5/5 (1)

Everyone knows the platform Spotify. Spotify is a platform where users can browse through various parameters in order to find the right song/artist/album that they want to listen to. Spotify offers songs that they acquire from the license holders of those songs. Spotify pays license holders approximately 70% of their total revenue, based on the number of streams of the song in proportion to all song being streamed on Spotify.

 

Spotify offers their service in two ways. Either for free or for a monthly subscription, which is called ‘Spotify Premium’. Dividing their services into those two products is a form of differential pricing, which is regarded as ‘versioning’.

 

On one hand, Spotify offers the free version, which sounds great already. However, the free version lacks some key features in comparison to the premium version. The premium version eliminates advertisements, as those are of great annoyance for most customers. Besides that, it includes higher streaming quality, offline listening and it makes you able to listen Spotify with multiple devices, such as your mobile phone or tablets.

 

As said previously, Spotify divided their service in two ways. However, I believe that they should adapt an extra product/option by taking the following argument into consideration.

 

A cognitive bias which is encountered when consumers make purchase decisions is that consumers tend to have extremeness aversion. This occurs when consumers have to make a decision between two products. Due to this bias, people tend to go for the cheap version. An experiment has shown that once you introduce a third version of the product, people tend to go for the middle one.

 

I think that Spotify’s revenue could grow if they would implement this third option. They could find a middle way where they add some extra features (e.g. no advertisements), but not all the features that their premium option consists of. This way the consumers who tend to have an aversion against extremeness might choose the middle option, and therefore pay a (lower) subscription to Spotify instead of choosing the free version.

 

Sources:

Shapiro, C., and Varian, H. Pricing Information. In Information Rules: A Strategic Guide to the Network Economy. Cambridge, MA: Harvard Business School Press.

Spotify. (2018). Muziek voor iedereen. Retrieved October 7, 2018, from https://www.spotify.com/nl/premium/?checkout=false

Wikipedia contributors. (2018, October 7). Spotify. Retrieved October 7, 2018, from https://en.wikipedia.org/wiki/Spotify

5/5 (1)

Let’s discuss Elon Musk’s company Tesla. The rise of Tesla has raised a lot of discussions whether it is a disruptive innovation or not. Business Insider states that Tesla has put the auto industry on notice. Besides that, they state that Tesla’s ideas, the way it connects those ideas to an ambitious vision of a future where renewable energy is the main source, are as compelling as the ideas coming from any other American business. They state that there is no doubt that Tesla created a greater urge regarding innovation and creating electric cars.

This might be true, but others state that Tesla is a disruptive innovation. According to Clayton M. Christensen, a disruptive innovation typically has got two characteristics. First, a disruptive innovation originates in low-end or new-market footholds and second, a disruptive innovation doesn’t catch on with mainstream customers until quality catches up to their standards.

Clayton M. Christensen states that Tesla is an outstanding example of not being a disruptive innovation, whereas some people think it is a disruptive innovation. He says that Tesla’s foothold is in the high end of the auto market, which are the customers that willing to spend $70,000 or more on a car. He also states that Tesla has elicited significant attention and investments from established competitors.

Returning to M. Matousek’s article in Business Insider. The article states that after the entry of Tesla in the automotive industry, companies like Porsche and Mercedes-Benz responded with a steady stream of aggressive investment announcements in electric vehicles.

In my opinion, this reaction means that at first, there was no urge for incumbents in the automotive industry to invest in electric vehicles, until Tesla came along. The market for electric vehicles already existed, but there was no dedicated incumbent in this market prior to Tesla’s entry. That’s why I think that Tesla did disrupt the automotive industry.

Sources:

https://www.businessinsider.nl/teslas-influence-on-the-auto-industry-2018-2/?international=true&r=US

https://hbr.org/2015/12/what-is-disruptive-innovation