Opening Pandora's Box Reflection

Memo

To:	Senior Management
From:	Allison DeLorenzo
Date:	April 29, 2014
Re:	Opening Pandora's Box

This memo is prepared in response to the presentation held on Tuesday, April 29, 2014 with the consultant team, T.A.N.K Consultants, regarding how Pandora can increase revenue and capital, expand the customer base and continue leveraging the first mover advantage with the ultimate goal of an IPO. At Pandora's current growth rate, the company will be out of cash by the end of 2008. To compound the cash flow problem, Pandora is also facing a serious threat on the licensing costs.  As stated in the presentation, Pandora had three plausible alternatives: acquisition by another company, pedal to the medal or pull back on growth levers and raise enough capital to reach an exit in the market.

After analyzing the decision criteria stemming from Pandora's need to balance the interests of the venture capitalist investors and the core values of the company, it is apparent that the company should chose pedal to the metal. There were numerous options discussed as to how additional revenue can be generated.  For example, the company can foster strategic relationships with complimenting music companies. Pandora can offer links to concerts, promote tour dates and other similar sounding bands on its website.  Pandora can charge a premium for hosting these links which in turn will create revenues. 

The idea of leveraging independent unknown artists was discussed. Pandora can charge unknown artists to play their music on its website. Pandora will not only benefit from the charge per play but also through the viral marketing that the bands will generate on their own subsequently adding to Pandora's customer base.

Another avenue that should be consider is expanding the ad space for the free subscription users. Since 93% of revenue is generated from advertising, increasing the ad space available on the website can lead to additional revenue. This should not clutter the website or turn customers/advertisers off but this option should be tested.

Lastly, Pandora should explore the option of a premium subscription for exclusive content. This includes the ability to create playlists, listen to specific artists and access to members-only channels.   

The company is the first of its kind and has been able to grow extremely fast based solely on word of mouth marketing. These four revenue generating tactics can lead to a positive cash flow if implemented correctly. I believe this recommendation will address the need to generate additional capital while staying true to the core values of Pandora. 

Opening Pandora's Box

Problem/Issue Statement

Tim Westergren, chief strategist and founder of Pandora.com was at a crossroads in December of 2007.  Westergren was facing the issue of how to balance the interests of its various venture capitalist investors while staying true to his dreams for the Pandora. At the company’s current growth rate, it would be out of cash by the end of the following year (2008). To compound the cash flow problem, Pandora also faced a serious threat on the licensing costs. The question is presented:  does Westergren take the conservative route or the aggressive route in hopes of raising capital and growing the customer base?  

There are two possible routes for Westergren and Pandora: (1) pull back on growth levers and raise just enough capital to stay afloat for long enough to reach an exit or (2) put the “pedal to the metal” through viral growth, be aggressive for SEM, hire personnel and exploit the first mover advantage, raising a more significant amount of capital with the ultimate hopes of an IPO.

The symptoms of Pandora’s three main problems are as follow: 

• The company did not have a positive cash flow and the company was not profitable yet. Due to this, Westergren hoped his investors would remain with the company. If investors walk, this will pose a major threat to the company’s future.
• The company was facing fierce competition within the music industry especially due to the increasing licensing costs and royalty fees which could further hinder the company’s positive cash flow. The Copyright Royalty Board were expected triple the royalty rates to be paid by Internet radio stations.
• Pandora was also dealing with market trends where Internet sites were being sold to companies like Google, Microsoft and News Corporation.
• Since Pandora is being true to Westergren’s vision, the company is not advertising to try to solicit new customers.
• Westergren’s lack of knowledge of the retail world caused Pandora to hire Joe Kennedy as the CEO.

The scope of the problem entails Pandora, the 100 employees, investors, venture capitalists and approximately 5.5 million users worldwide according to Exhibit 3 of the Case Study. Either solution would greatly affect all stakeholders involved either positively or negatively. Depending on the outcome of the company, this could also set a precedent either negatively or positively for Internet radio stations.

