Record labels could significantly increase their profits by - paradoxically - lowering their prices, according to new research by Wharton marketing professor Raghuram Iyengar.
Iyengar, who studies pricing and consumer behavior, surveyed 600 digital music buyers with the goal of developing optimal pricing structures for the music industry. His research looked at both pay-per-song plans like iTunes and subscription models.
He found that not only was the pay-per-song model more popular with the digital consumers, but that their music purchases would increase sharply at a lower price. As a result, Iyengar says the optimal price to the customer is around 60 cents to 70 cents per song, rather than the typical 99-cent price.
"If the price goes down, consumer demand will go up, so much so that overall profits will be higher" explains Iyengar.