Sachetization comes from the fast-moving consumer goods industry and refers to the bite-size packaging – e.g. one biscuit, or 15ml shampoo – of goods that used to be available only in bigger, and thus more expensive, packages. Music consumption has seen a little bit of sachetization, but there is significant growth to be had if platforms and services will pick up this strategy more broadly. Two things triggered me to think about sachetization and music consumption:
- The continuing battle between Apple and Spotify. On the one hand, there’s the message from the former about their one penny per stream rate. On the other hand there’s the direct podcast subscriptions. While both deserve analysis and provide learnings for musicians, labels, and platforms alike a focus on either of these isn’t going to help grow ‘the pie’ of music revenues.
- In Spotify’s latest quarterly results we see ARPU (average revenue per user) dropping again. Mark Mulligan reckons that even with the proposed price increased Spotify’s ARPU will still go down in 2021. More broadly, MBW recently calculated that overall ARPU for all music streaming services dropped 8.8% in 2020. In other words, subscription revenue is dropping due to things such as family plans and marketing combinations (Fortnite Crew with 3 months of Spotify anyone?). Another big reason, however, is the lowering of prices in new markets, including the sachetized India. Instead of lowering overall subscription prices, music streaming services – and others – need to consider sachetizing their products.
From India to Nigeria: lessons in sachetization
The thinking behind sachetization often revolves around creating something that offers people who can’t afford something that very thing in a small dose. As such, the discourse surrounding sachetization veers towards talking about countries where the mechanism is popular as poor economies. While I won’t argue against it, I do think that focus misses out on the opportunities. Two examples will help me illustrate this.
Micro-credit in India
India is a big country with a lot of inhabitants. Many of these people are not formally employed. This does not mean they don’t have an income, but it does mean that the banking and credit system does not recognize their earnings. It’s for this reason that Viral Acharya, professor of economics at NYU-Stern, has argued for the sachetization of finance in India. One example he offered to explain its necessity in the FT article is that of a farmer. Instead of demanding a loan to this farmer to be repaid in regular monthly installments misses the point of them only earning money during the harvest. The example is meant to show that each person has its own cash-flow situation and requires a credit that reflects this specific circumstance.
The Reserve Bank of India has set out regulations to support this. In a talk Acharya delivered at Bombay Tech Fest in 2018 he argued that the public credit registry allows people to build up a reputation and the trust of lenders. Sachetizing credit thus means to create a specific set of circumstances that allows people to enter who would normally sit outside the formal credit market. In a way, it allows people to get a leg up, a first step onto a ladder, or a way to finance what they aspire to.
Nigeria’s sachet economy
There’s a lot to be said by the argument put forward in this tweet. Nairametrics, for example, see sachetization as innovation around poverty. And yet, there’s a lot of people to be reached by offering sachets instead of fullblown products. The examples in Nigeria are plenty and move from FMCGs to fin-tech and entertainment. When it works, it’s because it deletes what Efosa Ojomo calls nonconsumption.
Nonconsumption is the inability of an entity (person or organization) to purchase and use (consume) a product or service required to fulfill an important Job to Be Done. This inability to purchase can arise from the product’s cost, inconvenience and complexity, along with a host of other factors—none of which tend to be limitations for the rich, skilled, and powerful in society.
There’s a different reason to tackle nonconsumption: aspiration. M-KOPA in a Kenyan company that offers smartphones, and other products, by letting people pay in installments. The smartphone is then used by the company to track the financials of the user and, for example, unlock or lock certain URLs or payments. In the end, all of these types of services of sachetization in terms of pay-as-you-go and repay-as-you-can.
The opportunity for music
The whole idea of sachetization is to grow the number of people that can afford your product or service. There are different ways to do this for music businesses and they all don’t involve simply lowering your price for the full offer. Some of these will look like strategies used more widely around the world while others will hark back to old methods.
- pay-as-you-go in the form of opening a music streaming service and paying only when you use it. For example, per minute, per song, etc.
- pay-as-you-go in the form of passes. For example for a day, an hour, an album, etc.
- there’s a lot to learn from gaming (the idea of the pass in the previous bullet point harks back to Bas’ 2016 article about gaming industry lessons). One of them is to work together with payment structures that gamers are used to. Razer Gold is one such option. A popular method for gamers to buy both games and in-game content. It’s not difficult to imagine a streaming service stepping into a partnership and offering limited access to certain playlists in-game.
- The tactics of sachetization aren’t just for music streaming services. It’s also possible to step in at artist level through, for example, tipping. Centipenny is one example where people can work with micropayments that can go as low as, you guessed it, a penny. Users can top-up their account with small amounts and artists can include a widget, poll, mini paywall, etc. to receive funds.
Sachetization of music consumption is more than innovation for the poor. It’s real opportunity to increase the total number of people paying for music directly. Moreover, it does so on their terms instead of on those set by the major platforms.