Various digital distributors and aggregates have already become very important, and this importance is likely to increase in the future. If you want your company to grow, you must have a very good relationship with your industry’s major digital distribution chains/aggregates. Without their help, a company can certainly be economically viable, but their support is needed to be able to achieve much higher profits.
Distribution chains and their management are tedious, ‘unsexy’ topics. They are easily neglected, even though they are vital to business. For example, food producers in Finland have long said that if they do not get the product onto the shelves of Kesko or S-ryhmä, they have practically lost the competition already.
Digital technology has not grown as fast as expected. This has contributed to the fact that companies are afraid to make changes in the distribution chain and to move products to digital distribution chains. If they did so, then they would no longer necessarily enjoy equally good relations with their physical distribution chains, which may fear that digital distribution chains had cannibalized their sales.
At the same time, physical distributors believe that digital distribution is going to take several more years to threaten their position; because of this, they haven’t shown any interest in investing resources in creating their own digital distribution chains. However, it is clear that physical distribution chains will evolve in upcoming years. For example, video rental stores, book shops, and home-appliance vendors have already been forced to face the problem, and have lost their positions in the market.
The release of Beyoncé’s new album also provided a good example of how the digital distribution chain has become more important than the physical distribution chain. On 15 December 2014, Beyoncé released a new album, which was available only on iTunes for the first week. Naturally, many companies in the physical distribution chain didn’t like iTunes getting this exclusive right. For example, Target announced that because of this, it wouldn’t add the album to its selection. Also, Amazon (a major competitor of Apple and iTunes) announced that it wouldn’t sell the physical album, and hardly advertised the digital version of the album either. Was the risk worth it?
After the release of the album, iTunes featured the album in all its best positions. It was rather like a local shop advertising the album on the end of every shelf and at every check-out. That is, if you visited iTunes while the album was in exclusive rights, you weren’t able to avoid seeing it. The result of this was really superb. Apple revealed that it was the fastest-selling album in the history of iTunes, selling 828,773 copies in three days. Of these, 617,213 were sold in the United States – more copies than Lady Gaga (with Artpop, at 258,000 copies), Katy Perry (Prism, 286,000 copies) and Britney Spears (Britney Jean, 107,000 copies) sold together during their first week.
Three main factors contributed to the sales of Beyoncé’s album:
- The album release was unexpected, which is why it gained a lot of media coverage. In addition, the fact that it was by Beyoncé meant it stood out clearly from the typical album release: Beyoncé is very well known, and as soon as she publishes an album, many of her fans buy it right away.
- As mentioned above, the album received very impressive visibility on iTunes.
- The only other marketing activity for the album was that Beyoncé announced it to her fans on social media.
What we can learn from this is that it is important to stand out clearly from the crowd, and to make sure you have a good product. If you are a strong enough player, you can negotiate exclusive agreements with distributors, which will usually reward you well. Note also that the digital distribution chain may already be much stronger than the physical distribution chain. The former is increasingly concentrated among just a few operators (iTunes, Amazon, Netflix, Google Play etc.). Focus on these and ensure you maintain good relationships with them.
07 Nov 2016