everyone who once used the service or just downloaded it, for one ruble you get a three-month subscription. Cool proposal? Certainly. But there is one big “but”, there is cannibalism within the proposals from “Yandex”. Existing users of this service can create another account, use it and not experience any problems, there is practically no fight against such fraud. You can also transfer music, it will not be difficult. Do you think that the game is not worth the candle and people do not do it? In vain! Many sincerely believe that by saving less than 200 rubles a month, they achieve economic efficiency in everyday life, and are proud of themselves. These are features of the mentality with which nothing can be done, and they are inherent in people in all countries of the world, many are attracted by a freebie.

An important question is how large the amount of such fraud is. Invisible for large and long-standing services, if you look at the percentage of users, but in absolute numbers it can be tens of thousands of people. In terms of money, these are, of course, direct losses, which cannot be calculated before the launch of such initiatives. You can only guess how much you will lose.

And this is an extremely important difference between services – some of them are in an attacking position, since they do not have a large number of clients. And someone defends their share and clients from capture, while the approaches of the companies should be different, you should not monkey and repeat the steps of other players.

We’re back to the balance between the free and the paid version of the product again, it should be such that people readily switch to the paid version. And here it is extremely important to be able to assess how many people will be “runners”, the very cannibalization within the product. How to do it?

Look at the offer of MTS for Spotify, the operator’s clients receive not three months of premium subscription for a ruble, but as many as six.

Sofa Analytics # 235. Six months of music as a gift - how it works

This is a marketing campaign from MTS, in which the company adds its three months to the usual three months from Spotify (it gets them, most likely, for half the cost). It seems that MTS is doing the best deal on the market, but it is an important tool to measure the audience. There is no real competition here, because in the end the customer subscribes to Spotify, and how he does it is the tenth thing. For MTS, this is an opportunity to receive a small percentage of those whom the company has signed independently.

For Spotify, such a 6-month subscription is testing “runners”, how many people will choose an offer from MTS, what they used before (were in the system or not). For each individual market, the numbers will be different, this will allow you to build a strategy in a completely different way, adjust and fine-tune your approach. For OTT services, data and their analysis come to the fore, you need to have a keen sense of your audience.

Let’s imagine that several years have passed and suddenly Spotify launches a similar campaign with one of the operators, six months of a subscription for a ruble. This will demonstrate the company’s weakness, as the flow of paying customers to free customers will become noticeable. And that means that the work on loyalty has de facto failed.

What is loyalty for the same Spotify? This is satisfaction with the service and the lack of urge to compare it with others. There is always a small audience of those who are looking for something new, constantly compare, but their maximum is 5% of the potential audience of the service on the market. For the bulk, the key criterion is that a person uses the service and enjoys it. And this task can be dealt with in the absence of technical problems.

He almost did not say anything about linking a bank card, since it is important in another aspect as well. Up to 10% of paying customers of OTT services are “silent”, they do not use the services at all. That is, the money for the service is automatically debited from their card, but they do not find time to use it. Someone signed up and forgot, someone ignored all letters and messages about future write-offs. This is a unique phenomenon, but it gives a good increase in service revenues. I can say that Deezer paid for half a year, which activated headphones with a special file format and 360-degree sound for review. Since the subscription was on the service website, I safely forgot about it, but discovered it by chance in a bank statement. And I went to look in the Play Store, where, of course, I did not find anything. But in the mail I found a lot of letters about it. Unsubscribed. But I was that “silent”, the ideal client – no expenses on me, only income.

Why is Spotify winning in the streaming music market, is Apple doing well? The answer lies in the fact that they know how to analyze data, create the right balance for the client between various services. In the same Apple will create a combined subscription to different services, that is, in one package they will sell both what is in demand and frankly weak products. What for? This is also a free trial option to develop new directions, for example, the same series and films. And this is a very correct approach to monetize services. Balance is important here, and each company is looking for it based on its understanding of its own customers.

The text says almost nothing about the product itself, although it is certainly important. But in the context of OTT services, the product may be conditionally average, not the best. But if you have correctly built the balance of the proposal, know how to analyze user behavior and predict it, then you are guaranteed growth. For an OTT service provider, data and analysis is as important as the product itself, and Spotify has long recognized this. There are many OTT services in Russia, but about half of them live in the old fashioned way, when the product is primary, and everything else is secondary. To me, this is a flawed strategy.

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