Fighting Goliath
In a recent issue of Rolling Stone magazine, I read an article that was titled, "Wal-Mart Battles Labels Over CD Prices." Small retail stores that sell music CDs are up against many "Goliaths," including Best Buy, Circuit City, and - Wal-Mart! In fact, Wal-Mart has become THE Goliath in the music industry, selling "one out of every five major label albums (CDs)."
According to the Rolling Stone article, Wal-Mart has so much power that the titles that it decides to sell basically determine what becomes a hit. In other words, if Wal-Mart does not sell your CD, you have little chance of becoming a best-seller. I found it amusing that only one of the three people that do the buying for Wal-Mart ever had experience in music retailing. The article was a bit confusing about this, but it seems that the only buyer with experience was recently moved to a new division, and was replaced by someone who had previously bought Wal-Mart's "salty snacks." Thus, the music industry executives have their destiny largely controlled by people who have no history with their industry.
Here's the kicker. Wal-Mart uses its CDs to attract Customers to their stores as a loss leader. In the past, they have bought CDs for about $12, and sold them for $9.72 as a way to draw Customers to their stores. Now, Wal-Mart is tired of losing money on these CDs, and has asked record companies to reduce their prices on several titles. You don't have to be a genius to figure out that once the music industry concedes on a limited number of CDs, Wal-Mart will continue to expand that list.
What will happen if the music industry says, "No?" Although Wal-Mart denies this, music industry sources say that Wal-Mart has threatened to reduce their stock of CDs if they don't get their way. Since Wal-Mart controls 20% of the music sales, the music industry is faced with a major challenge. Wal-Mart has already been given reduced prices on certain titles. One record label executive said, "We're in such a competitive world, you can't reach consumers if you're not in Wal-Mart." However, if the record companies continue down this path, their profit margins will be even smaller than they are now.
Like many industries, the music industry has had a major revolution going on around them for many years. Albums were replaced by cassettes, which were replaced by CDs. A major threat to the industry has been the downloading of music for FREE - beginning with Napster. Although Napster was finally forced to quit this practice, millions of dollars worth of music continue to be downloaded from the internet every day - with no part of that revenue coming to the record labels.
Wal-Mart has become a Goliath to many small communities across North America. When they first came to a community, they brought many new jobs. They also drove several small retailers out of business. Years later, as their leases have expired, they simply moved to a new, better location, and left an eyesore for the communities with their old buildings, which now stand empty.
In the past, when you thought of "Goliath," you may have thought of a very large competitor. But, do you have a "Goliath" Customer? One that would devastate your business if they went away? One that forces you to do things that are not in the best interest of your own company? If so, what steps can you take to guarantee a more secure future?
On the other hand, if you have a "Goliath" as a competitor, what can you do to show your Customers the positive reasons why they should do business with your company instead of Goliath? The record companies wish that they had paid more attention to their other Customers in the past, and not let Wal-Mart become such a Goliath. Perhaps you can use this story to demonstrate another reason that your Customers should do business with you. I don't advise "bad mouthing" the Goliath - just subtle stories that get your point across.
One last thought about Goliath - and the shape that Goliath may appear in your life. After talking about Goliath in a speech, an audience member came up to me and told me something I'll never forget. He said, "Mark, my Goliath looks at me in the mirror every morning."
© 2004, Mark Mayberry
