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News Flash – Marketing Wars have been declared. We are at DEFCON 1.

“Gentlemen! Start your engines.”  A famous introduction heard to start some of the most prestigious auto racing events like the Indianapolis 500.  Historic races have pinned the highly favored No. 1 racer going against the promising field.

No, war has not been declared on a sporting event, but instead it is being declared in the highly competitive internet radio market featuring No. 1 – Pandora being challenged by the smaller No. 3 – Slacker.

Marketing wars have been the stuff of legends, and one of the greatest battles featured rental car underdog AVIS going head-to-head against the almighty giant, Hertz.  In one of the most memorable marketing wars ever declared, a nearly bankrupt AVIS launched its long-running ad campaign, “We try harder,” against Hertz.  AVIS turned its business around, not only saving the company, but earning itself the marketing respect and admiration of the corporate world.

In 1962, Hertz was the leading rental car provider followed by a number of distant competitors, including AVIS.  AVIS was losing money, and the company realized that consumers had not understood the value and benefits of their brand.  When AVIS hired world renowned marketing agency DDB, the advertising execs asked AVIS execs why rental car patrons weren't choosing AVIS.  Unsure why patrons weren't responding to the AVIS brand, DDB first interviewed executives and employees before discussing any ad campaigns, and made the recommendation to restructure its business.

DDB took AVIS through three steps that would be the basis to gain market share:

  • Step 1 – Before running any AVIS ads the company had to overhaul their customer service department and upgrade their product portfolio.
  • Step 2 – AVIS executives were forced to answer, “Why does anyone ever rent a car from you?”  Their response gave the company clarity as to the direction of their campaign, and they answered, “We try harder because we have to”.
  • Step 3 – Create employee involvement and support.  Each worker received copies of the ads before they were run in an effort to get their involvement and support.

These three steps led AVIS to launch its campaign from a position of strength, rather than from a position of weakness.  During the campaign, AVIS changed its brand to the “right choice” for rental car services going from an 11% market share to a 35% market share.

Slacker AdSlacker finds itself in a very unique position as they must prove to their core audience and potential internet radio listeners that they have to try harder than its competition to earn their business.  Slacker recently launched its internet ad, a 30-second sling against Pandora which finds a young women opening a blue “Pandora's box” labeled “P,” in reference to Pandora's app icon.  As she sits with a friend at a coffee shop, the box opens with an annoying song playing, and patrons can hear the women complain to her friend on how “it plays that over and over again,” blaming Pandora for the “small music library.”  Looking at her phone, the friend points out that Slacker has 10 times as many songs, and features.

US Monthly InternetSlacker offers free, ad-supported Internet radio with a two tier premium service subscriptions.  Listeners can choose the Slacker Radio Plus for $3.99 a month that excludes ads, and includes ABC News, ESPN radio, unlimited song skips, download stations on mobile, and complete song lyrics.  If you prefer a premium service, subscribers can choose Slacker Premium for $9.99 a month that includes all the Plus features and plays songs and albums on demand, single artist stations, download playlists on mobile, and create playlists.

Live AVIS, Slacker is struggling with consumers understanding its brand as they have been slow to react.  Slacker currently has over 4 million monthly users, however only 560,000 pay a monthly subscription.  Compare that to Pandora, which enjoys more than 65 million users a month with 20 million monthly subscribers.  Pandora is the leading internet radio provider, however roughly 90% of its revenue comes from ad-based sources while subscription revenue accounts for just 10% of total revenue.

US Monthly Internet #2Slacker is banking on its large music library, and its ability to provide unlimited access to its music library to increase its user base, especially its subscription based users.  Pandora is struggling to build a profitable business as the company has to pay high royalty fees for any music heard by listeners.  Pandora is currently lobbying congress to restrict the amount of royalty fees charged to internet radio company's that would improve its bottom line, and many industry analysts are skeptical of the company's ability to survive if the legislation is not passed.

US Monthly Internet #3Slackers core audience are the 18-to-44 year olds, slightly more females than males, and the company is creating a brand based on the consumers listening experience.  Current listeners are responding by confirming that Slackers personalized approach to music is better than others, like Pandora who use algorithm calculations to create musical playlists.

Industry analysts and music lovers are listening carefully to see how this plays out.  Do you think that Slackers will be the AVIS of the internet radio market?

3 replies on “News Flash – Marketing Wars have been declared. We are at DEFCON 1.”

Great post Sandro. I had never even heard of Slacker. I’ll have to try it out. I’m wondering if Slacker has more song but perhaps less popular songs with less royalty fees they have to pay. I figured it was just a matter of time until someone else started to take some serious market share from Pandora. I was about to say Internet radio is the future but its really already taken over. That’s pretty much the only way I listen to music unless I don’t have an Internet connection.

Thanks for your comments Josh. I too had not heard of Slacker until I came across an article that talked about Pandora being challenged. In doing the research I found that Slacker has an enormous music library, and their business model is different than Pandora’s to the extent that Pandora could be in serious financial peril. Turns out that every time a listener clicks on a song, regardless of how long they listen to the music, Pandora has to pay an expensive royalty fee to the record company. We spend so much time on the internet that we often look for resources to listen to music, and other than our personal music library on our computers, many want the option to listen to music and the internet seems to be the best option. This is a very interesting situation, and we’ll see how this plays out over the next few years.

Good stuff fellas. From my limited perspective, its all about word of mouth… I had never heard of Slacker either but now I’m going to try it out. I’ll tell my friends if i like it and so on.

I think slacker needs to do something big and dramatic.. funny/interesting TV commericals to their core audience. Hope they have the capital!

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