Polyphonic HMI Case AnalysisPolyphonic HMI has the combination of management experience and a product that could revolutionize the music industry; however, the company is operating on a tight budget, and must quickly define a target market and marketing mix if it wants to capitalize on this opportunity. Polyphonic HMI’s HSS software is the first of its kind to utilize a catalog of millions of songs to predict hits with 80% accuracy, drastically increasing customers’ functional and economic value. Additionally, the company has low variable costs and an advisory team of well respected industry insiders. However, the use of science to quantify artistic value has been met with skepticism by industry members, and the initial sales presentations have received little attention by record label executives. The company has the advantage of having no direct competition. However, HSS will compete indirectly with the research methods of internet polling and call-out studies currently used by record companies. Additionally, if HSS is wildly successful, the low barriers to entry for software products may result in direct competitors who could take a share of the market. Polyphonic has correctly identified three potential customer segments – artists, producers and record companies. At over 100,000, artists comprise the largest group of potential customers and would only look to HSS for selecting an appropriate breakthrough demo. They are typically desperate for a hit and have a tight budget, which might not allow extensive usage of HSS. Additionally, being concerned with artistic integrity and originality, some artists may find that HSS removes too much creativity from the process. Producers are the second largest customer segment with potentially thousands of members. They may be concerned with losing the emotional and artistic qualities of music, but might value HSS as a tool to help polish the songs they produce. Additionally, Producers have a greater ability to pay than most artists and could use HSS for one song demo at a time or request a bulk discount on per song usage. A& R executives, the smallest segment with less than a few thousand representatives, gain their reputations based on their ability to successfully select hits. Given this high pressure to perform, they are more focused on economic return and may be more likely to spend money on market research. They would primarily use HSS as a substitute method for evaluating incoming artists and assisting in album production. However, some A&R Executives might feel that HSS is inferior to their “good ears”.With limited marketing budget, a further analysis of pricing, breakeven volume and revenue will help to identify which segment to target.Artists with a recording contract are unlikely to use HSS since they have already achieved success, therefore targeting unsigned artists is more reasonable. This sub-group of approximately 50,000 would have less money to spend so the likely maximum Polyphonic could charge per song would be $100. With a marketing budget of only $3 per person , the penetration is expected to be low (5%) due to the types of marketing available at that budget (e.g. direct mailers). The result would be a loss for Polyphonic over the course of the first year. Within the overall producer segment, an appropriate producer target would be producers with one or fewer hits because they would have motive to bolster their reputations and further their careers. Based on the tendency of producers

to disregard the benefits of HSS, Polyphonic would likely be unable to charge more than $300 per song analysis. With a marketing budget of $60 per person , Polyphonic could send out better marketing materials such as informational brochures, or follow up with personal phone calls, increasing the penetration rate to 10%. The overall expected volume from this segment would still result in a loss for Polyphonic over the course of the first year .In contrast, record label A&R executives frequently spend $3,000 or more per song on market studies, which only yield about a 10% success rate. Polyphonic could price per song analysis at $1,500 to make it more attractive than existing methods, while giving record companies a better chance of achieving success. With a marketing budget of $100 per person Polyphonic could build relationships with this segment and better educate potential customers, making the likely market share 15%. The A&R segment is expected to have a higher rate of utilization as compared with either producers or artists in addition to a higher price point, making it the most profitable segment. Based on this analysis, we recommend Polyphonic launch HSS and target A&R executives specifically at a price of $1,500 per song analysis. Polyphonic can provide demonstrable value to the A&R segment and should share its positioning statement as a promotional tool. A possible positioning statement would be: “For record label A&R executives who want to enhance their natural talents, HSS offers the means to identify a song’s hit potential with 80% accuracy. No other firm in the industry matches Polyphonic’s functionality, service or price.”Once HSS has been positioned properly, Polyphonic should focus on promotion and placement. Polyphonic should begin promoting the product by sending introductory marketing materials directing customers to an interactive website demonstrating HSS’s functionality. Additionally, the company should look into attending a trade show for A&R executives as a way to reach a concentrated group of customers. This could be followed up with personal phone calls to key A&R executives from Polyphonic’s management team and advisory board. Furthermore, Polyphonic should strive to achieve a more user friendly report format that would increase its readability and help the company to persuade potential customers who may be wary of the application of science to a product that is inherently creative. Polyphonic should revisit offering free trials after the first year because with HSS’s 80% accuracy rate, the firm could automatically lose 20% of the customers who expressed interest in the product prior to the trial for songs that do not become a hit. Placement could be achieved with minimal effort and little capital investment through a website, which would also allow product consistency and instant processing time. Additionally, a website further reduces the variable costs to HSS and increases customer satisfaction, because songs and reports can be delivered electronically.