Can Beats be Beaten?

Founded in 2008, Beats is a relatively young brand within the audio space. According to Billboard charts, the headphone market spiked from 59 million units sold and 490 million dollars in revenue to 68.7 million units sold and 648 million dollars in revenue the year after Beats started selling. This marked increase begs the question: what did Jimmy Iovine and Dr. Dre do to make Beats so popular?

 

Beats continuously grow in sales because of two key factors. First, its business model lends itself to marketing and industry fame, rather than true research and development. Second, its major acquisitions and partnerships give the firm industry exposure unreachable by any other competitors.

 

Though Beats headphones operates in a large sector, the company attacks and capitalizes on a niche, golden segment–one that is more willing to spend on perceived popularity rather than sound quality. In general, the company succeeds through two marketing methods: guerilla marketing and perceived popularity. Guerilla marketing is the process of calling attention to a brand. The London School of Marketing finds that Beats Electronics has implemented it well. Perceived popularity comes through the sleek headphone design and everyday use by international celebrities like LeBron James, Neymar Jr, Nicki Minaj, Serena Williams and Priyanka Chopra. In addition, Olympians used the headphones in London despite Sony sponsoring the event, giving Beats even more credibility by outperforming competitors on a large stage.

 

In addition to the immense talent of its celebrity marketers, Beats has continuously partnered with other companies to push its products. According to Forbes, Beats first worked with retail giant Best Buy to develop a company goal and market base. In 2009, Beats partnered with HP to add Beats audio to computers. In 2011, Beats worked with Chrysler to place studio-quality audio into automobiles. Most notably, as of September 2018, Beats is the official sponsor of the NBA.

 

Strategic partnerships allow for key generation of revenue through market expansion and product awareness. They also give firms exclusive opportunities for marketing. After its acquisition, Beats sells products through the Apple Store. Given that computers and headphones are complements, the products’ juxtaposition in stores can dramatically improve sales.

 

The business model of Beats lends itself to a base in marketing and recognition rather than research and development. According to Forbes, Beats Electronics captured nearly a third of the market in its first year, generating 180 million dollars in revenue because of the marketing tactics they employed.

 

Despite their popularity, many critics and consumers truly believe Beats produces poor quality audio. In a 2014 analysis of the top 18 premium headphone brands, Time ranked Beats 17th. This stark contrast should not be surprising. Due to Beats’ target market, the brand does not compete against the quality of other companies. Beats’ customers gain more utility from wearing the brand’s headphones than from the higher audio quality from other audio companies.

 

According to The Home Theatre Review, Beats Electronics had 32 percent of annual headphone revenue in 2015, with Bose the closest competitor at 11 percent. Beats led Bluetooth headphones with 46 percent of sales and 60 percent of premium headphones. Regardless of the comparative sales, the Consumer Technology Association cites national headphone revenue continues to grow to an estimated 2.2 billion in 2015 from 1.7 billion the year earlier.

 

Beats has made a lasting impact on the audio sector by drastically expanding the headphone market and providing product awareness. The brand has changed the consumer trends surrounding premium headphones. The NPD Group reported that headphone sales over 100 dollars increased 73 percent year-over-year in 2012, outpacing sales in the headphone market overall.

 

The new developments in the headphones industry also have ramifications for the music industry at large. Increased demand for headphones is correlated to consumer desire for the Beats logo, and the company has taken notice. Products like the Beats Pill and Pill+ are showing early signs of stimulating the speaker market.

 

The upward trend of Beats sales is expected to stay the same with dips over time. Apple’s 2014 three billion dollar acquisition of Beats has tempered company’s hot streak by inhibiting the flexibility of founders Jimmy Iovine and Dr. Dre.

 

According to Slate, Iovine left Apple in August, and now works as a consultant for the company. At the time of its acquisition, Beats was reportedly working on a new smart speaker that would rival Sonos. As soon as Apple took control of the company, new research and development was eliminated. In 2015, Apple pulled Beats Music, a music streaming service, from mobile app stores to reduce competition for iTunes radio.

 

Beats’ lack of innovation will lead to a reduction in brand recognition and sales. According to The Verge, signs of this slowdown are beginning to show, with Beats ending 2018 without releasing a new product.

 

While Apple reduces the number of new Beats’ products, other firms will continue innovating at a rapid pace, saturating the audio market. Through this saturation and elevated consumer demand, the companies with the most diverse product offerings will find success.

 

The success of Beats’ business model begs the question as to whether companies will be willing to adopt similar strategies. The problem with replicating Beats is that the company itself was the perfect storm: Dr. Dre, sleek design and high initial capital were all unique, key factors in brand development.

 

It won’t be possible to copy Beats Electronics because it had a unique culture–a way of approaching headphones and music that was radically different to any other brand.