Amazon’s music streaming offer to catch the untapped market segments

Before Amazon’s entry into the music-streaming service in the US, the consumers had only two options: to use the free music streaming platforms such as YouTube, or to pay $10 per month. This left a large untapped market of persons who’d want to pay for improved streaming services but be able to pay lower for it. Amazon comes in with an offer for the US consumers where they can get improved music streaming services at only $3.99 per month with premium customers paying $7.99 per month. To understand the possible impact of this strategy, the psychology of price in strategic management needs to be explored.

Under normal circumstances, customers attach value to price where expensive products are often viewed as being of a higher quality while the lower prices are believed to signify low quality. This is what often leads customers to be willing to pay a price even where the same service can be accessed for free. With live streaming services like YouTube being free, one would understand why companies charging $10 per month can attract the high demand levels that they do. The answer is in the perception of value. Those who want the best are often willing to pay a much higher price than the rest of the consumers. But while this may be the general psychology, there is also the question of perceived value and the appropriate price for the services or products.

There has been a general shift in culture with consumers apparently attaching less value to creative content such as music. A significant proportion of the population desires to consume music for free and this explains why free streaming services have become so popular. But as the free streaming platforms become clogged with content, they begin to desire more specialised streaming services that help to customise content and provide them with what they are inclined to like. For this, they want to pay a price; but not a very high price. This is why Amazon’s pricing of $3.99 is likely to be successful. But for this success to be realised, Amazon needs to demonstrate value that justifies the price as opposed to consumers going for the free streaming services.

In strategic management, the organisation identifies its capabilities and competitive strengths. These are exploited for purposes of getting the organisation to beat competitors and succeed in the market. Recent studies have shown that Amazon has overtaken search engines in terms of queries for product information. This success has been attributed to its success in using algorithms where previous search results are used to display results that the consumer is likely to be interested in. This makes search queries highly relevant to every consumer.

This competence can be used by Amazon to improve on the music streaming and making more relevant to individual consumers than is currently used by consumers. For example, YouTube uses general usage data to provide consumers with music options. This is based on what most consumers of the music played tend to watch next. The personalisation is often limited. But Amazon is set to refine this and improve on the level of customisation. With enhanced consumer experience per customer, Amazon hopes to attract and retain most users of live-streamed music in the US and beyond.