Situation Assessment 

In 2003, Pandora began with the Music Genome Project, a music discovery engine to help connect listeners with artists. Each song was entered into the music library was dissected by analysts to determine the musical DNA.  Pandora began as a back end music recommendation engine for the likes of AOL and Best Buy. However in 2004, with the help of newly hired CEO, Joe Kennedy and additional $8 million in financing, Pandora changed its strategy to become Pandora Media, an internet radio service that allowed users to state their preferences and find similar music according to those preferences.  The strategy was now direct to customers. By 2007, Pandora had 5 million registered users, online hours were growing 50% year on year and an increasing popularity of Internet Radio.  Since growth is in the forecasted future, Pandora needs to decide on how it is going to raise capital either conservatively or aggressively to accommodate for the pending growth phase.

The decision criteria for both possible courses of action:

Advertising:  How can Pandora attract new companies to advertise on its Internet radio station? Since ad revenue was 93% of the total revenue generate, Pandora needs to focus on this asset explicitly.

Customers: How can Pandora increase the customer base?  If Pandora could spread existing fixed costs over a larger customer base, the more the economics would improve. A larger user base would also increase the CPM (cost per thousand impressions). Word of mouth and viral marketing is not an aggressive means of advertising and the company may need to adjust their strategy.

Future: Pandora needs to focus on scaling up to accommodate for a growing customer market and expand into new mediums such as mobile, hardware solutions.  

List of Plausible Alternative Courses of Action

There are three courses of action identified in case study and both options address the main problem in different ways:

1) Conservative Route: Continue with same strategy of gaining capital and growing customer base

• Pandora can raise capital through its already established base of investors and venture capitalists. This will address the need for capital however on a short term basis until investors are not willing to contribute any longer or until the company exists the market.
• Continue same advertising strategy for customers.  This would rely heavily on word of mouth and “viral growth”. Its’ current marketing strategy of viral growth has proven successful considering the growth of 5.5 million customers however, this means of gaining new customers is limiting and the company cannot sustain growth with this means. This would only be sustainable as long as customers are spreading the word.
• Continue relying on companies to purchase ad space or air time to make up 93% of company revenue.  
• Continue offering customers a free subscription with advertising and a paid subscription without advertising.
• Assess the future of the company and determine if exiting (selling the company) would be a smart decision before the company is bankrupt.
• This solution addresses raising capital in the short term for a short amount of time.  This solution does not have any longevity and this is not a sustainable option for long term growth.  The customer base only increases through word of mouth marketing and is limiting for the future.

2) Aggressive Route: Increase capital by generate additional revenue from advertising

• Pandora can raise capital through its already established base of investors and venture capitalists. In addition, the company can seek out new investors by driving the point that the company is on the brink of significant growth as seen in the dramatic customer base and user hours.
• The company can still utilize the viral growth but through a more effective means such as paid advertising.  The company can use banner ads, video ads and audio ads to promote the internet radio station.  
• Pandora needs to grow the customer basis to increase advertising from companies. Since 93% of the revenue is generated from paid advertisers this needs to be leveraged. Once capital is raised, the company can invest additional marketing means such as concerts or sponsoring a concert tour.
• Pandora can increase the ad space on the website which could help form strategic partnerships with varying advertisers (concert venues, arenas, bands). By adding more ad space, it will increase revenues on customer click-through rate and in turn will generate greater revenue for Pandora. The increased ad space, could certainly slow the growth rate of subscribers who are looking for a service with strictly music. 
• The company should also look to the future to mobile devices and offering hardware solutions. The company can offer a music player with a subscription fee.

3) Combination of two solutions: balance of increased advertising space, offer premium ad-free option and increase paid advertising of Pandora

• Pandora can increase the advertising space for the free subscription users. The company can combat a negative backlash against this by requesting customer information through surveys including demographics and customer feedback on preferences. Pandora can leverage this information from its 5.5 million customer base to increase advertising revenues.
• Pandora can offer a premium ad-free exclusive content option to customers. This option would alienate certain customers and could possibly slow the growth as well.  However, to counteract this, Pandora would generate revenues through subscription fees as well as increasing advertising. If the premium subscription fee was $5.00 per month over $5 million users, Pandora could generate an additional $25 million. The premium service would be ad-free and an unlimited number of click-throughs on streaming songs. It would also include the ability to create playlists and customers would have access to premium content. Pandora would have to leverage it music library and brand name to attract as many subscriptions as possible.

