Coachella: A Lesson in Strategic Growth

In 1957, a Russian American applied mathematician wrote a paper outlining a set of growth strategies for a given product and/or market. Almost 60 years later those same ideas are central to the strategies of hundreds of companies and brands worldwide. But perhaps the most impressive success story stemming from that paper is that of Goldenvoice- the promoter behind the Coachella Valley Music & Arts Festival.

Each year Coachella signals the unofficial start of the summer music festival season in North America. Now in its 16th edition, the event has become a juggernaut, revered by artists, brands and fans alike. Attended by 190,000 people (over two weekends) and grossing a reported $78m in revenue from ticket sales alone, it is no wonder that the desert event is the envy of all commercial festivals.

Now, if you’ve never heard of Coachella before you have two options-

  • a) have a conversation with literally anyone between the ages of 15–37
  • b) watch the short video below

https://www.youtube.com/watch?v=Nb5GpV_LUuU

Back to the applied mathematician. The person in question was Igor Ansoff, often referred to as the father of strategic management. His framework outlined the alternative strategies for growth available to a given organization in regards to either developing a product and/or market. In short, there are four main strategies:

  • Market Penetration- pushing an existing product in an existing market
  • Product Development- launching a new product in an existing market
  • Market Development- taking an existing product to a new market
  • Diversification- launching a new product in a new market

To understand any strategic decisions made within the music festival sector we must first understand how a music festival generates its revenue. Typically about 60% comes from ticket sales, 30% from sponsorship and the remaining 10% from concessions and merchandise. Taking into account that a festival’s capacity is often fixed, the primary method to increase revenue is to boost an event’s profile in order to increase sponsorship dollars while simultaneously looking to create new revenue streams.

Music festivals are big business. According to a 2014 Nielsen report, 32 million people attend at least one music festival per year in the US, almost half of which are between the ages of 18–34. This becomes an attractive proposition to brands whose survival depends on the endorsement of tastemakers. Think about it, tens of thousands of the most desirable demographic groups in a single captive location, cutting loose and lowering their inhibitions while broadcasting their every move via social media. In 2014 over $1.3b was spent in North America to sponsor venues, tours and music festivals (IEG, 2014). And that number is growing- at about 10% annually.

By 2010 Coachella was consistently selling all of its available tickets. The question became how to grow without harming the sanctity of the brand?

Market Development

In 2011 Coachella broadcast its entire 3-day program for free in a partnership with YouTube (after testing the concept on a smaller scale in 2010 via Facebook). The move paid off. The stream was viewed an estimated four million times by a global audience and engagement across all major social media channels was off the charts. Such an initiative doesn’t come cheap with the price tag speculated to be around $2m. However, Wrigley’s gum, the official sponsor of the live stream, was more than happy to pick up the tab.

Market Penetration

A controversial announcement in 2012 saw the festival expand to two identical editions taking place on consecutive weekends. Same venue, same lineup and same ticket price. Critics argued that the festival could struggle to sell an additional 95,000 tickets given the option of watching the live stream for free at home. In 2011 tickets took one week to sell out, in 2012 it took just three hours. This was no fluke, a carefully orchestrated road to expansion had been planned long ago. The YouTube live stream meant that Coachella now had a global following and even more people were adding the festival to their bucket lists.

Product Development

The cost of staging an event on a per person basis ultimately declines as you get greater utilization out of your assets (blah blah economies of scale blah blah). Coachella organizers Goldenvoice had already learned this when they launched Stagecoach Festival in 2007, a country music festival that occupies the same venue and facilities taking place one week after Coachella. This meant that the temporary infrastructure costs (stages, fencing, etc.) were shared across three events (Coachella weekend 1, Coachella weekend 2 and Stagecoach). The savings can then be pumped back into making the event experience even better, such as providing free wifi and charging stations to make sure every moment of the festival can be captured and shared by attendees, further perpetuating the brand.

At this point Coachella had conquered 3 of the 4 quadrants in Ansoff’s Matrix (Market Penetration, Market Development and Product Development). All eyes were now on what Coachella was going to do next?

Diversification

For several years Coachella has been a prominent hotspot for summer fashion trends with numerous fashion blogs dedicated solely to the festival’s culture. It was no secret that brands were paying celebrities to attend the event and wear their products. The LA Weekly reported that Gwyneth Paltrow was paid $15,000 by UGG Boots to enjoy the festival in their footwear. For these reasons Coachella’s recent announcement made perfect business sense- it was launching a fashion collection cobranded with fast fashion giant H&M. Ann-Sofie Johansson, head of design and new development at H&M recently explained-

And just like that Coachella re-defined what a music festival brand is capable of.

But as with every business there are factors that pose threats, and by no means is Coachella immune. The curation of the lineup must continue to resonate with fans, as fans attract brands, brands bring celebrities, celebrities attract more fans (you get the idea). And given the festival’s now mainstream appeal, Coachella’s choice of headline acts frequently draws criticism, though co-founder Paul Tollett isn’t fazed.

Will there come a time when Coachella’s throne is usurped? Probably. Will that be happening anytime soon? Probably not.

About the author: Anil has worked, lived and studied across five countries. He has previously worked on festivals and concert tours for artists such as Metallica, Coldplay, Elton John and Florence & the Machine. Currently living in Vancouver, Anil is a firm believer in the power of community, culture and creativity.

Originally published at www.linkedin.com on April 17, 2015.

I teach innovation, markets & incentives

I teach innovation, markets & incentives