CASE 11
Pandora Internet Radio (2014): Just Press Play
11–14
(2) Pandora’s sales force for developing
relationships with advertisers grew 80
percent in 2013.
1. Main HR objective is to increase revenue through expanding
sales force.
a) Implied from performance/budgets
2. Deal with significant management changes
a) Major change in leadership.
(1) Loss of Westergren (Founder CSO)
G. Information Systems
1. Long–term competitive advantage through technology
innovation.
a) Leveraging SaaS/Big Data Analytics to deliver a
differentiated service (S).
(1) Two main trends in the technology
d) Numerous patents (S)
e) Innovative customer–specific advertising (S)
(1) Need to improve value of mobile
advertising. (W).
(a) Two-point–five times less valuable
than the Internet.
CASE 11
Pandora Internet Radio (2014): Just Press Play
a) No individual song search function (W)
b) No playlist function (W)
3. Technology related lawsuits (W)
H. Internal Factor Analysis Summary (See Exhibit 4)
V. Strategic Alternatives
a. Current objectives can work with fine tuning.
i. Negotiate lower acquisition costs to increase profits.
ii. Increase platforms that can run Pandora radio.
b. Alternative strategies
i. Develop a cost–effective strategy for growing
internationally.
1. Acquire international companies that already
iii. Cons
1. Initial startup costs internationally could hinder
short–term profits.
c. Differentiation
i. Pros
1. Have bargaining power to charge a premium price for
product.
2. Creates consumer/buyer loyalty.
ii. Cons
1. Costs for development
2. Only successful if they can outperform their
competitors in this strategy.
d. Cost leadership
CASE 11
Pandora Internet Radio (2014): Just Press Play
11–16
3. A good defensive strategy in a market with a lot of
competitors and possible new entrants.
ii. Cons
1. Lowers profits to beat competitors in price.
2. Devalues the brand and premium image.
e. Stability
i. Pros
f. Retrenchment
i. Pros
1. Increased financial viability.
2. Decrease in the diversity of products or services.
2. Recommendation Strategy
a. Business Level
i. Growth strategy
1. Need to evaluate and identify international markets
b. Functional Level
i. Differentiation
1. Create a long–term competitive advantage through a
ii. How resolves short–term problems
1. Helps decrease the bargaining power of suppliers.
iii. How resolves long–term problems
1. May initially increase costs but long–term will
positively affect profit margin.
a. Upfront costs of expanding internationally in
CASE 11
Pandora Internet Radio (2014): Just Press Play
11–17
b. Evaluating the best growth opportunities.
4. New policies for differentiation
3. Implementation
a. Organizational structure:
i. The CEO as a leader should take charge in leading the
growth and differentiation strategies.
b. Programs:
i. R&D: Create feature set that will create sustainable
competitive advantages.
1. Align the benefits of the Music Genome Project to
iii. Marketing: international marketing strategy must be
implemented in order to increase consumer awareness of
Pandora in new markets.
1. Salesforce dedicated to advertising revenue must be
c. Feasibility and Time Tables
i. Financial Feasibility
1. As profitability is already an issue, new strategy
will be difficult to execute
a. Still necessary as competitors are increasingly
prevalent
2. Pro–forma Budgets
a. Assessment not possible based on the data
CASE 11
Pandora Internet Radio (2014): Just Press Play
1. Costs are increasing faster than revenues.
2. Should potentially consider decreasing size of sales
force.
ii. Need to create formalized process for evaluating
international expansion.
iii. Need to get more value from R&D investments.
4. Evaluation and Control
a. Current information systems are capable of supporting company’s
activities.
i. Pandora’s information systems provide sufficient feedback
on implementation activities and performance. Pandora is
c. Discussion of control measures not discussed in the case.
d. Suggested additional controls:
i. Proactive monitoring of legal rulings in the US market.
ii. Develop quantitative metrics to analyze impact of new
Exhibit 1—External Factor Analysis Summary Table
Key External
Factor
Weigh
t
Rating
Weighted
Score
Comments
Opportunities:
Shift from
Computer to
Mobile
.05
3
.15
Consumers have shifted from
listening to music and accessing
info on computers to mobile
devices. Pandora handled this
proactively but with significant
CASE 11
Pandora Internet Radio (2014): Just Press Play
11–19
Opportunity to
Expand
Internationally
Threats:
Strong
Competition Who
Have Access to
Advanced
Technologies
.15
.15
3
2
.45
.30
Pandora can mitigate its rising
costs by tapping into millions of
potential customers in several
lucrative international markets.
Competitors have access to
technologies that Pandora is not
utilizing. These technologies
(Such as ability to pick
individual songs) make competitors
more attractive to consumers.
Without international expansion,
there is a significant cap on
Pandora’s ability to grow.
CASE 11
Pandora Internet Radio (2014): Just Press Play
Total Scores
1
21
2.85
CASE 11
Pandora Internet Radio (2014): Just Press Play
11–21
Exhibit 2—Common Size Income Statement
2013
2012
2011
2010
81.53%
88.15%
86.62%
90.86%
18.47%
11.85%
13.38%
9.14%
100.00%
100.00%
100.00%
100.00%
6.97%
7.38%
8.39%
14.30%
59.43%
66.62%
58.74%
74.00%
40.57%
33.38%
41.26%
26.00%
5.00%
4.16%
4.89%
10.92%
28.28%
24.28%
26.31%
31.58%
11.70%
11.12%
10.30%
11.52%
44.98%
39.56%
41.50%
54.01%
CASE 11
Pandora Internet Radio (2014): Just Press Play
–0.02%
0.00%
–0.10%
0.00%
–4.50%
–6.28%
–1.28%
–30.36%
Exhibit 3—Financial Ratios
Liquidity Ratios
2013
2012
Comment
Current Ratio
3.33
2.26
Cash Ratio
1.58
0.622
Profitability Ratios
Net Profit Margin
–4.5%
–6.28%
Gross Profit Margin
40.57%
33.38%
Return on Investment
–4.01%
–13.74%
Return on Equity
CASE 11
Pandora Internet Radio (2014): Just Press Play
11–23
Activity Ratios
Inventory Turnover
N/A
N/A
No Inventory
Days of Inventory
N/A
N/A
No Inventory
Net Working Capital
1.65 times
4.37
Asset Turnover
0.8914
times
2.19
times
Fixed Asset Turnover
12.28
times
21.77
times
Average Collection
99.74 days
62.54
Accounts Receivable
3.66 times
5.84
Annual Credit Sales not listed;
Days of Cash
149.44
days
41.35
days
Leverage Ratios
Debt—to—Assets
24.52%
41.27%
Liabilities/Assets—no debt
numbers on balance sheet.
Debt to Equity
32.49%
70.28%
Liabilities/Equity
No Long–term debt on balance
Times Interest Earned
N/A
N/A
No debt; no interest expenses.
CASE 11
Pandora Internet Radio (2014): Just Press Play
Coverage of Fixed
Charges
N/A
N/A
No interest or lease
obligations.
Current Liabilities to
Equity
0.3069
0.6782
Exhibit 4—Internal Factor Analysis Summary Table
Key Internal Factor
Weight
Rating
Weighted
Score
Comments
Strengths
Technology Differentiation
Innovative Advertising
Weaknesses
.25
.2
4
3
1
.6
Industry leading
predictive
technology with
Music Genome
Project.
Main source of
revenue.
CASE 11
Pandora Internet Radio (2014): Just Press Play
11–25
No International Presence
Lack of competitive
features
.1
.1
1
1
.1
.1
Competitors have a
head start.
Customers have
differentiating
features.