 Evaluation of Alternatives

When evaluating the courses of action, it is important to analyze which option will align with the strategy of the company, raise capital, prepare for the future and ultimately grow the company.  As stated above, the aggressive option and combination of the solutions addresses all of the decision criteria from paid advertising, to increasing capital and the customer base and preparing for the future.  However, maintaining the current strategy and taking the conservative route has proven to be an effective means of growing the company.  The company will incur additional operating costs including employee salaries and overhead costs. The growth of the company is key since more customers equals more users to advertise to, which leads to more paid advertisers and more revenue. 

The evaluation relates to the decision criteria developed because it analyzes the ways to increase capital, the customer base and prepare for the future growth of the company.  All three solutions need to be analyzed to determine which is the most logical for the company to implement. Does Pandora want to increase ad space, offer a premium ad-free subscription or request additional customer information to be leverage with advertisers? The benefits and drawbacks to the courses of action need to be determined. From that decision, the rest of the decision criteria can be evaluated. 

Pandora cannot be imaginative in this decision. Real risk is presented with maintaining the current word of mouth strategy to increase the customer base and relying heavily on investors to raise capital. However, changing the ad space and subscriptions for customers can slow growth.   The evaluation of alternatives needs to be realistic since it will be affecting investors, customers and the future of the Pandora.

 Recommendation 

After reviewing the courses of action, I recommend to Pandora a combination of the solutions.  There is an endless number of strategies or combinations of strategies Pandora could implement in order to increase capital/revenue, the customer base and prepare for the future. As stated in the solutions above, Pandora should move toward increasing the ad space available to the free subscription customers while offering a premium subscription for a monthly fee with zero advertising. Pandora could leverage the customer information obtained through surveys to generate additional revenue from advertisers.  This will enable advertisers to tailor ads to certain demographics and preferences. Pandora should adjust its own advertising through paid advertisements in banner ads, audio ads and placements ad on complimentary websites. The word of mouth advertising is not a viable option if Pandora wants to continue growing at an accelerated pace. Another recommendation for Pandora is to continue seeking out additional venture capitalists by stressing the pending growth of the company and Internet radio. This may intrigue investors and could lead to additional revenue. Lastly, Pandora should leverage its relationships and raise revenues with unknown or upcoming artists and bands by offering placement ads by adding the artist’s music on the service as one of the few ways in reaching the customer base. 

Presentation 

If I were presenting as a consultant to the class, I would state that I have been commissioned to identify the benefits and drawbacks involved with various ways of raising capital, increasing revenue and the customer base and preparing for the future.  I would discuss the current strategy’s successful means of gaining a customer base of 5.5 million but this is not a sustainable means of growing the company. I would address various ways of generating additional revenue from advertisers through increased ad space.

Visual aids to be used in presentation:

PowerPoint presentation for the three possible solutions

Decision criteria for Pandora; and

The pros and cons of all the alternatives

I would “sell” the combinations of the two solutions by stressing the importance of increasing the customer base means additional advertising dollars which leads to additional revenue. All of these factors leads to future growth and the ultimate goal of an IPO.

Harrah's High Payoff for Customer Information Reflection

Memo

To:	Senior Management
From:	Allison DeLorenzo
Date:	April 18, 2014
Re:	Harrah's High Payoff for Customer Information Reflection

This memo is prepared in response to the presentation held on Tuesday, April 15, 2014 with the consultant team, Four Experts, regarding how Harrah's Entertainment Inc. can continue its superior positioning within the gaming/casino industry.  Harrah's has developed a technologically advanced patron database, customer rewards program and closed-loop marketing. It is estimated that Harrah's has two years before competitor casinos advance their customer technologies to match Harrah's. Action is needed now to maintain the market leader position. As stated in the presentation, there are two specific courses of action Harrah's can undertake: (1) continue to improve and enhance the already successful IT and marketing programs or (2) invest, improve and expand the brick and mortar establishments. 

After analyzing the decision criteria stemming from Harrah's new business strategy, it is in the company's best interest to continue to improve and enhance the IT and marketing programs.  Investment in properties as seen by competitor casinos (example adding extravagant roller coasters and other attractions) is frivolous. Due to slim profit margins, Harrah's needs to be cautious with spending and investing on items that do not produce significant returns. However, Harrah's should maintain properties to the highest standards and continuing offering superior service at casinos. 

