Sir,

An analogy from an entirely different field, one that has gained a fair degree of negative perception about costs provides an interesting contrast.

Health care is turning out to be more and more expensive year after year. In this scenario, the initiative taken by a service provider in the Alternative Medicine category is worthy of mention.

Located about 200 miles from the city of Bangalore in India, the facility provides a holistic treatment for ten days. The package includes accomodation on the premises, food, fitness regime customized to individual requirements, lessons in meditation and so on. The facility has a fine collection of reading material, journals, CDs and other resources too.

The fascinating aspect of the service is that no one is asked to pay anything. Payment is voluntary and for whatever amount one chooses to pay, one gets a receipt with a smile. Some pay as little as US$10 while others pay as much as US$1000. The fact that the waiting time to obtain a slot at the facility is increasing steadily is an indicator of the success of the model.

Our observation shows that a large majority of people who stay at the facility pay what they would have paid for such a service. A few who may not be able to afford the high cost of health care pay less while the affluent ones pay much more than necessary. Overall, it is a self-sustaining model and is based on the premise that every human is good at the core and would not take undue advantage of the voluntary payment scheme.

One wonders whether there are lessons in this for the health care industry, and for that matter, for all businesses.

Warm Regards

Great article, Scott.

What you said about building a loyal fan base is the key here. Record Labels used to control what customers got exposed to, but now with the internet, everybody has a voice and a medium to distribute content.

Although I can understand that for established artists, it can be much more profitable for them to distribute their music in ways similar to that seen by Radiohead; there is one underlying function that I can see a record label being able to assist with, particularly an established label and this is promotion.

I can think of very few independent artists off the top of my head (although I am sure that there are some) and the underlying reason I can see that causes this is that the promotion provided by record labels as large corporations can have a considerable effect on the success of an artist. With such large backing behind them, it must become more feasible to grow rapidly using techniques such as major advertising campaigns via type’s media not available to the average independent artist simply due to their larger budget. This is an advantage of a record company that seems obvious to me in that it offers growth to artists that would be highly challenging for independent artists to create.

On the other hand, established artists who have a large following of loyal fans can make profit by selling their albums directly to fans, one thing that has to be considered however is how successful such a business model would be to a new artist trying to get established within the music world. With only a small following of fans, if one at all, it would become very difficult to sell the album themselves without them also having the responsibility of running a marketing campaign. Undertaking this in addition to writing a new album could become difficult for a new artist, especially when considering that some may have to balance jobs in addition to this to make up income whilst that derived from their music is to low to sustain on.

This however, does not mean that the low profits of an artist from album sales is a “dirty little secret” as I believe that record producers play a vital role in the success of a band, although it is entirely possible to become a successful independent artist, many artists have found more success with the backing of a record label and one of the costs associated with this privilege is a low profit from album sales. It would be difficult to argue that artists are poorly compensated because they are making revenue for other sources such as touring. This means that CD sales could be comparable to loss leaders within a business in that if the product is popular and successful; it may be beneficial for the business to continue the line because of the success that it brings the remainder of the brand or other such reasoning. In the case of recording artists, this could be seen that their album sales provide publicity and support for their tours which provide them with revenue.