Pandora Radio: Fire Unprofitable Customers?

Topics: Viral marketing, Subscription business model, Business model Pages: 3 (761 words) Published: March 4, 2012
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 $3. Unfortunately, customers stopped using their service once the 10 hours were depleted. As a result, they decided to waive any subscription fees and stream unlimited music and hours for free. This significantly increased their royalty fees and could not be sustained as a go forward strategy. Eventually, Pandora had no choice but to to reintroduce a subscription model and cap free listening hours at 40 per month, and request ‘a buck for the tip jar’ for the remaining days in the month.

Advertisement Based:
One of the key elements to Pandora’s advertising strategy is that they have to ability to leverage their user database with demographic and geographic information that would allow advertisers to stream custom advertisements to their audience. Pandora was able to provide precision targeting to its advertisers because they tracked customer profile information and listening preferences. Advertisers are able to not only target their advertisements, but also track their effectiveness real time.

Affiliate Fees:
Pandora’s affiliate fees are generated through customer purchases on online partner stores. Unfortunately, this is minimal and does not contribute much to Pandora’s revenue stream as consumers are less...
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