The consultants discussed insightful ways for Harrah's to enhance the customer experience which aligns strategically with the Total Rewards program and closed-loop marketing already implemented. For example, the suggestion was to leverage the internet by offering online booking for the hotels. Harrah's competitors and other hotel chains offer online hotel booking to customers. Harrah's should enable this feature to provide fast convenient way for customers to plan their trips. In addition, since Harrah's is revamping its website, the company can use this time to experiment with advertising offers and measure customer responsiveness. This also gives the company the opportunity to request customer email addresses which can be used for the rewards program and other marketing techniques. 

Since Harrah's is a market leader in their decision to create one brand image, integrate all customer databases throughout the 21 casinos and offer a superior customer rewards program, the company should continue to expand on the already successful strategy. The new business strategy aided by the IT solutions resulted in a 62% internal rate of return on investments in information technology. In addition, Harrah's had 14% revenue growth in same store sales and increased frequency of visits by customers. It is in Harrah's best interest to grow the proven capable patron database and customer rewards program.

Harrah's High Payoff From Customer Information

Problem/Issue Statement

Harrah’s Entertainment, Inc. adopted a business strategy that focused on knowing their customers, superior value, and rewarding customer loyalty.  In order to battle competition and grow this business strategy, Harrah’s needed to implement creative marketing tools and information technology software. To execute the new business strategy, substantial investments in information technology were required to integrate data from a variety of sources for use in Harrah’s patron database (operational data store) and the marketing workbench (a data warehouse). The company wanted to truly understand the customers’ preferences by mining data, running experiments and learning what met customers’ needs.  In order to do these tasks, Harrah’s chose to adopt a new IT solution which included a data warehouse, customer loyalty program (Total Rewards) and closed loop marketing.  

The main problem Harrah’s Entertainment experienced was operating its 21 casinos as separate entities where each casino manager ran their properties as independent fiefdoms and marketing was conducted on a property by property basis. Customer relationships were not understood or managed.  Harrah’s did not know their customer’s behaviors or preferences and were falling short of identifying specific target customer segments. Other symptoms of this problem including segmented advertising and offers, an absence of an all-encompassing brand image and a clear strategy for the company to expand into additional gaming markets.

The scope of the problem extends to Harrah’s 21 casinos that serve over 19 million customers and employ over 40,000 people. In addition, multiple databases were maintained and needed to be integrated to create one customer database where analytics could be conducted.

Situation Assessment

The context of the problem is based on the new business strategy that Harrah’s adopted which included establishing one brand image for the gaming company, building lasting relationships with its customers and a more cost-effective plan to attract, maintain and enhance customer relationship.  The context of the problem stems from Harrah’s expansion into multiple gaming locations, response to fierce competition and capitalizing on tight margins.  It was critical for Harrah’s to invest in software that could understand customer preferences and create target marketing offers. 

When assessing how Harrah’s should address the issues stated above, the following decision criteria should be considered:

-  Create a single brand image through marketing tactics

-  Foster customer relationships

-  Predict and analyze customer preferences and habits

-  Leverage IT systems to compete with new players in market

-  Prepare for future growth in industry

List of Plausible Alternative Courses of Action

To address the issues Harrah’s faced, management decided to develop WINet, which would collect customer data from various source systems, integrate data around customers, and identify market segments and customer profiles. It also helped create appealing offers for customers to visit Harrah’s casinos. WINet pulled data from a patron database that serviced as an operational data store. By creating WINet, Harrah’s was able to leverage their customer database and tailor offer’s to their customers.

Data was collected from a variety of source systems which included specific details about customer’s demographics, duration of stay and special events attended. All customer information was tracked. The Marketing Workbench (MWB) was created to serve as Harrah’s data warehouse. This is where analytics are performed. 

In addition, Harrah’s also developed its Total Rewards program, a customer loyalty program. This highly evolved program tracks, retains and rewards customers over time.

Harrah’s also implemented closed-loop marketing was developed to design, test and retain results for future use. The company was able to learn what types of campaigns or treatments provide the highest net value.

Harrah’s management team was able to successfully integrate the comprehensive data of their customers nationwide and derive target marketing programs designed for specific customer segments. The new business strategy aided by the IT solutions resulted in a 62% internal rate of return on investments in information technology, 14% revenue growth in same store sales and increased frequency of visits by customers.

