Billboard takes a look at the iTunes sales charts and determines that “the increases have hurt the sales rankings of songs given the higher $1.29 price.” Once sales fall more than 23.3%, the label starts losing more money than they would’ve made had they left the price at 99 cents. The average $1.29 song dropped “about three positions” since the price increase. A drop from #3 to #6 equals a 30% drop in unit sales, which means the label is losing money on that. Billboard has a handy graph to explain this:
Further down the chart, with lower unit sales differences between chart positions, it can work out better for the labels. A drop from #42 to #45 represents a difference in sales of “about 300 units per day,” but ends up earning almost $1,100 per day more for the label.
So who knows? I’m not an economist and I hate math, so if somebody can tell me whether or not this was a smart financial move by the labels, I’d appreciate it. Thanks.
Previously: iTunes: Why Pay More!
8 thoughts on “iTunes Shocker: Raising Price Decreases Sales”
A 30% price hike, especially for kids hunting for top hits, seems like quite a bomb to drop on the consumer and I am not at all surprised that it would affect sales like this. I suspect they’ll ride it out for a little while, and while they might make more on their backlist while they are losing chart position for their hits, only time will tell if people will adjust to, or continue to balk at, the $1.29 price
I understand the reason Apple bent on this one. While the $0.99 scheme sounds logical, human behavior isn’t. People don’t always spend rationally.
I deal with retail pricing at a major retailer. I can show you many cases where I’ve raised retails and actually increased sales units and dollars. Consumer reaction, though, varies greatly across products. Some products sell more when priced 2/$4 than $1.89. Sometimes $1.83 is better than $1.79.
I imagine that for this to work for Apple and the major labels they’ll have to see a net benefit over a reasonable period of time.
Since this has only been in place for a matter of days, I don’t think any sound conclusion can be drawn. This week (week after Easter) is consider one of the worst days of the retail calendar for brick and mortor stores. That may be the case for iTunes as well. I’d give it a couple fiscal periods or even a full quarter before passing judement.
My personal opinion is that Apple should have had a very limited test on this. Maybe with one specific record label and a handful of artists to gauge the customer reaction.
I’m a mathematician with a background in economics, and all I can tell you is:
“Since this has only been in place for a matter of days, I don’t think any sound conclusion can be drawn. This week (week after Easter) is considered one of the worst days of the retail calendar for brick and mortar stores. That may be the case for iTunes as well. I’d give it a couple of fiscal periods or even a full quarter before passing judgment.”
Oh wait…someone already said that.
Listen, you corporate whores. Take your logic and business acumen and cram it. We trade in hyperbole and anti-business rhetoric here. One more misstep and we will ban your asses. Ask Chris G. what happens when you get out of line!
I note and approve of the subtle use of white spaces between Derek’s words.
More details from Billboard:
It’s important to note that “The drop in sales was not large enough to offset the extra $0.30 received.” So…so far, it looks like it’s working out for the labels.
Digital Music News quotes some anonymous major label “executives” who say that “In the initial weeks following the pricing changes, including a move towards top-end, $1.29 downloads, overall revenues are moving downward. Lower unit sales can still result in greater revenues given the higher pricing tiers. But according to the figures shared, unit sales are dipping far enough to produce aggregated revenue declines compared to the pre-variable position.”