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Retailers must agree in writing to a “promotional commitment” requiring them to devote a minimum of 33% of “merchandising and marketing opportunities” (i.e. end caps, windows, listening booths) and 25% of their overall bin space to UMVD product.
UMG JUMPSTARTS NEW
PRICING PROGRAM
Letter to Retail Accounts Details How It'll Work
Got a high-concept plan to tweak your business model and invigorate sales? Better have a catchy name. Let’s see. How about...

JumpSTART.

That’s the name Universal Music & Video Distribution has given the plan announced yesterday by Universal Music Group brass to lower the wholesale price of most CDs to $9.09, while simultaneously eliminating discounts and co-op advertising.

In a letter sent to retail accounts along with details of how the new plan will work, UMVD President Jim Urie writes, “We are responding to many of your comments and what we perceive are the wishes of the music fan,” noting that JumpSTART represents a “virtual overhaul” of how UMVD does business.

The basic concept, according to the materials supplied to retailers, is to “drive consumer demand with everyday low pricing.” The theory is that low prices, combined with UMG tripling the amount of money spent on direct-to-consumer advertising, will increase store/website traffic and result in more units sold.

Starting this month and phasing-in through the end of the year, new releases will carry a suggested retail price of $12.98, with most “frontline” CDs wholesaling for the aforementioned $9.09. “Midline” and developing-artist product (“SoundSavers,” “20th Century Masters,” “Listen Up!”) will wholesale for $6.06.

One exception to the new pricing will be releases from a select number of “superstar” artists, which will carry a higher wholesale price of $10.10.  While not detailed in the materials sent to retailers, insiders say those titles that chart in the Top 15 upon release will be invoiced at the superstar price until they slip out of the Top 25.

The lower prices, of course, come with the elimination of discounts and co-op ad dollars, but there are other catches as well: In order to qualify for the “new aggressive JumpSTART pricing,” retailers must agree in writing to a “promotional commitment” requiring them to devote a minimum of 33% of “merchandising and marketing opportunities” (i.e. end caps, windows, listening booths) and 25% of their overall bin space to UMVD product.

That’s some catch. But there’s more: One-stops must ensure that their accounts “cooperate in distribution of UMVD-provided marketing materials (flyers, bag stuffers, etc.) through their stores” and display in-store signage featuring UMVD’s low-price sticker artwork. They must also agree to pass the savings realized from JumpSTART pricing to their accounts.

One independent retailer has already characterized the above requirements as “impossible,” noting that major-label product has never had that large a presence in indie stores. Those retailers who choose not to participate (or participate and are found to be “non-compliant”) will be charged higher wholesale prices of $11.50, $12.50 (“superstar”) and $7.00 (midline).

Meanwhile, UMVD is revamping its returns policy as well, eliminating its “Inventory Management Incentive” program, which included a 1.6% discount on purchases (incentive) and a 10% penalty on returns (disincentive), in favor of a flat rate of 25 cents per returned CD. In theory, the new policy will help most retailers, or at least those returning more than 16% of purchased product (16% has been known as the “break-even point” for returns).

If that isn’t enough to make you completely glaze over, get this: UMVD is adjusting its price protection policy to accommodate its new pricing scheme. In a nutshell, price protection for inventory currently in retailers’ possession will be achieved by allowing unlimited purchases at the new wholesale prices during the transition period which runs from this month through the end of the year. UMVD product won’t be stickered with the lower prices until Oct. 1, or Nov. 1 for September releases. Catalog won't be stickered until Jan. 1.

Oh, and credit terms have changed, too: There will be no more cash discounts, and payment of invoices must be received by the 10th of the second month following the billing date—no more grace period, Sparky!

Got it? Good, because we stopped paying attention about eight paragraphs ago.

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