FORTUNE — There have been many stories documenting the downward spiral of profits in the music industry, a trend leaving musicians struggling to come up with new ways to make money. As business owners know, multiple revenue streams are the key to financial stability. For a band whose primary product is music, income comes from a variety of sources including sound recordings, licensing compositions, and live performance and, of course, band-branded merchandise, like t-shirts, tote bags and posters.
According to the Future of Music Organization, merch, as it’s known in the industry, accounted for about 6% of a rock band’s income in 2011. (That number dips down to.6% for jazz and classical musicians whose fans are less likely to wear an artist T-shirt.) While a band is unlikely to get rich on t-shirt sales, merch serves another important purpose: building a brand. Merchandise sales are the most common source of income related to an artists’ brand, says a report from the Future of Music Organization. The best merch builds buzz along with brand recognition while shoring up additional revenue.
In fact, it seems that the stranger the merch, the bigger the buzz, and the more likely it is to get written about by blogs and magazines. Ideally, this results in bigger album or ticket sales.
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Band merch runs the gamut from the sublimely strange (metal band Gwar’s Gwar BQ sauce) to the uniquely apt (Metallica ice pack, anyone?) With everything in between that could possibly appeal to a band’s fans. Superstar DJ DeadMau5, who has built a brand out of his trademark Mau5 ears, has found a way to up the game between cat and mouse with his DeadMau5 headphones for cats. Boy band One Direction found a way to make sure their fans always have the pearliest white smiles with their 1D toothbrush and toothpaste. Long before so-called Directioners mobbed the globe, Beatle-mania had fans around the world wishing for the band’s signature mop tops. If fans couldn’t achieve the style naturally, they could buy it in wig form.
Thus bands like The Flaming Lips can build a name for themselves not only for avant art rock, but for creating some of the most memorable merch around. The Flaming Lips’ merchandise selection includes a silver trembling fetus Christmas ornament, a pillowcase that commemorates the band’s attempt to break the world record for most concerts held in a 24-hour period and a Gummy Skull with four Flaming Lips songs stored on a USB inside the candy, requiring fans to eat their way to the new music.
The merchandise is remarkable and buzzworthy and, while products like a 24-hour song inside of a human skull are far from typical fare, the outré marketing is completely supported by their record label, Warner Brothers. “The Flaming Lips are an experience,” said Kerri Borsuk, senior marketing director at Warner Brothers Records. “When you buy these products, you are buying into the experience of the Flaming Lips. I don’t think a casual fan is spending $150 on a gummy skull.”
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While merchandise deals vary depending on the contract between the band and the label, Warner Brothers views their relationship with the band as a “harmonious partnership.” Borsuk admits that the Lips out-there merch is far afield from Warner’s usual box-sets-and-band shirts wheelhouse. “We don’t generally do this. We love innovative ideas, but we sell records,” she said. Sometimes, though, the band is in the best position to connect with their fans, which is necessary to sell records. “Nobody knows The Flaming Lips brand as well as they do,” Borsuk noted. “We’re executing their vision. We love them, they love us and we help make their unique vision into a reality.” Borsuk added that the band has sold “thousands” of the gummy skulls, which ring in, again, at $150 each.
According to Borsuk, the Lips come up with their own outlandish ideas, the label merely helps facilitate them, and so far there have been no reports of the Lips regretting, say, their decision to make albums with actual blood in them, other bands do have some misgivings about their marketing ploys. For example, Danish rockers Iceage offered to sell locks of their hair to fans, but according to their publicist, after racking up a few sales, the band changed its mind due to concerns over voodoo curses.
Their Iceage branded knives sold well, though.