If you have a product that isn’t selling, the problem might not be consumer rejection, but lack of customer knowledge, according to new research from the Stanford Graduate School of Business.
According to a Stanford press release, the research challenges the commonly-held assumption in economic modeling that consumers have complete information when making a purchase.
“This work is really about the notion that there are many markets with a glut of products: books, music, iPhone apps and so on. It’s virtually impossible for consumers to be aware of all of them,” says Alan Sorensen, a Stanford GSB associate professor who conducted the research with Ken Hendricks of the University of Texas at Austin.
The researchers studied the crowded market of compact discs in order to measure how lack of information caused albums to lose sales. They looked at how new album releases affected the sales of previous albums, calling this phenomenon the “backward spillover” effect.
Among the findings:
- Artists who scored a hit second album after their first album flopped experienced a spillover of nearly 150 percent, indicating that the reason for the initial flop might have been lack of information, not lack of interest.
- In the music world and elsewhere, mid-level artists suffer the most. “The truth is that an artist who sells tens of thousands of CDs a year is probably pretty good, but not big enough to get on the radio,” says Sorensen.
- As any struggling musician or novelist can confirm, it’s only possible for a small number of “culturally-oriented” products to make a profit. Even among those that are profitable, a small group takes the majority of the earnings, thus becoming the products that consumers hear about and buy – and therefore, reinforcing their dominance.
The research focuses on albums released between 1993 and 2002, well before digital music gained dominance. The researchers note that the internet, as it has with other industries, has begun to level the playing field for musicians competing for their market share, making it easier to distribute product information without the support of mainstream media.
Whether you are in the business of making culturally-oriented products or not, the research is a good reminder that a slow-selling item simply might not have found its target audience yet, and that you may have to try different promotional channels before a product finds its niche.
CD image courtesy of Flickr user pumicehead, CC 2.0.
