One of the industry’s biggest challenges right now is this: Figuring out the products and prices that offer a level of value that resonates with buyers. Case in point - Scott Cohen, manager of The Ravonettes (and co-founder and International VP at digital distributor The Orchard) offers some insightful information on digital pricing strategies in a Billboard op-ed this week.
The short version: By varying the types of releases, Cohen was able to get more from casual fans who would normally buy only a single track.
The long version: By using new metrics allowed by digital sales (average revenue per fan, average revenue per transaction), Cohen was able to generate more revenue by offering fans more than simply a cheap track and a far more expensive album. He saw that most fans were casual fans. Seventy-five percent of total purchases were for single tracks while 25% purchased the full album. So, for avid fans the band released three EPs in the 12 months after the release of the full-length album. When given the option between a track and a $3.99 EP, “fewer than half” took the track. That’s an improvement in conversion rate of 25 percentage points compared to the album. Wrote Cohen:
By providing different pricing and format options, we were able to increase our sales from the casual fans who want more than a track and less than an album. And there weren’t any marketing costs associated with the releases.
Such purchasing behavior has significant revenue implications. When examining the model based on the average revenue per transaction, selling the digital EP generated as much income as selling the digital album, per transaction.
His conclusion? In this case, Cohen says it would be better to sell the full-length on physical formats and divide the album into three digital EPs. But he adds that there is no single strategy and that “linear model needs to be replaced by a matrix of sales, marketing, promotion and direct communication with fans.”
Digital pricing is still a learning process. Last year, labels wanted to see if raising price of single tracks to $1.29 would encourage more album buying. But the step up in price from a premium track to a full album is still nearly $8.00. That’s not much incentive to purchase a bundle of tracks. But there are options: either reduce the price of the album, which is often done (sometimes temporarily) or create a different bundle, as Cohen did. EPs are even being rolled out in the physical world as well, although that’s to appease major brick-and-mortar retailers as much as to find cheaper products that appeal to CD buyers.