PandoraRadio Case Discussion
PandoraRadio gets in a problem when the founder Tim Westergren is told toget rid of the unprofitable customers to get the cost of marketingdown (Shih and Halle 1). In 2007, Pandora got into an agreement withthe sound exchange and Kennedy calculated that streaming cost was 0.3cents per hour while the new arrangement would aggregate 1.54 centsper hour and other expenses 0.74 cents per hour. Pandora Radio is thelargest Internet music stream site, its rapidly growing consumer baseloves free customizable music stream. The strategic issue, in thiscase, is how to get the cost of marketing down without destabilizingcustomers.
Beinga large Internet music stream site, Pandora Radio has theresponsibility of paying royalties for every song streamed. Itspopularity is strength as well as having the rapidly growing userbase. The major weakness is that it has a free customized musicstream that is under an advertising model that is compromising thecost. The biggest threat is that the management team has taken nosteps towards restricting the amount of usage among the loyal users,hence leads to losing of money (Shih and Halle 1).
Ihave two recommendations for Pandora. The first is that the management of Pandora Radio should restrict theamount of usage among the frequent users of the site. That way, thecompany will not have the best users causing loss of money. Thesecond recommendation is that the advertisers should be kept in checkto ensure that the free customized music does not compromise the costof the advertisement about what the company gets from the advert.That way, the company will earn as much as they spend onadvertisement and the free music will not be withdrawn.
Therecommendations will help Pandora Radio reduce the cost of marketingwithout affecting the advertisers and the consumers. Reduced freemusic will lead to an increase in the music paid for hence increasedincome for the company. The recommendations will also help thecompany to reduce the amount of free music they consume. On the otherside, the idea of not withdrawing the advertising model is to ensurethat the customer relationship is maintained at a minimum cost.Compromising the consumer relationship with the company can lead to areduction in the number of loyal customers.
Theanalyses I conducted resulting in these recommendations because thesole interest of the company is to increase profits at a minimumcost. Considering that the choice of advertisement increased thenumber of users, modifying the mode of publication will retain theloyal customers without compromising the image of the company as wellas solve the issue of cost of marketing. Reducing of the amount offree music will see to it that there is reduced cost marketing and anincrement in the profit made by the company since it is a harmoniousway of retaining customers. The clients who are attracted by freemusic will remain on the site, and they can enjoy limited music asthey pay for the rest.
Shih,Willy., and Halle, Alicia Tesco. "Pandora Radio: FireUnprofitable Customers?" HarvardBusiness School Case610-077, March 2010.