Reference no: EM13852843
Case Study: A New Spin on Music
Following his graduation from an excellent university with a degree in entrepreneurship, Brian Wright was eager to launch a business. Brian always enjoyed working with new technologies as well as watching movies, playing video games, and listening to music. Because of the proliferation of online movie and video game rental services, he believed that a service providing the online rental of CDs made perfect sense.
Brian was confident that the success of the other online rental services proved that there was a market for the online rental of entertainment media; therefore, renting CDs online would be an easy concept for customers to grasp. Although MP3s and MP3 players were growing in popularity, Brian knew that he and his friends preferred to listen to an album in its entirety; after all, Brian believed that "any true fan of an artist would want the entire album."
When calculating potential revenue, Brian concluded that the average retail price of a CD was approximately $14. If he charged $2 per CD per rental-which would offer an 85 percent savings to the customer based on the full retail price of a CD-he could recoup his costs within seven rentals. In addition, Brian believed that he could negotiate contracts with the music labels to purchase CDs in bulk at a discount, which would in turn reduce the time it would take for him to reach the break-even point. He knew enough about music encryption technologies to know that restrictions could be built into the CDs to deter people from copying songs from them. He decided that taking such precautions would alleviate any concerns that the music labels might have regarding piracy.
As Brian began discussing his idea with his friends, their enthusiasm convinced him that he needed to act quickly before someone else seized the opportunity. At $2 per rental and an estimated two rentals per customer per month, he would only need a little over 20,000 customers to reach $1,000,000 in annual revenue. After looking at his financial forecasts, Brian decided that it was time to bring his online CD rental service to market.
1. Has Brian completed the proper marketing research for this potential opportunity? Why or why not? What would you do differently than Brian? Explain.
2. Based on the case, are there key mistakes that you would caution Brian about? Are there things Brian is doing well? What recommendations would you make to Brian? Explain.
3. What specific steps would you recommend to Brian for him to better assess this opportunity? What specific opportunity is available to Brian and how would you describe it to a potential investor?
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