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1. Customer segments: Who are the group of customers?
Spotify uses a multi-sided platform model for its customer segmentation which is oriented towards two customer segments, firstly the community of young people looking for new affordable ways to listen to music and secondly the advertisers looking for ways to reach this community with their advertising. Spotify needs to build up a community to create and large audience attractive for advertisers, since out of the total members or users of Spotify only a 25% are premium users or paying customers, which covers part of the expenses, but the members listening to the free version have to listen to advertising in-between and this is where revenue is generated from the advertisers. So the two revenue bases are the premium users/ paying subscribers or the advertisers advertising on Spotify.
- Vodafone customers will need to be contracted on $70 Red Plans and above to qualify for a free subscription. The $70 Red plan comes with 6 months free Spotify Premium, while the $80 and $100 Red Plans come with 1- and 2-year free subscriptions respectively.
- Either Spotify users are getting unmetered access to Spotify streaming on the Vodafone network, or, free Spotify Premium accounts – currently available at $11.99 per month. Whatever the detail, anything that makes streaming music more appealing will be a win for Vodafone.
- Vodafone customers on a Red Value bundle can get a free pass for NOW TV Entertainment, Spotify Premium or the Sky Sports Mobile TV app.
- Ive just taken out a vodafone account with free spotify. Ive been a premium member for over a year. How to I convert over to the free account and will I loose any of my playlists etc?? 8 Likes SUGGESTED POSTS. May 2020 Ideas Review 93 Replies Last update: 2020-10-29 Log In Spotify.
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2. Value proposition: What is the offer for each customer segment?
The value proposition that Spotify offers is in its newness, accessibility and convenience for the end user to stream online music for a short set of time. There are two ways to this one is being able to stream music for free, but having to listen to advertisement, which is favorable for customers since its free although they have the trade off to listen to the advertisement as well. The second way is where customer buy premium accounts to listen to music for the period of one month of 12 million songs, opposed to iTunes where they are able to buy 1 song or an album at a higher price, customers need to pay between 5-10 dollars for a monthly subscription in order to be able to stream any of the 12 million songs and not forced to listen to any advertisement as opposed of the free accounts.
The value proposition in Spotify’s case is that customers have access to the whole database, but there is also a Trade-off in that the customer are not owning any of the songs, they only buy rights to stream from the database for a period of one month if they pay or they are forced to listen to advertisement if they go for the free account.
Spotify created the blue ocean for themselves by creating a new market for customers by offering access to a whole database of songs at a low price instead of offering songs or albums at a higher price. The value for costumers is that they don’t have make choices between their favorite songs they can listen to all of them, although they trade of their owner rights to any of the songs for access to all of them.
3. Channels: How to reach each of the customer segments?
The service is available on many different platforms from computer to mobile devices, although there is a difference for paying subscribers and free users. Paying customer can use it on any platform while free users are only able to use it on computers. The difference between the 3 subscriber types is the following:
- Premium users for 9.99 Euros (the currency varies based on country but it always stays 9.99) can use the service on any device, download music and listen to it offline and don’t have to listen to advertising
- Unlimited users for 4.99 Euros can use it on desktop and laptops and don’t have to listen to advertising either, but they can not download or listen in offline mood.
- Free users don’t have to pay, but the service only works on desktops and laptops and they are forced to listen to advertising, which is the tradeoff for the free service.
The primary channels are the corporate website Spotify.com, the software application and the mobile application. All the surfaces on which the customers have direct contact with the company or its products.
- 1. Awareness
Spotify uses a its different platforms and interfaces to promote itself to costumers and makes use of co-branding with other companies like Facebook and large Telecom companies offering their products for a set of time with some tariffs, like Vodafone does in the UK or Base in Belgium.
- 2. Evaluation
The Evaluation happens mainly on the corporate website of Spotify and other platforms like the Spotify blog, YouTube channels and Facebook account. Costumers can visit these sites in order to get more information of the company what it does and if it is worth it for them to buy its products.
- 3. Purchase
The products of Spotify are available at the corporate website of the company or in the app stores of Google and Apple as of 2013. As for advertisers they can facilitate direct contact with Spotify through emails, since they are engaging in a different kind of business.
