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Pandora Radio
Screenshot
Business History
SWOT Analysis
Strength:
1. User basis.
2. Music Genome Project.
Weakness:
Lack of ability to create sufficient revenue.
SWOT Analysis(concluded)
Opportunity:
1. High customer recognition.
2. Number of user basis.
Threat:
The competition is getting worse in the industry.
Problem Statement
Competitive Positioning
Revenues and Price
Subscription Model
Freemium Model
Affiliate Marketing (Fees are low)
Advertising Revenue (93%)
Service Quality
Tim Westergens musical background
High service quality
The Music Genome Project: Satisfied customers
iPhone Application: Emerging Mobile Market
Secondary
ADVERTISING/PROMOTIONS
NUMBER OF USERS
MARKET SHARE
FINANCIAL CAPABILITY
MANAGEMENT
BRAND IMAGE& ENVIRONMENTAL
FRIENDLY PRACTICES
Point Scale
3= High
2=Average
1=Low
PANDORA
SPOTIFY
iHEARTRADIO
Customer Acquisition
Core Capabilities I
Core Capabilities II
Customer Segmentation
Pandora has 29.5 million users with their information.
It is the other competitive advantages and Pandora can
use it as an asset to get the attention of advertisers.
The advertising revenue increased 5.5 times since 2009;
therefore, advertising has been their important revenue
(Edwards, 2011).
Costs
According to the Pandora case study, only 60% of the available ad space was
been used. It is the major source of the revenue(TR); it is a good idea to
increase that ratio because it helps to increase TR.
The variables costs(VC) are high because of the free users (unprofitable
customers). In order to decrease TVC, free users should be used more efficient
to create advertising revenue.
Possible Solutions
Increasing in Advertising: The scale of its customers is very important; therefore,
Pandora should add more advertisements to increase their CTR(click through rate). In
the affiliate marketing when Pandora gets more click rate, Pandora can get more
advertisements and gain more money from those digital advertisers.
Furthermore, Pandora should find a way to increase the usage percentage of ad space.
Pandora would be able to earn more money and increase its revenue by achieving
these goals.
Going with the Freemium Model: The Freemium model is attractive option to
capture the new and keep the current customers. Pandora should add specific service
in order to get money from the customers who are free users.
Possible Solutions
Implementing A Subscription Model: This model requires getting payments from all
customers. Spreading the costs on the wide customer base lowers the cost per user. It
might cause losing customers. There is possibility that a lot of customers would stop
using Pandora.
Charging Money According to Listening Hours: In this solution, there shouldnt be any
charge to the customers who listen to Pandora less than 40 hours per month.
Pandora could charge 0.99 $ per month on their customers who listen to the music 40
hours to 80 hours during the month.
Furthermore, Pandora could charge more than .99$ to the customers who used the
system more than 80 hours during a month because the variable cost from these
customers is high and .99$ isnt enough to cover it.
First of all, we should find the breakeven situation with the current scenario
(Shih and Tecco, 2011)
* Average contribution from a user/hour= $0.0294-$.0258=$0.0036
Average hour per user per day=2.5 (p.11)
* Average contribution from a user/day=2.5*0.0036=$0.009
Current fixed cost=Head Count + Other Fixed Cost = $ 22 million
* Fixed Costs/day= $ 22 million/365=$ 0.0603 million
Breakeven would happen if the number of users/day ratio reaches
0.0603/0.009=6.7 million users. With the same business model, Pandora has
to have at least 6.7 million users which were 1.8 million. Therefore, the
business model should be changed.
Second of all, if Pandora decides to take $0.99 from users above 40 hours of
usage;
Total Variable Cost/Hour = $0.0258
0.0258*(H-40) = 0.99H=78.4 this is the breakeven point. After this point, the
positive contribution switches to negative. If the customers who listen to
Pandora internet radio more than 80 hours per month are charged $0.99,
Pandora will lose money. Therefore, the customers who use Pandora more
than 80 hours should be charged more than $0.99.
Our Suggestions
All of the above suggestions should be used with the extra Leaky Faucets
awareness.
Pandora should improve affiliate marketing team. They also should manage
affiliate marketing by using their customers and iPhone application powers.
The best fit proposal for Pandoras customers;
If the monthly usage of Pandoras customers is less or/and equals to 40 hours
than there wouldnt be any charge for service.
If the monthly usage of Pandoras customers is between 40 and 80 hours,
Pandora charges 0.99$ to its customers.
If the monthly usage of Pandoras customers is more than 80 hours, Pandora
charges 2.99$ to its customers.