putumayo innovation
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Putumayo Strategy PaperTRANSCRIPT
Putumayo World Music Company
Joshua Bloom University of Michigan--Ross School of Business
Putumayo World Music Company
BACKGROUND OF PUTUMAYO WORLD MUSIC
The Putumayo music label was created in 1993 by co-founders Daniel Storper and Michael Kraus. Daniel Storper
initially owned retail stores that sold crafts and clothing from around the world. He named his stores Putumayo,
after a river in Colombia that he had visited. He was inspired to start putting together music from around the
world after he heard a Nigerian juju band play in San Francisco. His first albums were played in his retail stores,
and more frequently customers would inquire about how to purchase the albums. Since then, Dan and his co-
founder Michael have put together over 100 album compilations. Their business model involves packaging
individual artist’s songs onto an album that represents a geographical region, or a certain cultural theme.
Putumayo defines their target customer as the “Cultural Creatives”, which is a term that represents millions of
people around the world who are passionate about culture, travel, and the arts.
To reach their target market, Putumayo searches the globe for music that falls under the company motto,
“guaranteed to make you feel good.” Some examples of Putumayo albums are Global Soul, which represents hip
hop songs from all around the world, and Music from the coffee lands, which is composed of songs from coffee
exporting countries around the world.
BUSINESS MODEL
Putumayo has talent teams that travel the world in search of artists that potentially could be placed onto a
Putumayo album. The company currently has a database of tens of thousands of artists from around the world to
utilize once album themes are created. If artists are chosen to be on an album, Putumayo will contract with the
artist and a portion of the album’s sales will support the artist. Also, Putumayo supports a large list of non-profit
organizations around the world, and will give a portion of an album’s sales to non-profits located in a geographical
region that the album represents.
Putumayo World Music Company
During a period that represented a significant shift in consumer preferences towards digital music and away from
traditional records, several of the major, traditional record label’s sales were adversely affected. Despite the shift
towards digital music, the Putumayo World Music record label experienced significant growth throughout this
same period. Putumayo was able to increase sales from $350,000 in 1993 to $24 million in 2006. Their competitive
advantage comes from two important factors. First, they service a niche market of cultural enthusiasts that are
willing to spend money to support international artists, and second because of a very unique retail sales strategy.
Putumayo albums are sold in cafes, museums, clothing shops, grocery stores such as Whole Foods, and other
specialty retail locations where their target customer is likely to shop. In fact, 65% of Putumayo’s U.S. sales come
from nontraditional music retailers. As Company co-founder Daniel Storper was quoted saying, “the market is
moving away from purely going to the record store to buy music.” Putumayo also pays significant attention to the
amount of albums they release per year. The company typically only releases 14 albums per year to allow for time
to focus on the quality of their albums as well as advertising.
Putumayo currently has album sales in over 100 countries, and has 21 office locations in 15 countries. They also
recently launched Putumayo Kids, which was created to introduce children to culture from around the world
through music.
INNOVATION TO BUSINESS MODEL
Putumayo’s current value chain is a push system because the company will package albums for the end customer.
The interaction and value is added between artists and Putumayo teams that package the albums, but the
customer does not participate in the product creation process.
International
artists
Putumayo
talent teams
Retail Stores Target
Customer
Putumayo World Music Company
The Putumayo business model relies heavily on the creative abilities of their artist discovery teams to package
albums that the end customer may enjoy. All though Putumayo has experienced significant growth during their
years of operation, their model can be improved by including the customer more in the value creation process.
The application of N=1 (each customer having a unique experience, and the product offering is co-created with the
end customer), a management theory developed by Professors of the University of Michigan Ross School of
Business C.K. Prahalad and M.S. Krishnan, will allow for innovation to Putumayo’s business model and will create a
more sustainable enterprise. There are several steps to integrate an N=1 approach into the current business
model.
APPLICATION OF N=1
Putumayo needs to first create an interactive website that links the customer directly to the artists. From the
supply side, the company must upload their current database of tens of thousands of international artists to the
website. Also, the website should have the capability for future talent teams to easily upload future artists when
they are discovered. Vice President for product development Jacob Edgar was quoted saying, “Music is the
vehicle, but the overriding mission is a cultural one.” Since Putumayo’s goals are also to teach and introduce
people to culture from around the world, each artist should have a profile with information about their music,
specific background, and country. There should be links on the artist’s profile to sample and purchase music from
the artist, support non-profit organizations in that region, purchase other local goods from the artist’s location,
and potentially a blog so customers can post messages to the artist for further interaction. Putumayo can use their
talent teams to filter the artists that are uploaded to the site so that all music offered on the site will fit with their
overall theme of “guaranteed to make you feel good”.
