Putumayo Innovation

Putumayo World Music Company

Joshua Bloom University of Michigan--Ross School of Business


BACKGROUND OF PUTUMAYO WORLD MUSIC

The Putumayo music label was created in 1993 by co-founders Daniel Storper and Michael Kraus. Daniel Storper

initially owned retail stores that sold crafts and clothing from around the world. He named his stores Putumayo,

after a river in Colombia that he had visited. He was inspired to start putting together music from around the

world after he heard a Nigerian juju band play in San Francisco. His first albums were played in his retail stores,

and more frequently customers would inquire about how to purchase the albums. Since then, Dan and his co-

founder Michael have put together over 100 album compilations. Their business model involves packaging

individual artist’s songs onto an album that represents a geographical region, or a certain cultural theme.

Putumayo defines their target customer as the “Cultural Creatives”, which is a term that represents millions of

people around the world who are passionate about culture, travel, and the arts.

To reach their target market, Putumayo searches the globe for music that falls under the company motto,

“guaranteed to make you feel good.” Some examples of Putumayo albums are Global Soul, which represents hip

hop songs from all around the world, and Music from the coffee lands, which is composed of songs from coffee

exporting countries around the world.

BUSINESS MODEL

Putumayo has talent teams that travel the world in search of artists that potentially could be placed onto a

Putumayo album. The company currently has a database of tens of thousands of artists from around the world to

utilize once album themes are created. If artists are chosen to be on an album, Putumayo will contract with the

artist and a portion of the album’s sales will support the artist. Also, Putumayo supports a large list of non-profit

organizations around the world, and will give a portion of an album’s sales to non-profits located in a geographical

region that the album represents.


During a period that represented a significant shift in consumer preferences towards digital music and away from

traditional records, several of the major, traditional record label’s sales were adversely affected. Despite the shift

towards digital music, the Putumayo World Music record label experienced significant growth throughout this

same period. Putumayo was able to increase sales from $350,000 in 1993 to $24 million in 2006. Their competitive

advantage comes from two important factors. First, they service a niche market of cultural enthusiasts that are

willing to spend money to support international artists, and second because of a very unique retail sales strategy.

Putumayo albums are sold in cafes, museums, clothing shops, grocery stores such as Whole Foods, and other

specialty retail locations where their target customer is likely to shop. In fact, 65% of Putumayo’s U.S. sales come

from nontraditional music retailers. As Company co-founder Daniel Storper was quoted saying, “the market is

moving away from purely going to the record store to buy music.” Putumayo also pays significant attention to the

amount of albums they release per year. The company typically only releases 14 albums per year to allow for time

to focus on the quality of their albums as well as advertising.

Putumayo currently has album sales in over 100 countries, and has 21 office locations in 15 countries. They also

recently launched Putumayo Kids, which was created to introduce children to culture from around the world

through music.

INNOVATION TO BUSINESS MODEL

Putumayo’s current value chain is a push system because the company will package albums for the end customer.

The interaction and value is added between artists and Putumayo teams that package the albums, but the

customer does not participate in the product creation process.

International

artists

Putumayo

talent teams

Retail Stores Target

Customer


The Putumayo business model relies heavily on the creative abilities of their artist discovery teams to package

albums that the end customer may enjoy. All though Putumayo has experienced significant growth during their

years of operation, their model can be improved by including the customer more in the value creation process.

The application of N=1 (each customer having a unique experience, and the product offering is co-created with the

end customer), a management theory developed by Professors of the University of Michigan Ross School of

Business C.K. Prahalad and M.S. Krishnan, will allow for innovation to Putumayo’s business model and will create a

more sustainable enterprise. There are several steps to integrate an N=1 approach into the current business

model.

APPLICATION OF N=1

Putumayo needs to first create an interactive website that links the customer directly to the artists. From the

supply side, the company must upload their current database of tens of thousands of international artists to the

website. Also, the website should have the capability for future talent teams to easily upload future artists when

they are discovered. Vice President for product development Jacob Edgar was quoted saying, “Music is the

vehicle, but the overriding mission is a cultural one.” Since Putumayo’s goals are also to teach and introduce

people to culture from around the world, each artist should have a profile with information about their music,

specific background, and country. There should be links on the artist’s profile to sample and purchase music from

the artist, support non-profit organizations in that region, purchase other local goods from the artist’s location,

and potentially a blog so customers can post messages to the artist for further interaction. Putumayo can use their

talent teams to filter the artists that are uploaded to the site so that all music offered on the site will fit with their

overall theme of “guaranteed to make you feel good”.

