Tag Archives: Wharton Business School

Study: Digital Song Sales Would Go Up If Prices Went Down

Last year iTunes changed its pricing strategy for songs and began charging more for more popular tunes. The result? Music sales have slowed dramatically. According to several sources, digital song sales grew only 8% last quarter, versus 20% a year earlier for Warner Music Group, with the industry’s fourth quarter growth rate at only 5% over the previous year.

I guess consumers didn’t like seeing the prices increase 30% from .99 to $1.29…

There’s a new study that even suggests that if record companies lowered prices, not only would it spur song sales, but it would also help to combat illegal downloading. The optimal song price, says Wharton business school marketing professor Raghuram Iyengar, is between 60 and 70 cents per song. That’s based on research with over 600 digital music consumers, and laws of supply and demand. See, the forces at play here would indicate that music prices should be lower, not higher:  there’s increased competition, free alternatives, and declining distribution costs. But instead, prices have held steady and recently jumped substantially.

Unfortunately, as an article in Wired points out, the music industry wants to believe that by marketing their wares at higher prices, they are encouraging consumers to perceive greater value in them, rather than subscribing to the theory of supply and demand…

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