- 4. Delivery
The delivery happens through the enabling of the music streaming application for users, which depending on the account type, can happen on different devices.
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- 5. After sales
The after sales support is very limited to self service, which can come from 4 sources mainly from the corporate website of Spotify.
A. Get started options, which explains the general usage of the software
B. The FAQ section, which explains general issues or problems encountered more often and general usage of certain features
C. Solution option describes more technical problems regarding the account, payments, the software or features of the software.
D. Community option shows similar problems encountered by other users of Spotify and how they solved their problems.
![Customer Customer](/uploads/1/3/3/8/133895387/849281478.jpg)
E. You can get in contact with the costumer service vie email by filling out a contact form and submit a query.
The advertisers have a direct link with the company and more direct contact methods to solve problems regarding their problems (phone contact)
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Customer Relationships: How to relate with customers over time?
The customer relationship is automated service which is a more sophisticated form of self-service. Customers are able to buy the software online and customize it to their specific needs. Its an online relationship without direct contact with the company itself. Customers are given all the means to buy, download, and use the software themselves. The relationship is based solely on self-service of the frequently asked question section on their website, the community or the personal assistance for more direct contact for technical problems. Beside this there is little personal contact with customers since the product is an automated service and uses automated processes to deliver value.
As for advertisers they have a more personal contact with them, since it is a more dedicated form of personal assistance in their customer relationship with them. They are also larger buyers and have to get more attention, since they are an important part of the Freemium business model.
Revenue streams: How to earn revenues?
Spotify operates with a Freemium model in which they offer the basic service of online streaming and with the premium account they add more features to it. In case of the free account they earn on advertisement and in case of the premium account the customer pay for the usage and don’t have to listen to advertisement.
![Free Free](/uploads/1/3/3/8/133895387/413334147.jpg)
The revenue streams come from the subscription fees from premium and unlimited users and the advertising fees from the companies advertising on the platform for free users. The revenues come from these to sources and create the total revenue from which 70% goes to licensing fees for the songs and the remaining 30% of revenue stays by the company.
The company uses a fixed menu pricing for its product where you have a list price for accounts offered, which are the following:
- 1. Free account
- 2. Unlimited account
- 3. Premium account
The price depends on the features bought by the costumers, which off course goes up with the price so premium users can stream on any device with no adds, while free users can only stream on laptops and computers and have to listen to advertisement.
The price also depends on the costumer segments so each account type is aimed at different segment and even free users generate revenues through advertisement which is important as they account for 80% of the users, the difference is the trade-off they have to make depending on the account type.
The price is also volume dependent, this is why the record labels aimed at lowering the time free users can listen to music, since they thought its giving away the music for free, believing with lowering the benefits for free users they will have to change and become premium users, because of that they changed from 30 hours to 20 hours per month for Freemium users and raised the length of advertisement from 15 to 30 seconds.
Key resources: What assets are required to run the business?
The key resources of the company are the licensing agreements they have with the big music labels (although it is common for the industry and is rather a hindrance for business, more about the evolution section).
The key physical resources are the platform and the software which they need to operate the service and offer the customers the full satisfaction of the music they are looking for
The Intellectual resources are the brand name which Spotify created for itself among the customers. The service works like a music sharing social network in which you can see you friends pal lists or what they listen too strengthening the social belonging and the brand.
The key human resources are the software ad network engineers making sure the operation, development and evolution of the software. The technical experts of the company are the most essential human resources for and online company, just like in the case of Spotify.
Key activities: What are the important activities/processes?
The most important is to keep the platform/software operational at all times in order to full fill customer expectations, because any disruption in the delivery of the service will result in the loss of the customer base and will immediately and directly effect revenues of the company. The platform maintenance is the most important activity of the company since it is the direct connection with the costumers and any disruption to it proposes the greatest risk and will damage the brand, the costumer base and the company itself.
Partner network: Who are the key partners and suppliers?
The key suppliers are the big music labels and record companies, which are the ones licensing the music to Spotify, without them the company couldn’t function, since they are intermediate between the customer and the music labels providing the platform for the customers to access the music, but they rely on the music labels to provide content to them, because without music there is no content and a platform without content is useless.
