Cd Now Case Study

830 words - 3 pages

CDnow needs CashFor five years your sales have more than doubled every year yet you have yet to turn a profit. I have looked at some industry trends and the strengths and weaknesses of your company and have come up with some suggestions for what you could do that could possibly get you guys into the black.The major problem CDnow has is low profit margins. Because of the low profit margins, you have not turned a profit since you have been in existence. This leads to another problem, you can expand the way you want to. Expansion should help you turn a profit, but you have no cash to do it. You need to find a way to increase profit margins or find someone who will invest enough money in CDnow so that you'll have the money to expand.Low profit margins is a problem that is plaguing the online music retail industry. Everyone is losing money. In this industry, to turn a profit, companies have to achieve a large volume of sales while limiting their expenses. To achieve a large volume of sales, you have to differentiate yourself from the rest of the companies and gain as much market share as possible. You guys at CDnow have done a good job at this pulling in 33% of the market share in 1999. Hire market share means hire brand awareness which means hire traffic to your website. According to Media Matrix, you are the 33rd most visited wed domain. This has made you a very attractive website to advertise from. Allowing advertising from your website is another trend in the industry. You guys at CDnow have taken advantage of this and pulled in a lot of advertising revenue from other companies. This however was still not enough to get you in the black. Allying with other wed companies like browsers is another industry trend. Again, you guys have done this and it has helped you get more traffic to your site but still no profit.Online music retailing is a very attractive industry. You are able to provide more to your customers: greater selection, service, information. You can reach more people. You can find out more extensive data about your customers so you can provide them with better shopping experiences. It's more cost affective to offer a broader range of titles and information. All these things make your business model better than the traditional brick and mortar music retailers. However there is one problem with your industry: low...

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