However, Harrah’s competition is adopting similar technologies to learn about customer preferences, habits and needs.  It is in Harrah’s best interest to leverage these IT capabilities and continue to grow in order remain the leader in the gaming industry.  The company should constantly enhance the data warehouse and consider integrating a more dynamic analytical tool to further evaluate customers and possible offer insight into future habits.

It is commendable that Harrah’s did not fall victim of investing in gimmicks such as sunken pirate ships and roller coasters.  These investments are frivolous and fleeting. Rather, the company decided to be an early adopter of a data warehouse which was used to support its customer loyalty program and closed loop marketing efforts.

The company uses closed-loop marketing which allows it to learn what types of marketing campaigns provide the highest net value. Thousands of experiments were conducted and results were evaluated. Feedback provided insight into which campaigns generate a higher relative value. It is in the Harrah’s best interest to continue researching customers and finding which campaigns are best received by specific target markets. This will not only help foster customer relationships but also provide insight into trends, demographics and changing customer preferences.

Since Harrah's is revamping its website, the company can use this time to experiment with advertising offers on the site.  Harrah's can offer a free night stay, coupons to shows, restaurants. This also gives Harrah's the opportunity to integrate the Total Rewards program online. By enabling online access, the customer can track points, view upcoming rewards and offers.  This also gives the company the opportunity to link email addresses with customers and rewards. 

Another area Harrah’s should develop is in online hotel booking.  Currently, the internet is booming and growing at an exponential rate.  Competitor casinos and other hotels chains now offer online hotel booking to customers. Since Harrah's is in the transition of rebranding and revamping the website, it can enable hotel booking to provide a fast convenient way for customers to plan their trips. 

Harrah's needs to develop target marketing programs for not only the gamblers but also the customers who visit the casino and utilize the restaurants, shows and special events. Through the customer database, the company should develop ways to create special offers to customers who have visited the casino in the past for special events. For example, if a customer has visited the casino for a large boxing match, the company leverage this knowledge and send offers.
 
Harrah’s management team was able to successfully integrate the comprehensive data of their customers nationwide to derive target marketing programs designed for specific customer segments. The new business strategy aided by the IT solutions resulted in a 62% internal rate of return on investments in information technology, 14% revenue growth in same store sales and increased frequency of visits by customers.

Evaluation of Alternatives

When evaluating the decision criteria that Harrah’s developed one can see that Harrah’s was in need of two major items: develop an IT structure to support the new business strategy and in turn leverage the IT system to learn about customers.  Harrah’s was very successful in addressing all of the decision criteria.  Not only did Harrah’s successfully integrate the voluminous customer data but it also created a cohesive brand image. The new business strategy aided by the IT solutions resulted in a 62% internal rate of return on investments in information technology.  In addition, 14% revenue growth in same store sales and increased frequency of visits by customers.

However, Harrah’s should not be complacent and stagnant with their patron database and marketing efforts.   The alternative suggestions for Harrah’s such as developing a highly capable website site and offering discounts on coupon website further support the decision criteria and the new business strategy.

Since Harrah’s was a market leader in their decision to create one brand image, integrate all customer databases throughout the 21 casinos and offer a superior customer rewards program, the company should continue their imaginative ways when evaluating addition alternatives.  The company has prospered by adopting this market leader position and should continue for the future.    

Recommendation

After reviewing the success of Harrah’s new business strategy and IT software, it is clear that the company needs to continue with their practices.  My recommendation is to grow and enhance the already effective patron database by adding more analytical tools that can be used in conjunction with marketing efforts. In addition, the company should introduce apps for mobile devices and link the Total Rewards program.  The company should utilize its website to further their marketing offers.  Overall, Harrah’s should not abandon their business strategy or IT structure. It has proven to be capable and an effective means to grow the company.  

 

Presentation

·    If I were presenting as a consultant to the class, I would state that I have been commissioned to identify the effectiveness of Harrah’s new business strategy which was supported by a new IT structure that encompassed the WINet database, Total Rewards program and closed-loop marketing.  All features would be described in detail. I would address the decision criteria the company prepared and how their improvements led to addressing all facets. I would offer recommendations on how to further their marketing efforts and commend the company on their successes.

·         Visual aids to be used in presentation:

o   PowerPoint presentation for the major improvements and integrations the company implemented;

o   Decision criteria for the new business strategy; and

o   How to continue to be a market leader and further their understand their customers.