Marketing Strategy for Pandora Radio

Marketing Plan Part II:

Marketing Strategy for Pandora

        Pandora is one of the longest-standing online music streaming platforms, which is the reason it is the most used platform to date.  However, because Pandora relies primarily on an advertising source of revenue, it is valued much lower than its competitors.  For example, earlier this year, Spotify was valued at $8.4 billion, while Pandora severely lagged behind at $3.6 billion.  Granted, $3.6 billion is a great number for a “free” service, and shows the strength of Pandora’s advertising revenue model.  But, to sustain its competitive advantage, Pandora needs its large consumer base to commit to its subscription model:  Pandora One.  In order to establish a better subscription-based revenue model, Pandora needs to exhibit more focus in its marketing strategy.  With total online music streaming revenues increasing by $194 million over the last year, now is the opportune time for Pandora to grow its subscription-based revenue model.

Targeting Strategy

        The broader market for online music streaming is quite large; 93% of Americans listen to music every day.  However, not all music listeners are willing to pay for streaming services.  This is evidenced by the prevalent use of free streaming services.  Therefore, a mass undifferentiated targeting strategy would not be the most effective route for an entity like Pandora who should be trying to build their subscriber base.  Pandora should focus on the consumer groups that are more likely and able to switch to Pandora One.  The broader market within which Pandora should then further segment includes Americans with disposable income and devices capable of accessing Pandora.

        As the below infographic displays, Pandora garners most of its users from the 35-44 age bracket.  This group would probably be the easiest to switch to subscription accounts because of their loyalty to the brand.  Additionally, consumers in this age demographic generally have more disposable income than other groups.  Therefore, Pandora should really target this age range.  The segmentation basis underlying this strategy falls within the demographics bucket.  The consumers are being targeted based on their age and position in the family life cycle.  

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Other segmentation bases include psychographics and benefits sought.  The consumers’ lifestyles should be considered when creating their distinct marketing mix.  For example, people in this age group might typically listen to Pandora while at work or during their morning and evening commutes.  The distinct marketing mix for this segment should reflect that.  Moreover, it is important to consider the benefits the consumers in this segment seek.  This segment simply wants an easy way to access their favorite music.  They do not want to fuss with additional pages or features on the application.  They also expect Pandora to only play music they like based on the genre of station they chose.  They like the customization that Pandora provides.  While they are not opposed to discovering new music (given that it is similar to their current taste), it is not a priority for them.

        Pandora’s greatest competitor, Spotify, garners most of its users from a significantly younger demographic:  young adults ages 18-24.  The reason for this is Spotify’s social media aspect.  Users can share their playlists with friends via the app or announce what they are listening to on integrated social platforms like Facebook.  Pandora has recently added a similar feature to its app as well, while maintaining the easy-to-use interface that Spotify lacks.  This new social feature puts Pandora at an advantage.  It now has the potential to make Spotify’s younger users switch to Pandora, if it specifically targets that age group.

        This younger age group generally has less disposable income than Pandora’s older user base.  Even so, Spotify generates far more subscription revenue than Pandora.  This means that the young adult demographic is worth focusing on.  The segmentation bases underlying this targeting strategy are the same for Pandora’s primary segment:  demographics, psychographics, and benefits sought.  The distinct marketing mix for this segment should reflect that the consumers are young adults (age) who use online music streaming for a variety of activities (lifestyle) – including working out, social gatherings, as they study, etc. – and primarily want their streaming service to promote new music discovery and social interaction (benefits sought).

        In conclusion, Pandora would benefit most from a multi-segment targeting strategy.  The two target segments that each warrant their own distinct marketing mixes are adults ages 35-44 whose main priorities are ease of use and customization, and young adults ages 18-24 whose main priorities are social connectedness and new music discovery.

Key Service Attributes and Benefits

Sources of Sustainable Competitive Advantage

• Simple interface – Other players in the online music streaming industry seek to have an array of features on their application.  While this can be a good thing, depending on the target segment, it makes navigating through the platform confusing and tedious.  These platforms could potentially make it easier to flow from one feature to the next, but no significant changes have been made as of yet.  Pandora is able to offer a lot of these same features, but in a more simplistic interface that is easier to navigate.  This provides a competitive advantage for Pandora in the 35-44 age demographic.
• Low cost – Pandora is able to offer a low cost that its competitors just cannot match.  This has to do with Pandora’s economies of scale.  It has a lot more users on average, thus attracting more advertisers and advertising revenue.  Because Pandora operates on a larger scale, it can offer a significantly lower price that its smaller competitors cannot match.  This constitutes a sustainable advantage for the foreseeable future, because it would take competitors a significant amount of time to match the Pandora’s scale.
• Music Genome Project – Time has been in Pandora’s favor.  Since its initiation in 2000, Pandora has had ample time to perfect its Music Genome Project algorithm.  Moreover, this computer algorithm is backed by trained music professionals.  This “human touch” is something Pandora’s competitors have not employed.  That, coupled with 15 years of consumer data, has provided for an advanced music recommendation technology that cannot be replicated.  Many in the industry have tried and failed.  The Music Genome Project is Pandora’s ultimate source of sustainable competitive advantage.

Positioning

        For the segment involving the 35-44 age demographic, Pandora wants to maintain its position as the most widely used music streaming app.  Even more so, Pandora wants to grow this user base as they are likely the most willing to subscribe to Pandora One due to their financial stability.  To achieve this Pandora needs to position itself as the easiest to use online music streaming service with best array of music.

A positioning statement for this segment may read: