Even in COVID-19, when almost all artists’ activities are frozen, Big Hit Ent still achieved estimated 49.7 million KRW in operating profits in the 1st half of 2020, in which selling merch and goods accounted for a large proportion, according to their latest financial report. This fact has urged me to learn more about merchandising.
All artists need to optimize all possible revenue streams. Potentially, one of the most lucrative moneymaking areas for bands is merchandise.
WHAT IS MERCHANDISE AND HOW IT WORKS
Music and merchandise products have been combined to bundles in order to add value for money, and merchandising has become a part of building an artist’s brand. Merchandising is the only production and business activity in the music industry that has nothing to do with the actual music, but it is connected with the brand of the artist. The purpose of the merchandise selection is to strengthen the brand and support the musical career and ambitions of the artist, but it should be kept in mind that merchandising is a side-line business and, therefore, it should never be in the main focus.
There are lots of things that are not completely in your control (e.g. COVID-19, due to which a whole tour can be cancelled, and financial loss will be enormous because touring is one of the main revenue sources), but artist merchandise is something that you have complete control over—unless, of course, you license your merch rights to your label or a third party.
Selling merch strategy depends on:
1. Where the artists are in their career
2. How much control the label wants over the distribution of artist’s image
3. The outlets where the merch will be available
4. The amount of resources you have to successfully operate the merchandising.
MERCHANDISING SALES
A band should look at their merchandise as a dedicated revenue stream that deserves the same marketing and sales attention as anything else they do to make money.
Again, if you are working with a merchandiser, you’ve already provided them with the right to exploit your merchandise with your likeness to their dedicated outlets. A merchandiser’s reach is far and wide: in addition to working with larger venues across the world, merchandisers distribute product to major online and physical retailers/mall outlets. But until you reach the level of a popular nationally known band, your chances of a merchandiser getting you into these outlets is slim.
A lot of bands choose to look at their merch as a way to spread the word about their band organically. As such, they price their items just enough to cover costs to increase sales, but take a hit on the margin of the item. On the other hand, some bands price their merch at a premium, and run the risk of alienating their fans and in the process decreasing their overall sales. The truth is, pricing your merchandise has a lot to do with where you are in your career, and what kind of fans you attract. Popularity is not the most important factor that decides how to price merch, but the level of commitment of fans.Taking a look at K-pop, the largest merchandise market in the world, their merchandise products are usually crazy expensive, but the intense K-pop fans always themselves justifies the feasibility of that pricing strategy. However, a lot of artists (e.g. most of girl groups in K-pop), even those with high level of popularity, fails to build their own loyal fan base, and of course they can never succeed in their merchandising business.
Emerging bands needs the extra income that merch can provide to help fund their tour, but they also need to continue to build up their community through this added visibility so that there are more folks in the venue next time they play the market. While you might expect to see a $25 T-shirt at a Wilco show, if you priced the same shirt at a less-well-known band’s concert, the sales would be in the tank. Smaller to mid-level bands should consider pricing their T-shirts between $10-$15, which is relatively standard for bands that play smaller clubs—up to 850-1,000 capacity. Keep in mind that most venues also charge a fee of 25 percent or so for the luxury of selling your nonmusic merch at their venue. Factor that into your bottom line as well.
Source: Berklee Online, Sample lesson 5
Essi Hirsimäki, The Future Trends and Expectations of Merchandising
Muniverse 