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October 20, 2013 10:21 pm
Trent Reznor, the frontman of Nine Inch Nails, the industrial rock band, gets it. Björk, the creative Icelandic singer-songwriter, known for her outlandish outfits and innovative music, does not.
The “it” in question is forging relationships with fans on the internet and creating expensive products that a significant number will buy at a premium. This brave new world of digital business is explored in The Curve: From Freeloaders into Superfans – The Future of Business by Nicholas Lovell (Portfolio Penguin), a consultant who provides financial advice to computer and video games companies.
Reznor’s experience makes an arresting anecdote. A college dropout who quit his computer engineering studies, he was a gamer and technology enthusiast. He disliked the music label system, so he decided to release his work himself. In 2008, Ghosts 1-1V was offered online at a variety of prices: a free download, a CD for $10, a deluxe edition for $75 and an ultra-deluxe version for $300. In 30 hours, Reznor had sold all of the 2,500 ultra-deluxe CDs, grossing $75,000.
Björk by contrast failed to connect with fans in a similar fashion. When she tried to raise $375,000 in a crowdfunding campaign it was a flop because, writes Lovell, she had “never made much effort to connect directly with her fans”. She had 2.8m likes on Facebook, but this is a fairly passive form of appreciation.
Her tweets were one-way messages – notifying fans of pre-sale tickets, for example – unlike Lady Gaga, whose business manager, Troy Carter, says: “It is more important to have 1m diehard fans than to have 59m people who aren’t necessarily fans or they might have liked one thing you said, or one video. It is being able to segregate those audiences and knowing who the superfans are.”
Cultivating superfans who are prepared to pay more for exclusive, deluxe items is key to Lovell’s advice to businesses staring at crumbling profits in the digital age. The core of the argument in The Curve is, first, “that people value products at different amounts”. In the past, he explains, businesses found “the average price that satisfied the most demand. In the 21st century it has become necessary to be much more discriminatory in your pricing … It is possible to vary the price such that the biggest fans of a content creator might pay thousands of times as much as a casual passer-by.”
The second strand of the thesis is that “value is a very complex concept … [it] is divorced from its cost”. Lovell cites Starbucks, the coffee shop chain. He had assumed its lattes cost so much because coffee was expensive. The revelation that this was not true came when his local branch advertised an extra espresso shot for 15p. “That is 15p to double the amount of coffee in my £3 cappuccino. Starbucks is so confident in its value that it is prepared to showcase the disconnect between the price of the commodity it is selling and the cost of the experience it offers on its pricing board.”
The third element of the argument is that businesses should “stop worrying about free” and focus on those who will pay handsomely for premium products.
Lovell argues his case colourfully and fluently, citing many examples. But they are generally lifted from other books (and clearly attributed). There is little new research – a suggestion to New Statesman magazine is described as a “thought experiment” with the potential to be a “business model” – which is a bit underwhelming.
Nonetheless, this is a solid, cogent summary of current practices. Is it worth paying for? You decide: apparently practising what Lovell preaches, Penguin has announced it will release The Curve at several price points, ranging from free for an abridged ebook to £10,000 for a masterclass.
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