Management Team of Musictogo
MARKET STUDY OUTLINE
This report contains the results of a market study conducted for the Global Corporation “Musictogo” headquartered in the USA. This study evaluated the market readiness and appetite for a new generation mp3 player to compete with Apple’s “Ipod” product. Only the Netherlands market was considered in this study.
B. APPROACH AND METHODOLOGY
For this study it was necessary to determine how Musictogo’s next generation mp3 player would perform against the incumbent mp3 provider, Apple Corporation’s Ipod mp3 player.
The Ipod’s performance was evaluated against major competitors with emphasis on features/functionalities and price. The Netherlands specific predilection for mp3 players was also evaluated to see if there was any distinguishable attribute that could be leveraged in order to gain market share quickly.
2. EXECUTIVE SUMMARY
Extensive Market Research was conducted to determine important factors:
- Who is the target market
- What is the size of the target market
- Who are the major competitors
- What are potential distribution channels
- What is the willingness to pay
- What are the barriers to market entry
- Study recommendations/conclusion
3. INDUSTRY CHARACTERISTICS AND OVERVIEW
The lines between a Smartphone and Music listening device are blurred. Ten years ago when Apple first introduced the Ipod it was a simple music device with very little memory, measured in Megabytes, not Gigabytes. That ancient Ipod was a music player. It offered 3 games that were onboard, one of them being solitaire on a tiny
2” x 2” screen. There was no way to connect that Ipod to the web and the only way to get music loaded on it was to hook up the device with an Apple proprietary, closed design cable to the user’s PC.
Back then, the music industry was based on selling entire CDs and earning a full $15 for each. Ipod came along and completely revolutionized the music industry by allowing the music listener to customize the experience by creating “playlists” on iTunes. Listeners could now spend $15 on music and get songs THEY liked, not tracks that the artists or CD producers crammed onto the CD to fill a 10 song list. Apple introduced iTunes as the application to allow Ipod users to listen to and download music in a whole new way. The closed, proprietary design of cables, accessories and especially iTunes made it virtually impossible for competitors to complete with this innovation.
Fast forward to today’s Smartphone world. This industry has evolved and continues to evolve with incredible speed. Last year, Apple introduced their new $299, 16GB Ipod touch. This version of the evolved Ipod is equipped with the same features/functionality as an iPhone 4S and has the iPhone 5 touch screen. Apple made a giant leap in pricing from the former Ipod touch retailing at $199 to this much more expensive version. It was a risk worth taking – after all, the connectivity, accessories and iTunes (application) remains the exclusive property of Apple. Therefore, still difficult to compete with.
The Table shown below (Iphone-Apple.fr, 2014) demonstrates how Apple’s Ipod market has become cannibalized by the Iphone. The numbers prove that buyers want their music, games, ability to access the web, unlimited applications, texting, and email, AND the ability to make and receive calls in one device. It also proves that for those users that want all of these features minus the calls, they will pay a premium for a much larger screen – hence the success of the Ipad. The Ipad has done its part in further cannibalizing the Ipod market. Since the Table encompasses the performance of the Ipod in all countries, it is safe to say that what is happening to the market size for the Ipod is a Global phenom. There is nothing unique about how the Ipod performs in The Netherlands versus another European or, say, Asian nation.
The Netherlands is one of Europe’s hottest countries for trade the country is also one of the most open and internationally oriented economies in the world. The Netherlands is highly competitive, with a vibrant, growing market.
The Netherlands hangs a big WELCOME EXPORTERS sign due to its relatively simple legal framework and advanced financial services system,
Its favorable location gives it a valuable role as a key transportation hub. The Netherlands re-exports between about 70% of its imports to the rest of Europe. Hence making the Netherlands a useful gateway into other European markets.
So while The Netherlands presents a very attractive market because it is export friendly, the overall Ipod market seems volatile and vulnerable to further erosion from the ever increasing demand for Smartphones and Tablets.
4. MARKET SIZE AND TARGET MARKET
The Ipod is the market leader for the market segment known as the stand-alone music player. As of the end of 2013, Ipod had a commanding 72% share of the stand-alone music player market. Therefore, there is realistically only 28% of the overall market available.
As depicted in the above Table (Strategy Analytics, 2014) the Global Consumer Electronics market is growing in some segments, but declining in others. Strategy Analytics found that the Western European market was hardest hit in 2012, dropping 12% overall in revenue. Further, as seen in the table, other than Smartphones and Tablets, other market segments such as The Portable Media Player (Iphone) have been declining in size and growth.
The Target Market for Musictogo’s mp3XYZ product would be the Portable Media Player market in the Netherlands. And while the Netherlands represents an attractive and export friendly region of Western Europe, there is no denying that this region’s mp3 market segment has been shrinking for a few years and is likely to continue to shrink.
Since Apple dominates the mp3 player segment, leaving only a 28% available market and because the overall mp3 market is eroding due to the growth of the Smartphone and Tablet markets, the overall target market for mp3XYZ will be very small.
