Pandora Case Prep

Problem/Issue Statement

•   What is the problem?

   Pandora was facing an issue that was mainly due to the method of bringing in revenue and reducing costs. Pandora had virtually no marketing budget allocated so they relied solely on word of mouth. This method saved them millions of dollars but at the same time, the explosive growth costs them a lot. The users, who listened to Pandora the most, were costing them the most. The main problem essentially was a “leaky faucet”. Pandora had to pay royalties on a per song basis, so since I can listen to Pandora for free and have no care for it, I would not pay much attention if I left the program running and playing songs. The non-stop carefree streaming was costing Pandora a lot of money, which would not allow the company to go into the green.

Situation Assessment

•   What are the decision criteria?

The decision criteria achieve a sustainable business model that would cover the high royalty fee costs and limit the users negligence during play which is the reason for the high royalty fees incurred.  

List of Plausible Alternative Courses of Action

•   What are the alternative courses of action?

Although Pandora would love to have the perfect business model, it was not likely to happen. They came up several directions:

1.    Add more advertising. By using information obtained from the registration process, they could provide target marketing as well as local marketing.

2.   A “freemium” model that would provide a limited service to all users that would be free. They would, however, give the option to pay and have a premium-priced membership for “super-users”. This option was voted the most popular business model among web-based startups.

3.   A subscription model that would spread the costs among the millions of users. This would make the costs very small. Pandora was thinking somewhere along the lines of $3

4.   The final option was the most logical way and has the highest chance of success. In a sense it would be like a virtual tip jar. The amount of hours available to stream would be set at 40 hours. Once you reach that threshold, they would ask you to pay 99 cents to continue on. Music listeners usually pay 99 cents for ONE download. The 40 hours of music provides you with basically 600 songs.

Evaluation of Alternatives

•   How does the evaluation relate to the decision criteria developed?

All the alternatives provide a way to increase revenue. The main concern it for Pandora to start making money without pushing their customers away. Previous attempts at charging left them in the dark.

Recommendation

•   What is a quality recommendation?

A quality recommendation would be to attempt to increase revenue from marketing. This would not upset the listeners and everything would remain virtually the same. However, this way is not guaranteed to produce different result eventually.

·       What is a logical recommendation?

The logical and personal recommendation would be to go with the “tip jar” option. Users have shown to really like the app and I know that when they think about it, 99 cents will surely seem like a fair tradeoff for 40 hours or 600 songs of music that they normally would have to pay a lot more for.