I’ve been a proud Spotify user since 2015 and have never reverted to another music streaming platform since then. There’s a reason Spotify is so skilled at converting customers into premium users and retaining them. Being a music platform, Spotify has mastered the art of personalization. However, what truly differentiates them from the competition is the way they manage to personalize both individual user experiences on the platform and the marketing content every user receives.
Revolutionizing the Music Industry
It’s no doubt that Spotify’s concept was an exceptional one. In the past, it almost felt like a luxury to be able to buy and listen to whatever songs you wanted, meaning there was an even greater incentive to download music illegally. In fact, it was so expensive that there ended up being trillions of illegal song downloads every year. Spotify’s founders had to ask themselves, how could they provide enough value to customers so that they were not only willing to pay for a service but also truly felt like they were getting a bang for their buck?
In other words, what exactly would get people to surrender to paying a little extra instead of making another illegal download every time their favorite artist dropped a new single?
After seeing how much people truly valued convenience and accessibility, they found their answer. And by creating a platform where users had the freedom to listen to whatever they wanted (with the few limitations of ads and no offline streaming) all for free, they successfully came up with a value proposition. All they needed to do now was market their idea to the public.
Back in 2007 when Spotify was still a young company, they didn’t exactly have the budget or feel the need to run paid mass marketing campaigns.
Instead, they focused on partnerships, which enabled them to reach various specific audiences - each with different marketing messages tailored to them. By partnering with large music bloggers, for instance, they managed to simplify the difficult task of segmentation and personalization by having these bloggers do it for them.
Rather than pitching to customers themselves, Spotify indirectly marketed themselves through blog content that consumers already loved and trusted. And because each blogger had partial control of the way they spun Spotify’s pitch, the platform was presented differently to each blog’s fanbase in a way that would resonate with that specific group. As a result, Spotify’s audience exploded before the platform was even released.
Becoming a Conversion Champion
Now that Spotify had obvious demand, they needed to figure out how they would generate revenue. A staple of what makes Spotify so incredible is their success with their freemium model. A freemium model doesn’t work for a company unless they prove there’s a reason to switch to being a paid user, but Spotify does it better than most. Not only was their conversion rate a whopping 27% in 2015 (incredible when compared to rates of 1-4% for platforms like Dropbox or Google Drive), but also they knew exactly how to grow this rate over time. In 2021, their conversion rate hit 44%.
But what was it that made Spotify such a champion when it came to conversion?
To be able to convince a customer to start paying for a service they could just as easily have used for free, Spotify needed to show them that the benefits clearly outweighed the costs. But a transactional relationship is not always enough. It’s just as important for a customer to feel like they have a special connection to the brand — to feel like the company understands and cares about their individual needs and desires. Using predictive analytics, Spotify managed to create individual customer experiences that accomplished just that.
Spotify does an exceptional job of monitoring and analyzing user data. They don’t just use this data to deliver personalized recommendations. They take it one step further by spreading these touchpoints across the platform in unique ways - recommending songs for user-made playlists, creating customized mixes for individuals, and sending reminders of new releases from users’ favorite artists. And as user preferences change, Spotify acknowledges these shifts and continues to curate recommendations that are relevant. When such unique touch points are introduced into the equation, it’s hard not to feel connected to the brand.
Another key strategy Spotify now uses is a form of price discrimination. Recently, they began to offer different plans to different customer segments. The Individual Plan is reasonably priced at $10/month, but a variety of other plans are offered that make the decision to commit to a premium subscription even easier. For couples, Spotify released a Duo Plan, and for families, they released a Family Plan which provides 6 accounts on top of several added benefits, like access to Spotify Kids. For students, who tend to have a lower budget for non-necessities, the price is sliced in half at $5 a month instead of $10. Not only does this incentivize conversion, but it also proves to customers that Spotify empathizes with them and wants to be as accessible as possible for all groups. It’s no wonder why millions of Spotify users decide to convert to a paid user every year.
Many companies have few issues onboarding users but struggle with retaining them. Luckily, Spotify’s retention strategy is elite as well. Not only does Spotify customize each customer’s experience accordingly, but they also give users constant reminders of how truly personal and valuable their experience can be.
In Spotify marketing emails, customers will often receive messages from their favorite artists thanking them for being a listener, or even get early access to and exclusive sneak peeks at their projects, concerts, or tours. Because these emails provide so much value to the customer, they no longer even feel like marketing emails.
What Spotify does exceptionally well is that they don’t just give you a reason to stay. Rather, Spotify makes you feel like you would be missing out had you stopped being a user. With collaborative playlists, friend mixes, and other types of shareable content introduced so frequently, it makes you want to be there when they drop the next new, exciting feature and want to be included in this rapidly growing community.
Spotify never stops innovating, which is what makes them so engaging. You never know what they’ll release next, meaning users are always looking forward to something. It’s truly no surprise that they’ve been able to maintain an 80% monthly retention rate - and it looks like it’s not getting any lower.
It’s easier for a company like Spotify to personalize experiences and marketing content because segments were established from the beginning. You have your individual users, students, families, and couples, but even deeper than that, you have fans of certain artists and music genres that are distinct. For most other businesses, however, the lines between customer segments are more blurred.
That shouldn’t stop you from trying, though.
It’s clear from Spotify’s story that the benefits of segmentation and personalization are endless and can have infinite applications. Whether you’re looking to decrease churn, improve retention, or even onboard customers in the first place, segmentation is the perfect place to start. And for businesses where things are a bit more complex, Cotera has the tools to break it down for you.
Not only can we take care of the segmentation aspect for you, but we also point out what’s important and help you decide how to apply it. Maybe you want to launch new subscription models by segment. Or maybe you want to make personalized recommendations to every customer. Whatever it is, don’t think you have to do it all on your own. After all, that’s what we’re here for.