NEW YORK (Billboard) - As music retailers suffer ever shrinking sales, some of the most aggressive moves to boost business are being made by the perpetual runners-up in their respective sectors.
The past year has seen heightened competitive positioning between Apple's iTunes store and Amazon for digital sales and Walmart and Target for CD sales. In both instances the latter merchant is bringing the fight to their larger competitor. Amazon batters iTunes daily with pricing promotions like the Daily Deal, while Target recently used huge marketing spending to challenge Walmart's dominance in country music.
The Amazon MP3 store's roughly 1.3% share of the U.S. music account base in 2009 (part of Amazon's overall 7.1% share) was dwarfed by market leader iTunes, which held a commanding 26.7% of the market, according to Billboard estimates.
But that hasn't prevented Amazon from becoming a thorn in the side of its much larger rival. Amazon's Daily Deal, the most closely watched element on the retailer's "Special MP3 Deals" page, has proved to be a powerful generator of album sales, especially upon the release of a new title.
For instance, Amazon priced Arcade Fire's album "The Suburbs" at $3.99 during its debut week in August, helping drive first-week sales of 156,000 (of which 97,000 were digital, according to Nielsen SoundScan) and a No. 1 debut on the Billboard 200. Meanwhile, Amazon priced Kanye West's "My Beautiful Dark Twisted Fantasy" at $3.99 on its November 22 release date, pushing first-week sales of 59,000 at Amazon, compared with about 163,000 at iTunes, according to sources, an impressively narrow gap given iTunes' larger market share.
Amazon's loss-leader pricing has helped it grow market share and transform itself from a catalog retailer to a potent force for new releases. While music industry executives acknowledge that Apple enjoys the enormous advantage of selling iPhones and iPods that seamlessly integrate with iTunes, they still wonder why Amazon's pricing strategies don't steal more business from Apple.
With its Daily Deal, $5 pricing on select albums and attractive discounts on many other digital and physical titles, Amazon is consistently the low-price retail leader for all music, including track downloads. Currently, it's pricing all hit tracks at 99 cents, except for those from Sony Music, which sets its own pricing of $1.29 on hit singles. By contrast, most hit tracks on iTunes are $1.29.
"The Daily Deal numbers are fantastic," a senior major-label distribution executive says. "It's crazy that the consumer is so fickle and won't stay shopping there."
Executives at Amazon, who didn't respond to requests for comment, have tried to lure customers away from iTunes with cut-rate pricing, but the strategy doesn't appear to be working as planned, the head of sales at another major label says. An Apple representative declined to comment.
"Amazon is growing, but they are growing in millimeters," he says. "That strategy doesn't seem scalable."
In a move that would help establish one of the year's biggest sales success, Target scored an exclusive on a deluxe CD version of Taylor Swift's third album, "Speak Now," backing it up with an $8 million marketing campaign that included extensive TV advertising. The strategy paid off when the Minneapolis-based mass merchant accounted for 340,000 of the slightly more than 1 million units that "Speak Now" sold in the United States in its debut week ended October 31, while Walmart sold 190,000 units, according to SoundScan and retail sources.
"We think we will sell a million units of Taylor Swift at Target through Christmas," Target VP of entertainment John Butcher says. "We have sold 660,000 pieces already."
The 1,752-unit chain has also run an extensive TV ad campaign to tout its exclusive on an extended version of Keith Urban's album, "Get Closer," which sold 162,000 units in its first week ended November 21, according to SoundScan. Of that tally, Target moved 90,000 units, while Walmart accounted for only 27,000, sources say.
Walmart has been the top country music merchandiser for more than two decades. By nailing down exclusives from superstars like Swift and Urban, Target is demonstrating that it's increasingly willing to go head to head with the 4,300-unit Bentonville, Ark., retail giant on its home turf.
"No question, Target is making a move on the country business," a major-label head of sales says, although Swift and Urban are also big crossover stars in the pop market.
Target's share of the U.S. music account base in 2009 was about 8.1%, versus 12.5% for Walmart, Billboard estimates.
"It probably seems like we are country-heavy right now," Butcher says, "but we select artists based on their relevance to our (customers), alignment with our brand, wide appeal and potential for great results. Both Keith Urban and Taylor Swift certainly fit those criteria perfectly for us."
In another move, Target appears to have stepped up its appetite for exclusive versions of albums while Walmart seems to be curtailing that strategy. In 2008 and 2009, Walmart was aggressively chasing not only exclusive versions of albums -- by partnering with BET, MTV and CMT to offer double-disc versions of titles with extra DVD material -- but also landing exclusive windows to sell albums by such acts as AC/DC, Journey and Foreigner.
The albums with exclusive windows are sold one-way to Walmart, which "is moving away from them because it wants some protection, a return percentage allowance," a major-label head of sales says. Walmart did not respond to a request for comment.
Butcher says Target's approach toward exclusives hasn't changed, noting past deals with Prince, Pearl Jam and Christina Aguilera.
While generating strong sales helps Target make a case for itself as it pursues other exclusives, aligning itself with popular recording artists brings other advantages to the retailer as well, a music marketing executive says.
"They do those campaigns for imaging reasons," the executive says. "Target is going to spend money on television advertising anyway, and if they can stick Taylor Swift into a campaign, how can they lose?"
Butcher doesn't resist the characterization that music is an important component of the overall branding message at Target, which has been selling music for longer than Best Buy or Borders. "Music has a heightened position in our image because it's always been a part of our DNA," he says.