In this post, we will discuss the generic and intensive growth strategies adopted by Spotify, which have helped the acquire growth globally.
Spotify is a leading online music streaming platform based in Sweden. The music streaming platform has seen a lot of growth in recent years, driven by its focus on innovation, user experience and growing brand awareness. The company has been growing its investment in research and development in order to improve user experience and become more competitive.
Spotify is the leading player in online music streaming industry where it competes against dominant players like Google’s YouTube, Amazon Music, Apple and other small and large players. The company has still built a strong source of competitive advantage which has led to higher user loyalty, superior financial performance and improved retention.
Spotify’s growth strategy has focused on product quality and pricing as well as user experience. According to its 2021, Annual report, the company had 406 million Monthly Active users, across 184 countries and territories. The number of Spotify premium users was 180 million at the end of 2021. It offers more than 82 million tracks including a large collection of around 3.6 million podcasts.
Generic Growth Strategies used by Spotify:
Michael E Porter has given three generic strategies that include cost leadership, differentiation, and focus. The cost leadership strategy means offering products at the lowest prices in the market. It is an excellent strategy adopted by several leading players in the retail industry including Walmart. Differentiation is a leading growth strategy that is used by companies to differentiate their brand and products from the rival players. It is among the leading strategies used by tech brands including Apple, Google, Netflix, Meta, Microsoft, Amazon and others. The third strategy is a mix of the first two strategies or subdivided into two strategies. The two sub categories are cost focus and differentiation focus. Cost focus means reaching a specific target market with a cost leadership strategy and differentiation focus means differentiating your products/services to satisfy the needs of a specific market segment. The generic strategies used by Spotify are a mix of Cost leadership and differentiation.
Cost leadership strategy used by Spotify:
Spotify is the leading music streaming brand globally. However, it offers both paid and free services. Spotify leads in terms of cost. It offers ad-based services in which it sells advertising through its platform and the users do not need to pay anything. The company also offers premium services in which the user pays a monthly subscription fee for using the platform. Its subscription plans are also tailored to the needs of the various customer segments and the company has used a competitive pricing strategy. It offers different plans for various customer segments like students, families and others.
In this way, a competitive pricing strategy has helped the company grow its level of market penetration in various markets. Globally, it has become the most subscribed music streaming service which can be attributed to a large extent to its pricing strategy. In the second quarter of 2021, the company held around 31% of the global music streaming market, followed by Apple and Amazon music at 15% and 13%. Spotify is playing in an industry experiencing intensifying competition. Over the past five years, the level of competition in this industry has continued to grow. Several new players emerged and Spotify experienced a slow decline in its market share while its user base grew. The other leading players have also experienced a decline in market share compared to five years ago. Spotify has still retained its market leading position supported by its freemium business model and a customer friendly pricing strategy.
Differentiation strategy of Spotify:
Differentiation is the main source of competitive advantage for a large number of players in the tech industry. However, companies mainly focus on innovation and user experience to differentiate their services from the other players. Spotify has also focused on technological innovation and user experience to differentiate its services from other players. Its content is also an important source of differentiation for the music streaming platform which also allows users free access to around 3.6 million podcasts.
The company has employed the power of machine learning and data and analytics to offer its user an improved experience and achieve higher user loyalty. The company acquired some similar start-ups to expand its business and strengthen its competitive advantage against the other players. While the competitors are also investing in offering improved user experience through the help of technology, Spotify has managed to remain ahead of the learning curve. Machine learning generated recommendations and playlist tailored to the preferences of the users drive higher user engagement and customer loyalty. At the surface, the music streaming platform may not appear very different from Amazon music or other streaming platforms but inside it is the power of AI & Machine learning that drives its popularity.
Intensive growth strategies adopted by Spotify:
There are four intensive growth strategies that include market penetration, market development, product development and diversification. Market penetration is the strategy of penetrating existing markets deeper or selling more to existing customers. The strategy of market development on the other hand involves entering new markets to grow sales and revenue. Product development involves the development of new products and services. The diversification strategy is the strategy of entering new business segments or diversifying the business to generate higher sales and revenues. The three intensive strategies that Spotify has used include market penetration, market development and product development.
Market penetration strategy of Spotify:
This is the strategy that Spotify used initially to expand its business. The company used technology to drive customer engagement higher and grow sales in its existing markets. The company has a strong market share in the western markets including the United States. It also focused on converting its free users into paid subscribers and still continues to use this strategy. A large number of its paid subscribers come from its existing user base of free users.
Market development strategy of Spotify:
Spotify has used this strategy to expand its market and user base in new markets. It offers its services to 182 geographical markets. The company has expanded its services in 80 new markets across Asia Pacific, Africa, the Caribbean, Europe, and Latin America in 2021. The company continues to explore new markets for its services to expand its business. It also focuses on marketing through digital channels including social media to increase the level of brand awareness and grow its sales in new market regions.
Product development strategy of Spotify:
Product development strategy of Spotify was focused on targeting new users through podcasts. Spotify also offers a vast range of podcasts which is made available for free to all users. Its product strategy is mainly limited to musical content and podcasts. It has also acquired several smaller businesses to improve the quality of its products and services.
A few last words:
Spotify is the world’s largest music streaming platform with the largest user base of all similar platforms. The brand is operating in a highly competitive industry environment. Its rivals include the industry leaders like Apple, Amazon and Google. Due to the intense competition in the industry, the scope for differentiation is low. However, innovation and its pricing strategy have played an important role in the growth and expansion of the brand. The company is using market development and product development strategies to find faster growth and increase its revenue. Its cost leadership strategy is among the primary drivers of growth for the brand. Now, the company is not just a music streaming platform but also a podcasting platform.
It has made several acquisitions in its history to grow the attractiveness of the platform as a podcasting network. In recent years, its user base has grown at an impressive rate and the company has also experienced improvement in its financial performance. The focus of the company has remained on user experience which has led to higher loyalty and superior growth momentum. Spotify’s business strategy focuses on growth and expansion with technology and pricing as its two main pillars. These are also its primary basis of differentiation. While the brand has not been able to generate a positive net income yet, based on its performance in 2021, it might not take it very long to generate a positive net income.
SPOTIFY SWOT ANALYSIS