What‘s Loyalty Got To Do With It Researching the Factors Influencing Customer Loyalty Concerning the Consumption of Music Richard Sanders MSc BA Marketing, Faculty of Management and Organization, University of Groningen Abstract: Is it a prerequisite to focus solely on illegal downloading, when writing an article about the music industry? Should it not be more important to focus on those consumers remaining loyal and committed to musical artist(s), and subsequently learn from them? This study researches the factors influencing loyalty concerning the consumption of music, but more importantly the various ways in which they influence loyalty. The research was conducted among consumers purchasing music from the record store. The results report that gender, music genre, music discovery, music involvement and media behavior all influence loyalty. Interestingly, men are found to be much more (multi)loyal compared to women and purchase significantly more albums on average. It is suggested that this is partially influenced by the different ways men and women discover new music, and their differences concerning music involvement. Downloading in addition to purchasing music did not affect the (multi)loyalty of consumers, however it did influence the number of albums purchased per month. Therefore it is suggested that downloading might not hurt the artist(s) a consumer is committed to, thus underlining the importance of customer loyalty. Finally, a low percentage of all the respondents indicated their willingness to purchase music online in the near future, subsequently leading to the suggestion that consumers will remain loyal to the physical album format. © 2007 University of Groningen Keywords: customer loyalty; music industry; album sales 1. Introduction ”Music sales are currently higher than ever before‘. There is little chance that current articles written about the music industry will use this title, but why not? According to the RIAA1, the total units of musical products sold in the US are 21,6% higher than 2006 and 39,2% higher than 19962, which was way before the occurrence of illegal downloading. Therefore, it is argued that consumers have not turned its back against purchasing music in general but are venturing out to new music formats instead. To be completely fair, there are valid reasons for concern considering that the total value of music sales is decreasing year after year. This implies that revenues made by new music formats do not compensate for the loss in sales of the traditional music formats including the physical album. Nevertheless, this study attempts to see beyond, although not ignoring, the effects of illegal downloading, discussed so often before. McWilliams3 once said that ”our thoughts create our reality - where we put our focus is the direction we tend to go‘. Recent studies (Oberholzer & Strumpf, 2004; Zentner, 2003) concerning the music industry have focused primarily on the effects of illegal downloading. Although results seem contradictory, they all share one thing: they do not focus on those consumers that do purchase music legally. 1 RIAA, Recording Industry Association of America 2 RIAA: 2006 Year-End Shipment Statistics 3 McWilliams, P (August 5, 1949 œ June 14, 2000), writer and activist 1 Although many studies have concentrated on the effects of illegal downloading, there are still millions of consumers legally buying albums from their favorite music artists. By focusing solely on illegal downloading, many of these consumers are overlooked and the lessons that can be learned from these consumers ignored. In marketing, many researchers have focused their attention on the concept of customer loyalty. According to Aaker (1991), the role of loyalty can lead to many advantages including favorable word-of-mouth, which in turn results in the attraction of new customers. Especially in the music industry word-of-mouth is essential, because the advantage of music is that consumers are often eager to discover new music (Hemsley, 2006). So why is it that customer loyalty has not been properly addressed when it concerns the consumption of music? Returning to the quote from McWilliams, the question can be asked whether the strong focus on the effects of illegal downloading has consequently led the music industry in the wrong direction. In order to fully comprehend the importance of researching customer loyalty in the music industry, it is essential to begin a background discussion concerning music in general and the complexity of achieving success. 1.1 Defining music Music is considered an experience good and according to Nelson (1970), its true value is only shown after it is being consumed. Although recently many opportunities have been introduced where consumers can listen to samples or the entire album before actually buying it, music still has to be heard first before it can be properly valued. Besides being an experience good, music is also considered a hedonic product (Dhar & Wertenbosch), which indicates that evaluations are based primarily on personal experience and individual consumer taste, rather than specific product attributes. Moe & Fader (2001) argue that product sampling is essential because of that. Hedonic products are defined as products whose consumption is primarily characterized by affective experience (Moe & Fader, 2001), whereas hedonic consumption has been defined as those facets of behaviour that relate to the multisensory, fantasy, and emotive aspects of consumption (Hirschman & Holbrook, 1982). In addition, hedonic products are usually purchased to be part of a portfolio for example; CD‘s are part of a collection. Keller (2002) also mentions that hedonic products offer more opportunities to differentiate the brand in consumers‘ minds compared to utilitarian products. Besides being an experience and a hedonic product, music has also been defined as a fashion-oriented product indicating that it is influenced by the ever changing tastes and preferences of the consumer itself and the preferences of others. Bhattacharjee (2005) therefore argues that this adds to the complexity of music as a product, which is also stressed by Strobl & Tucker (2000) who claim that the music industry is one the most dynamic markets since the popularity of a certain artist can easily fade within a relatively short amount of time. 1.2 Success in the music industry Record companies are involved in many related activities although according to Strobl & Tucker (2000), their principal task remains the recording and selling of music. Additionally, since profit margins on albums are much higher compared to singles, success is generally judged in terms of the number of albums sold. Poel & Rutten (2000) mention that the music industry is a high-risk business were products demand a relatively high up-front investment combined with high uncertainty about returns. 2 Record companies therefore adopt a portfolio approach to their set of musical artists as a way of dealing with these high risks (Leyshon, 2003). By using this portfolio approach, their rosters of artists are regularly turned over by not renewing any contracts with those artists who fail to generate the anticipated sales. To demonstrate the complexity and difficulty of gaining success in the music industry, consider that the four major music labels, also dubbed the Big Four (Universal, Sony-BMG, EMI and Warner Brothers) release about 30.000 albums annually in the US. When looking at the albums released in 2002, the majority (25.000+) sold less than 1.000 copies each (Seabrook, 2003). The other 5.000 did not achieve gold or platinum certifications either, only 404 sold more than 100.000 copies. This small set of successful albums provides the majority of the profits for the record companies (Bhattacharjee et. al. 2005). Reviewing these figures, one could say that you would have a better chance at winning the lottery than releasing a million units selling album. However, researching and analyzing those albums that do become successful reveal some patterns. Before discussing these patterns, it is useful to mention the distinction used by Bhattacharjee (2006) between a pre-time segment and a post-time segment. The pre-time segment leads up until the year 1998 and the post-time segment begins in the year 2000. Between these two time segments some major events occurred including the popularity of mp3-based digital music players, the introduction of p2p (peer-to-peer) sharing software and the opening of many online digital music stores. With the introduction of the p2p sharing software, participants can either download music as a means to sample and make more music purchases or digitally pirate the music. According to the IFPI4, which represents the worldwide recording industry, physical music piracy is the making or distribution of copies of sound recordings on physical carriers without the permission of the rights owner. Results from a study conducted by Bhattacharjee et al. (2005) show that albums do not last as long on the charts in the post-time period. What does have improved is the average debut rank, which indicates that albums tend to debut at a better position but simultaneously slide down the charts faster in the post- time period. They also found that since the occurrence of the aforementioned events, the effects of debut rank on chart success has risen concerning the longevity of a particular album. Strobl & Tucker (2000) also demonstrated that the initial debut rank is one of the most important characteristics in guaranteeing survival on the charts. Their research resulted in the statement that an album debuting at number 25 survives 38.1% less than an album debuting at the number one spot in terms of longevity. Strobl & Tucker (2000) therefore suggests the existence of the bandwagon effect in the music industry. The bandwagon effect arises when the desirability of a course of action depends positively on the number of people who are expected to undertake the same action (Liebenstein, 1970). To further indicate the importance of the initial debut rank it was found by Bhattacharjee et al.