Servitisation and value co-production in the UK music industry
Parry, G., Bustinza, O. and Vendrell-Herrero , F. (2011) Servitisation and value co-production in the UK music industry. In: 18th International Annual EurOMA Conference, Cambridge, UK, 3-6th July 2012.
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Publisher's URL: http://www.euroma2011.org/
Purpose: To explore the impact of servitization on the music industry and seek lessons for other servitizing firms. Theoretical Background: Servitization describes the move by manufacturers to generate revenue through provision of service associated with their product. Servitizing firms provide value through integrated product and service offerings, through Product-Service Systems [PSS]. The music industry has been engaged in servitization for a decade, replacing the physical product with intangible music file provision via electronic portals which are substitutes for physical retail space. Exchange value underpins the traditional view of the customer-producer relationship, with each party exchanging one value unit for another e.g. a vinyl album for money. With the servitization of the music industry a physical product is often no-longer present at the point of sale. This may create a change in accepted paradigms as the notion of value has shifted towards a construct of value-in-use, as the physical proxy of unitary value is absent for the consumer. As more firms servitize what lessons can we learn from the music industry? Managerial Problem: Following servitization record companies have reported falling sales of physical products. This has occurred at a time when technology has radically increased choice, availability and the opportunity for the consumer to purchase music. Two online models are being developed by industry: pay as you go, which is analogous to highstreet purchasing, and pay monthly, a contracted fixed monthly fee providing access to a set volume of music. The second model would be more beneficial to industry, but they are struggling to deploy it profitably. Has the move to make music available as a servitized offering by industry excluded a large number of their customers? Research Questions: As the music industry has moved from a product to a service business model, has the loss of sales meant they have not taken their customers with them? This new approach to music retail requires active participation by consumers and the use of their time, knowledge, skills and computing resource. What are the customer groups? Are all music consumers willing to engage with intangible music sales, and are they able to utilise their resources and co-produce value through these innovative new music channels? Declining sales may suggest that only a minority of consumers are willing to change from the product to the service model and further actively become co-producers. A number of hypotheses were tested: H1a: Music Consumers distinctive attitudes are directly related to their Music Purchasing behaviour, in particular with product consumption. H1b: Music Consumers distinctive attitudes are directly related to their Music Purchasing behaviour, in particular with service “pay as you go” consumption. H1c: Music Consumers distinctive attitudes are directly related to their Music Purchasing behaviour, in particular with services “pay monthly” consumption. H2a: Music Consumers distinctive attitudes directly related to Music Discovery methods, in particular with push methods. H2b: Music Consumer distinctive attitudes directly related to Music Discovery methods, in particular with co-production methods. Research design/methodology/approach: The authors used an empirical investigation to verify the hypotheses proposed in this study. The study population selected to carry out the investigation is made up of resident music consumers in the UK. The statistical software SPSS 17.0 and EQS 6.1 was used to analyze the data included in the sample. Researchers were provided with exclusive access to UK data and given the ability to influence questionnaires by one of the ‘Big 4’ global music companies. The utilised questionnaire had been undergoing iterative development for a number of years within the company’s market research division. The questionnaire was extensive and the researchers selected a subset of questions directly relating to the attributes and characteristics of consumer behaviour relevant to this study. The subset selected was subsequently validated by industry experts for coherence. A total of 5,101 valid questionnaire responses were obtained. The authors used CFA to find out to what extent the indicators selected for the different scales are reliable and valid and to define relations between the variables or constructs. The reliability of each factor was calculated: the content analysis was supported by a review of the literature and through confirmation with professionals from the music industry; the convergent validity analysis was performed using the average variance extracted and individual factor loading. Findings: This paper provides a description of different music consumers based upon quantitative analysis and establishes relationships between the consumer groups and their purchasing preference in relation to pay as you go and pay monthly service contracts and traditional product consumption models. The work identifies groups who may be open to service contracting and with who development of such approaches and business models may be trialled. Relevance/contribution to Operations Management: The move from traditional product to service based sales, dubbed ‘Servitization’, is being utilised by manufacturing firms in developed economies to address the five forces that influence an industry’s dynamics and its inherent profitability. However, data shows that within the music industry, the move from traditional product retail to online service based music sales has occurred simultaneously with a significant reduction in sector revenue. The potential for value created through coproduction with consumer is explored through analysis of different consumer characteristics. This paper continues the line supporting that the market has become a venue for proactive consumer involvement, showing collaborative alternatives to value coproduction – but further suggests that a significant proportion of the customer base do not currently wish to actively engage in service co-production. However, through identification of consumer characteristics it was recognised that a significant proportion of the customer base is positively inclined to engage in co-production and service business models may be best developed to maturity through targeted contracting with this segment. The findings and analysis may be useful for other researchers and firms engaged in servitization.