Have you tried Beats?

In six years, Interscope records mogul Jimmy Iovine and hip-hop icon Dr. Dre have turned Beats By Dr. Dre headphones into a $1 billion-plus business. Now, together with new president and former Interscope executive Luke Wood, they’re faced with a new challenge: taking a hot brand and making it, you might say, even hotter.

To that end, Beats Electronics has introduced portable and wireless speakers, co-branded smartphones–and in January it even launched a new streaming music service, Beats Music, to compete with the likes of Spotify. Beats Electronics, despite some ferocious competition, still controls almost 70 percent of the market for premium headphones. For that it can thank lightning-fast marketing and an unbeatable grasp of pop culture. Iovine and Wood explain how they and Dr. Dre pulled it off–and what they have to do to stay on top.

Back in 2006, Iovine felt the music industry had two problems: first, the degradation of record sales because of piracy. Second: the degradation of audio quality because of Apple’s plastic earbuds. But the Cupertino, California, tech giant was both their bane and their inspiration.

Beats headphones weren’t tuned evenly, like the usual high-end headphones. They were tuned to make the music sound more dramatic. But skeptics also wondered why anybody would pay $200 for headphones when you got the earbuds for nothing.

When developing the first Beats headphones, Iovine would lay out various prototypes in his Interscope offices and then poll everyone who came to see him. As he and Dre prepared to launch the final version of Beats, Iovine sent a pair to another world-famous guy: LeBron James. Iovine had been hanging out in the editing room with James’s friend and business partner Maverick Carter during the development of a documentary on the basketball star. Iovine sent them, and they turned up on the ears of every member of the 2008 U.S. Olympic basketball team when they arrived in Shanghai.

Today, as then, Wood looks for the “tug”–the little sign that he has a hit. Then he trusts his gut, and doubles down. Back in the day, a tug could be an album that gets sudden critical acclaim or a band that suddenly sells a lot of merchandise at its gigs. Now, he says, he gets the same sense from how fans–and Iovine and Dre’s music-industry buddies–respond to Beats’s ads and products. When an ad featuring Brooklyn Nets star Kevin Garnett with the slogan “Hear What You Want” got a big response on Twitter–and Iovine got complimentary emails from none other than Will.i.am and rapper P. Diddy.

Beats rolled out more ads, including one featuring a press conference with outspoken Seattle Seahawks cornerback Richard Sherman, that did even better. It ran in the third quarter of the playoff game against San Francisco. When Sherman talked trash about his opponents in the postgame commentary, the Beats ad also got attention.

When Iovine heard Robin Thicke’s “Blurred Lines,” he smelled a hit–for Beats Electronics. Iovine and Wood got the rights to use the song in an ad and then got Thicke to reshoot the music video–within five days of the original shoot. Then Wood phoned up the CEO of RadioShack and offered to make the ad a dual promotion; RadioShack partly footed the bill. Beats has moved even faster. The Sunday before Black Friday 2012, Will.i.am phoned Iovine: He had just recorded a single with Britney Spears–would it make a good Beats ad? Within 72 hours, Beats filmed Will.i.am and cut a new Black Friday commercial with the song; it aired during Thanksgiving football games.

Co-marketing deals with big brands are a big part of the Beats playbook. Since the beginning, they have put Beats audio in products ranging from HP laptops to Chrysler 300s to HTC cell phones–and Beats has enjoyed plenty of the big guys’ marketing muscle along the way.

There have been a number of competitors that copied Beats’ approach, but just like it’s hard to predict a hit record, the formula of hip-hop, celebrity, and headphones doesn’t always equal big sales. Both Ludacris and 50 Cent have put their names on headphones with the same urban aesthetic and bass-heavy sound. Turn up that music.

Check out my related post: Have you tried Uniqlo?

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