5. MAJOR COMPETITORS
The competition for Musictogo’s mp3XYZ is multi-faceted. On the one hand, the Ipod dominates the mp3 market leaving very little share for the taking. On the other hand, Smartphones and Tablets offer more capability than an mp3 player, but have also eroded the mp3 market. This is a small and shrinking market segment.
After Apple introduced its Ipod Touch many Consumer Electronics companies attempted to compete with this device, but not even Samsung, that dominates the Smartphone market could compete with The Ipod Touch. Only one vendor has been able to compete with the Ipod. This device retails for $199 (one hundred dollars less than the Ipod) and is a four-inch, Android-based device called MG. The Company that introduced this Ipod competitor is PlayMG ("Play More Games").
MG has the capability and look and feel of a sophisticated Android phone, without the calling capability. Here is the big difference: unlike other Android devices, this product was developed primarily for gaming. And because it is not an Apple product, all Google applications can be accessed. Additionally, PlayMG cleverly worked around the iTunes issue by providing pre-loaded MasterCards with each unit that can be used to purchase music or games.
The specific niche of the mp3 market that the MG is targeting is children and teens. The sweet spot for them is the powerful combination of games and music. The MG also boasts powerful Parental Controls that ensure a wholesome experience for the target segment.
What is clever about this competitor’s product is that they looked at two separate market segments, namely, mp3 and gaming console and combined them together in one platform in order to have a larger addressable market. Also novel is the distribution channel that PlayMG is using for its MG. This device can be purchased exclusively on Amazon.com; Toys R Us and Target. Unlike Apple, there is no need for a physical storefront, vis-à-vis “The Apple Store”. Buyer pays for the shipping and inventory is maintained at reasonable levels. A true win-win.
6. POTENTIAL DISTRIBUTION CHANNELS
The current exchange rate is trading down at 0.721 USD/EUR.
Financial analysts are predicting a favorable bounce back for the buck. Previous performance against the mighty Euro would argue otherwise. If the past is a predictor of the future, then it is safe to say that the value of the Euro will always be higher than that of the US Dollar. For Musictogo, this means that there will always need to be a 10-30% fluctuation of cost of sales based on how the dollar is performing.
That said, a brick and mortar distribution channel such as the Apple Store is not recommended. A more realistic approach is the one that PlayMG has chosen. A few, well chosen retailers should be given exclusive rights to the product. Retailers such as Walmart, and Amazon.com would ensure minimal cost of distribution.
7. WILLINGNESS TO PAY
A strong Euro, a saturated market and a new market entrant that has their product priced $100 less than the latest Ipod touch makes for tough price environment.
It is recommended that a detailed price/functionality survey be conducted in order to determine what the willingness to pay price might be. The goal of this survey would be to right-size the features and functions of the mp3XYZ with a reasonable price.
Late to market requires strongly differentiated features or a much lower price.
1) Strongly differentiated features: if the MG needed to be both a gaming console and mp3 player to challenge the Ipod, what other attributes might the mp3XYZ need in order to be differentiated?
The MG targeted children and teens. While this may be an attractive market segment, one of the survey goals should be to determine of there may be other, less saturated market segments to target. Baby Boomers? The Handicapped? Military?
The relationship between bicycle and the mp3XYZ should also be explored. Many people in the Netherlands rely on their bicycles to commute to work, school, etc. Can there be a “built-in” capability that would make it unique, yet secure? And can there be a premium for this innovation?
8. BARRIERS TO MARKET ENTRY
Doing business in the Netherlands is a very favorable opportunity. However, there appear to be many barriers to entry for the mp3 market:
- Smartphones and Tablets are eroding the size of the mp3 market
- Ipod dominates the mp3 market with 72% market share
- Mp3 sales have been declining in recent years and continue to trend downward
- A US company exporting to a European nation is subject to currency fluctuations and therefore risky
- Consumer Electronics giants such as Samsung have tried and failed to compete with the Ipod
9. MARKET STUDY RECOMMENDATIONS
Taking on the Ipod is a daunting, if not impossible task. There are too many barriers to entry as noted in Section 8 of the study.
The willingness to pay survey should be conducted asap in order to determine if there is a way to either differentiate the mp3XYZ by making it a part of a bicycle/package sale for example. Alternatively, the product could be marketed to niche market segments such as Baby Boomers or the Military. Niche marketing may command a price premium with an aggressive, targeted marketing and advertising campaign.
The market for mp3 devices has all but dried up for new entrants. It is dominated by the Ipod with their 72% market share and there is very little room to demand a price premium. Also, the only company able to compete with the Ipod is a niche player that has launched their product as BOTH a gamer console and mp3 player. In order for Musictogo to be able to introduce a new device at this point in time, it would need to have novel features or components of another device, such as a game console.
But the bigger issue here is that the mp3 market has been eroded significantly by Smartphones. Buyers are no longer interested in toting many devices. They are demanding one device that does it all: it plays music, it takes pictures, and it downloads apps for games and other entertainment and many other features least of which is text, talk and mail.
It would not be prudent to introduce an mp3 player in the Netherlands at this time.
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