The key partners are different by each country, but each of these key partnerships are used for co-branding and selling boundless in order to promote both Spotify and a certain product, like in England they are partners with Vodafone and with certain tariff from the phone company they can enjoy the premium account benefits of Spotify. There are countless other partnerships and co-branding, from which the most important would be with Facebook, which has the highest turnover rate of new customers.
Cost structure: What are the important costs?
The most important cost of Spotify is the licensing fees with the music labels and recoding companies, which takes up 70% of the revenues, according to the deal made with the 4 major label companies Spotify either pays 200 million dollars each year or 70% of all its revenues, based on these information the most important cost are related to the licensing fees. The remaining 30% of revenues are still need to be used to cover for the operation cost of the company, like salaries and other expenses.
Other important cost include the salaries of the technician keeping the platform operational at all times and the cost related to the technical necessities of the platform like servers, programs, updates….and so on.
The most important costs are:
- 1. Licensing fees for the music/content
- 2. Salaries of key personnel/technicians
- 3. Expenses related to maintenance of the platform
These are the most influential expenses that need to be covered in order for the company provide service to the customers, after these come other expenses. The high % of the revenues paid to the music industry makes t hard for cover all arising expenditures of the company, because of this Spotify hasn’t been profitable since 2008 and its cost are rising. The company is not unique in this regard, online startups all struggle with the same problem, the latest partner Tango and Pandora also have the same issues, they both grew they revenue in recent years, but also raised their losses. The problem doesn’t necessarily comes from the business model of these companies, but from the fact that they are all startups and that core power is by the music industry since they have a very high bargaining power over these companies, which influences the profitability of it and puts a lot of boundaries in the operation of the companies in this industry.
Evolution of the business model
Spotify created a new blue ocean for them self with offering online streams instead of downloads and making possible for costumers to listen to unlimited music. Off course many artists have bean upset about the revenue model of Spotify, because there can be many different versions of the songs and some can be streamed less than other, making less revenues, then digital downloads.
The most important evolution happened to the Freemium model, which was more and more pushed back by music labels and record companies, because they so it as a way of giving away music for free, so they pushed for lower listening time/month from 20 to 30 hours and higher length of advertisements from 15 to 30 seconds in order to own more on advertising and force Freemium user to convert to premium users.
The music streaming companies face much pressure from the content providers the music labels, since they rely heavily on them, since these companies like Spotify are an intermediate between the content providers and the end users. Because of this music labels have a lot of bargaining power in enforcing changes to the industry. Most of evolution will be the source of this, because companies will try to comply with the demands of the content providers and look for new way to generate revenues with other functions. So changes to the business model will span from creating higher revenues or looking for new sources of revenues, which stays in the company.
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Vodafone customers signing up to select Vodafone Red plans will receive a complementary Spotify Premium subscription under a partnership between Vodafone and Spotify.Having announced the partnership last month, Vodafone today revealed new and upgrading customers connecting to any 12 or 24-month Vodafone Red plan will receive the subscription valued at $11.99 a month.
Under Vodafone’s postpaid 12/24 month $70 Red Plan, customers will receive six months Spotify Premium access, $80 Red Plan customers will receive 12 months, and $100 Red Plan customers 24 months.
Vodafone additionally advised the offer has been extended to Red customers who have preordered the Samsung Galaxy Note 4 and Note Edge before today.
Meanwhile, existing Red customers will need to move their existing plan to an eligible plan via a rate plan change or upgrade, with no extra charge for moving to a like-for-like or higher-cost plan.
Customers who connected after July 2 have the option of a rate plan change to an eligible Red plan or of adding a data add-on to receive a Spotify subscription, with the subscription period to be based on the Red plan they are connected to.
Further partnerships are seemingly on the horizon for Vodafone, with the telco stating it is committed to working with leading content providers.
“We want to give our customers the best deals, which includes access to the best content available,” commented Vodafone general manager of postpaid Stephen Smyth.
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“Being part of Vodafone’s global network definitely has its advantages beyond our great roaming deals, and over the coming months we’ll continue to bring customers the very best in content.”