On the demand side, the website should be highly interactive, with a search engine that allows potential

customers to search for music from individual artists through various search parameters. Examples of search


parameters could be region, type of music, and popularity of artists based off of customer rankings and previous

sales. Putumayo could also go as far as to integrate a search algorithm based off of Pandora.com’s music genome

technology that can prefer music to customers based off of the customer’s profile of music they have previously

sampled or purchased. The music genome technology will help a customer find music that they do not know

about but could potentially be interested in. With customer profiles, the website can actually become a

community for “cultural enthusiasts” to blog, recommend music, share events, and interact with each other. Every

customer can personalize their experience with Putumayo and create a world music community. If Putumayo’s

objective is to create more methods for people to understand world cultures, an interactive website with

personalized profiles that allows for interaction between customers and artists takes this goal to the next level.

The website creates a community that looks like this:

Interactive

Website

Cultural

Enthusiasts Global

Artists

Non-Profit

Organizations

Putumayo

Employees

Retailers Music

Events


APPLICATION OF R=G

R=G is another management theory developed by Professors C.K. Prahalad and M.S. Krishnan of the University of

Michigan and represents a company’s ability to utilize global resources into their business model. Putumayo’s

current business model utilizes global resources by discovering artists from around the world and connecting them

to the developed music markets. Also, with 21 office locations in 15 countries, and CD sales in over 100 countries,

Putumayo has a worldwide employee base and global distribution channels currently in place. To further utilize

global resources, Putumayo should launch an advertising campaign to find talent around the world. The

advertising campaign should target music events, and small venues such as local bars and night clubs so that artists

can become aware of Putumayo’s record label. Most importantly, the Putumayo site should have the ability to

have artists upload their songs for review by talent teams. This adds an additional way for talent teams to find

potential artists without having to travel the world, which reduces overhead.

The more ways that Putumayo can connect to the world music market and find artists the more opportunities

there are for packaging albums. Also, it grows the Putumayo community of artists and cultural enthusiasts which

should be a goal after the interactive website is in place.

It is still essential for Putumayo to utilize album sales in retail stores around the world because it is the core of the

company’s success. The revised Putumayo business model will include the customer in the product creation

process which will align the products with the target customer’s demands. This can be accomplished by creating

and packaging albums based off of the popularity of artists on the website. The new value chain will look like this:

International

artists

Putumayo

talent teams

Interactive

Website

Target

Customer

Putumayo

Albums

Retail Stores


NEW SALES AND GROWTH POTENTIAL

The revised Putumayo business model is a catalyst for sales growth, and will also create different sources of

revenue. Customers will be able to download and purchase artist’s songs directly from the website to an

application such as itunes, and create a personal portfolio of Putumayo music on the website. Putumayo can still

sell albums in specialty retail stores, but they can package their albums by using customer input on the website.

For example, the top 15 most popular artist downloads from a distinct geographic region can be placed onto an

album and sold at specialty retail outlets. Once the site grows and has several thousand customer profiles,

Putumayo can create and sell advertising space to companies that fit within their overall theme of introducing and

connecting people to cultures from around the world. For example, a company like kiva.org could advertise their

micro-financing operations because their goal is to connect the same target market of “cultural enthusiasts” to

individuals in developing nations around the world that are requesting micro-loans. In addition to the revenue

generators, Putumayo can reduce travel costs by implementing a method for artists around the world to upload

songs directly to the website for talent teams to review.

Putumayo already supports non-profits around the world through their music sales. To further connect customers

with global initiatives, Putumayo can have the customer select a non-profit organization every time they purchase

a song to have a set percentage of a music sale be donated to their organization. This would allow the customers

to learn and become more aware of non-profit organizations, which could lead to increased support of their

initiatives and possibly future interactions.

Conclusion


Co-founder Daniel Storper was quoted in a New York Post interview saying, “We decided a long time ago that we

wanted to market a package of music, culture and travel, and so our CD’s feature extensive liner notes and

photography, for example. You don’t get the same kind of package downloading one song at a time.” What Mr.

Storper does not realize is that the move towards digital music does not have to sacrifice his end objective and

product package. An interactive Putumayo website has the potential to include customers in the value creation

process, increase the ability to discover global artists, and create an active community of cultural enthusiasts. The

level of interaction of customers will help sustain Putumayo over time because the community will create a

stronger connection to the Putumayo product, which in the end is simply an experience of cultural awakening.

Works Cited

Lauria, Peter. "World-Music Label Defies Industry Blues." New York Post 29 Apr. 2007.

Mohn, Tanya. "Stumbling Into a World of Music." The New York Times 21 Dec. 2003.

Prahalad, C.K., and M.S. Krishnan. The new age of innovation.

Putumayo World Music Company. <http://www.putumayo.com>.

Putumayo Innovation

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