On the demand side, the website should be highly interactive, with a search engine that allows potential
customers to search for music from individual artists through various search parameters. Examples of search
Putumayo World Music Company
parameters could be region, type of music, and popularity of artists based off of customer rankings and previous
sales. Putumayo could also go as far as to integrate a search algorithm based off of Pandora.com’s music genome
technology that can prefer music to customers based off of the customer’s profile of music they have previously
sampled or purchased. The music genome technology will help a customer find music that they do not know
about but could potentially be interested in. With customer profiles, the website can actually become a
community for “cultural enthusiasts” to blog, recommend music, share events, and interact with each other. Every
customer can personalize their experience with Putumayo and create a world music community. If Putumayo’s
objective is to create more methods for people to understand world cultures, an interactive website with
personalized profiles that allows for interaction between customers and artists takes this goal to the next level.
The website creates a community that looks like this:
Interactive
Website
Cultural
Enthusiasts Global
Artists
Non-Profit
Organizations
Putumayo
Employees
Retailers Music
Events
Putumayo World Music Company
APPLICATION OF R=G
R=G is another management theory developed by Professors C.K. Prahalad and M.S. Krishnan of the University of
Michigan and represents a company’s ability to utilize global resources into their business model. Putumayo’s
current business model utilizes global resources by discovering artists from around the world and connecting them
to the developed music markets. Also, with 21 office locations in 15 countries, and CD sales in over 100 countries,
Putumayo has a worldwide employee base and global distribution channels currently in place. To further utilize
global resources, Putumayo should launch an advertising campaign to find talent around the world. The
advertising campaign should target music events, and small venues such as local bars and night clubs so that artists
can become aware of Putumayo’s record label. Most importantly, the Putumayo site should have the ability to
have artists upload their songs for review by talent teams. This adds an additional way for talent teams to find
potential artists without having to travel the world, which reduces overhead.
The more ways that Putumayo can connect to the world music market and find artists the more opportunities
there are for packaging albums. Also, it grows the Putumayo community of artists and cultural enthusiasts which
should be a goal after the interactive website is in place.
It is still essential for Putumayo to utilize album sales in retail stores around the world because it is the core of the
company’s success. The revised Putumayo business model will include the customer in the product creation
process which will align the products with the target customer’s demands. This can be accomplished by creating
and packaging albums based off of the popularity of artists on the website. The new value chain will look like this:
International
artists
Putumayo
talent teams
Interactive
Website
Target
Customer
Putumayo
Albums
Retail Stores
Putumayo World Music Company
NEW SALES AND GROWTH POTENTIAL
The revised Putumayo business model is a catalyst for sales growth, and will also create different sources of
revenue. Customers will be able to download and purchase artist’s songs directly from the website to an
application such as itunes, and create a personal portfolio of Putumayo music on the website. Putumayo can still
sell albums in specialty retail stores, but they can package their albums by using customer input on the website.
For example, the top 15 most popular artist downloads from a distinct geographic region can be placed onto an
album and sold at specialty retail outlets. Once the site grows and has several thousand customer profiles,
Putumayo can create and sell advertising space to companies that fit within their overall theme of introducing and
connecting people to cultures from around the world. For example, a company like kiva.org could advertise their
micro-financing operations because their goal is to connect the same target market of “cultural enthusiasts” to
individuals in developing nations around the world that are requesting micro-loans. In addition to the revenue
generators, Putumayo can reduce travel costs by implementing a method for artists around the world to upload
songs directly to the website for talent teams to review.
Putumayo already supports non-profits around the world through their music sales. To further connect customers
with global initiatives, Putumayo can have the customer select a non-profit organization every time they purchase
a song to have a set percentage of a music sale be donated to their organization. This would allow the customers
to learn and become more aware of non-profit organizations, which could lead to increased support of their
initiatives and possibly future interactions.
Conclusion
Putumayo World Music Company
Co-founder Daniel Storper was quoted in a New York Post interview saying, “We decided a long time ago that we
wanted to market a package of music, culture and travel, and so our CD’s feature extensive liner notes and
photography, for example. You don’t get the same kind of package downloading one song at a time.” What Mr.
Storper does not realize is that the move towards digital music does not have to sacrifice his end objective and
product package. An interactive Putumayo website has the potential to include customers in the value creation
process, increase the ability to discover global artists, and create an active community of cultural enthusiasts. The
level of interaction of customers will help sustain Putumayo over time because the community will create a
stronger connection to the Putumayo product, which in the end is simply an experience of cultural awakening.
Works Cited
Lauria, Peter. "World-Music Label Defies Industry Blues." New York Post 29 Apr. 2007.
Mohn, Tanya. "Stumbling Into a World of Music." The New York Times 21 Dec. 2003.
Prahalad, C.K., and M.S. Krishnan. The new age of innovation.
Putumayo World Music Company. <http://www.putumayo.com>.
Putumayo World Music Company