Wal-Mart vs. iTunes

Wal-Mart, the world's largest retailer, announced Tuesday that Wal-Mart Music will now sell music sans copy-protection, also known as DRM (Digital Rights Management). This is a mimicking move to iTunes, who began selling DRM-free music earlier this year.

Traditionally, iTunes charged $0.99 per song. Their new, DRM-free music has been sold at $1.29 a track. Initial reactions to this move have been positive from nearly every consumer, while labels (still stuck in the past–but that's a different story) continue to fight change.

CD sales have been on a continuous downward slide over the past several years, yet the digital music industry has been booming. iTunes is now the third largest music retailer in the United States, behind Wal-Mart (15.8%), and Best Buy (13.8%) with 9.8% of the market.

iTunes did not enter the music retail category as an also-ran. They created the category of digital music retailer. As Tom Peters once wrote, "They say, 'market share.' I say 'market creation.'"

When a brand enters an established category, they must contend with powerful category leaders. When a brand creates a new category, they have no competition, thus becoming the category leaders. Their task, then, becomes creating the new category, rather than trying to dislodge consumers from already well-established brand leaders.

In 1923, a survey was conducted of the top 25 brands. In 1983, the same survey was executed. 23 of the top 25 brands were the same. 19 of the top 25 brands from 1923 still held their leadership position in their category.

What does this mean? Minds don't change; leader's lead. To enter a well-established category against mature category leaders is maniacal and suicidal. And yet, everyday, thousands of companies across the U.S. do exactly that.

Apple is far more adroit than most brands. They took hold of the emerging digital music trend. In 2001, they launched iTunes, becoming first to the market, and, more importantly, first in the mind. Now, in the digital music retailer category, iTunes owns 70% of the market.

iTunes imposed their new category, digital music retail, on the existing category, music retail. They did as Dell did: change the distribution medium.

Their new category went from a 0% market share in 2001 to 14% in 2007. Not bad, considering that the music retail market runs an annual tab of nearly $4.8 billion in the United States alone.

In 2003, Wal-Mart launched their also-ran Wal-Mart Music. At the time, the retailer held 20% of the music retail industry. Wal-Mart Music, despite costing $0.88 per song (a full $0.11 cheaper), has had almost no impact on iTunes’ numbers.

Now, Wal-Mart will sell their DRM-free offering for $0.94, a whopping $0.33 cheaper than iTunes.

Wal-Mart stands for low-prices retail store, not digital music. Even the power of the Wal-Mart name is not enough to save them in the digital music arena.

"Wal-Mart has been behind on the issue of digital music," said Tim Bajarin, an analyst with Creative Strategies. "Making this move allows them to leapfrog to the front."

But does their price-cutting strategy really give them an edge? No. In the long run, history drastically favors iTunes. Wal-Mart’s move will only serve to call more attention to iTunes’ category leadership and DRM-free sales.

If people bought music were a commodity, such as eggs, then Wal-Mart Music’s price-cutting strategy would have iTunes in a heap of trouble. But music is hardly a commodity.

And therein lies one of the greatest powers of proper positioning: premium pricing. Improperly positioned, a brand faces market rate growth and commodity pricing.

Without a strong brand, iTunes would never have taken such a large share of business away from related categories, and they would certainly never stand strong against the onslaught of me-too competitors such as Real Rhapsody, Napster, and Wal-Mart Music.

And, just for fun (it seems), Amazon has put their hat into digital music ring. It appears that Jeff Bezos is suffering from severe delusions of grandeur, or rather, “delusions of brandeur.”

Jeff once said, "A brand for a company is like a reputation for a person. You earn reputation by trying to do hard things well." No, Jeff, you don't. The quarterback doesn't earn a positive reputation by trying to do math well, he earns a positive reputation by throwing the ball well and scoring touchdowns. Perhaps that is why Amazon sells digital music now, too.

Wal-Mart=low-price retail store
Amazon=online bookstore
iTunes=digital music

Wal-Mart and Amazon making digital music stores makes as much sense as iTunes selling laundry detergent and shipping hardcover copies of Harry Potter. Pretty insane, yes? Yes.

Blogging for Brand Credibility

Every Tom, Dick, and Harry claims to know something nowadays. Every Tom, Dick, and Harry has something to sell you, and something to tell you. And so they buy up airtime on your local TV stations, have a terribly built web page, and advertise in magazines with slapped-together ads. And nobody cares. Big surprise.

Consumers are a savvy bunch. They don't believe in you just because you tell them to. The era of SELL is long since gone. Today is the era of BUY. Consumers like to buy--they despise being sold to.

"Look at this amazing car I bought!" one man says to another. He feels validated for his own personal purchasing power. Notice he didn't say, "Look at this amazing car the dealership sold to me."

Branding is the process of pre-selling your product or service. There are countless routes to go through which to build your brand. One of the more popular has been blogging. But why? For one, blogging helps build credibility.

Tom, Dick, and Harry all claim to know something. Maybe they do, and maybe they just want to extract cash from your bank account.

Blogging adds a level of transparency to your company, unmatched by traditional advertising. Blogging, after all, is very raw and real and emotional. It's spontaneous. Fifteen minutes before I wrote this, I was eating a cinnamon raisin bagel and responding to comments on MySpace.

The same informality associated with blogging is the same informality that lacks in Big Media (most commonly: radio, TV, print, and online). Consumers don't trust Big Media. They don't trust you. Unless you have credibility!

I tune out and FF>> through 98% of TV commercials. But I have stopped the Tivo to watch countless VW ads ("Holdin' it down on the engineering tip, y'all!"). I don't read magazine ads, but I do pause on a Lacoste ad whenever I see one. And I don't click on those pesky online ads. Ever. Well, I have been known to roll over those Apple ads from time to time. All of these companies have built brand credibility in my mind.

If you're not one of the lucky few who has built credibility in the mind of your consumers, blogging is a great way to do so. You establish yourself as relevant and involved, as current and important.

To my way of thinking, if one can't write a few times a week about the field in which they are a supposed expert, then they should not be in business.

Over time, your trail of blogs can help you build a reputation as a credible professional. Your average consumer most likely will not read every last word you have written, but they many will glance through your words to feel at ease with your knowledge. The consumer is always skeptic. Otherwise, they would not ask, "But what's the catch?"

The catch, dear consumer, is that you don't trust me by default. And they don't trust you by default. And without credibility, your business is as good as kaput.