Pandora Radio: Fire Unprofitable Customers? Essays

764 Words Mar 15th, 2012 4 Pages
Their Business Model:
Value Proposition:
Pandora’s Music Genome Project offers a unique value proposition in that it provides users with their preferred genre of music based on a single input. They have a large collection of songs in their database categorized into 65 million stations. Users are able to pick multiple genres or create ‘listening stations’ based on musical style, artist, song or composer. This ‘hands-free’ or minimal-interaction listening service was an innovative idea and offered a distinctive listening experience to the user—a service provided by none other.
Revenue Model
• Subscription Based:
Pandora’s initial strategy was to create a revenue stream by offering 10 free listening hours followed by a monthly fee of
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They have 16 million registered users, and are adding to that user base at a rapid rate. Customers are acquired via word of mouth and are a loyal to the service primarily because of free listening. In addition to free streaming, Pandora does an excellent job to enhance their customer experience by attending Town Halls and responding to all emails etc. It was because of this passionate customer base, Pandora was able to leverage their effort to lobby against high royalty fees that were being incurred. The net result is tremendous growth with no direct marketing costs. No doubt it was the enthusiasm of their customers that resulted in the viral spread of their popularity but it was these ‘power users’ that were also the most expensive for the company. Any effort to reduce cost of licensing would have to be done without negatively impacting the ‘power users’ who formed the backbone of the viral marketing effort.
Competitive Strategy
Pandora faces competition from both traditional radio and other online services, such as iTunes, Spotify, MOG, and Rhapsody. Pandora founder Tim Westergren recently stated that he does not see iTunes (AAPL) or Spotify as competitors to Pandora, for they are both subscription services (for the record, iTunes is not a subscription service, but that is how Westergren worded it). In fact, many Pandora users hear a song on the service and go to iTunes to buy it. There is no

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