How to write a Case Study

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First, you start with a quote like this one:

Subscription services will replace the entire music purchasing experience. (David Goldberg, Vice-President and General Manager, Yahoo! Music)

Then you invent someone on the verge of a momentous decision. I like to put this someone in a midtown office staring out at the autumnal rain. This is called “atmosphere.”

Craig Norton was sitting in his midtown office staring out at the autumnal rain. He put down his BusinessWeek and thought hard. If what Goldberg said was true, Craig might as well close up shop right now. As the CEO of Bang the Drum Music and the man responsible for a website that sells music online. The motto: “a little like iTunes only totally better.”

Here we insert 800 very carefully chosen words on the music industry and sales in the second half of the 20th century, the rise of the internet as a new channel for music sales, the effects of Napster and Kazaa on the industry, and the introduction of the on-line purchase opportunity, from Apple and its competitors and then the rise of the subscription model from the likes of RealNetworks, AOL, Napster, and, as of May 10, Yahoo! Music.

We want to make the case a welter of data and interpretive possibility. We are setting the foundations for 80 minutes of classroom discussion. We want enough intellectual “noise” to jam the navigational equipment of the mass of the class but not so much that the gifted students can’t fight their way through. It’s a sweet spot calculation: enough noise to baffle everyone for about an hour, not so much as to leave all of them baffled at the 81 minute mark. If we do our job, a certain clarity should be emerging around the 65 minute mark. Revelation should arrive with the punctuality of the New Haven express at the 72 minute mark. This leaves 8 minutes to clue the other kids in.

Yada. Yada. Yada. [Consider the 800 words written. You know what to do.]

For conventional business issues, the task is straight forward. We salt the case with the key figures, findings and observations that make it possible for discussion to ensue, controversy to break out, camps to form, wits to exercise and sharpen, and then, at the 72 minute mark, to have one of the bright ones put everything together, and come thundering out of our carefully created haze to “crack the case.”

But the case I am thinking of here is not a conventional one. Certainly, Craig Norton has a real problem. I think he also has a real opportunity. The glib thing to do here, and this will tempt the less gifted students in the class, is to say, “Craig, buddy, make the move, change the model, go with subscription.” These kids will bite on the Goldberg remark and never look back. This is good for the class to have some kids setting up a position.

But the smart ones will say, “no, this is too easy.” At the very least, they will know the genre well enough to know that no one gives away the secret in the opening lines.

The trick is to give students something with which to work. Because this blog sits at the intersection of anthropology and economics, I am interested in how cultural considerations might argue against Goldberg’s advice and encourage Norton to hold his position. (In my little universe, this is the answer that cracks the case. It may be wrong, but then the point of the case study is not to promote inevitable truths, but teach people how to see past the obvious.) Here’s what we have in the case (sounding suspiciously like a passage from BrandWeek [which it is, as below]).

The online providers typically pay the music labels about $6 per person a month for a subscription that allows users to listen to music only on their PCs. The service in turn typically charges users $10 a month. After expenses such as the cost of server infrastructure and credit-card fees, that leaves a profit market of about 30%.

However, for subscriptions that allow downloads to portable players—which most people are likely to want—the fee to the label increases to about $8. That’s why RealNetworks and Napster charged $15 per month before Yahoo came in with its $7 offer.

Someone, Mr. Gates, let’s call him, will notice that Yahoo is going to have to go back to the consumer, rescind the $7.00 price, and go higher. The business model cannot be sustained. Yahoo’s price of $7.00 was introductory.

Someone will counter that Yahoo might have enough clout to force the music labels to drop their fees. But we have anticipated them in the case.

Many music execs believe Yahoo is charging too little and could get consumers hooked on unsustainably low prices. “The labels are very sensitive to the devaluation of music,” says RealNetworks chief strategy officer, Richard Walpert.

And sure enough someone will read this passage out, and the counter is challenged. Yahoo cannot hope that industry accommodation will bail them out and the class will see this. But we have something useful on the table and this is our opportunity to open a path for the class.

“So Mr. Gates, is this a problem? People change their prices all the time.”

“Well, I think if you bring in people at one price and then charge them another, they have a right to be angry.”

“Angry enough to do something about it?”

“umm.”

The HBS drill is clear. An instructor may never lecture or lead the class. As Ben Shapiro used to say, what happens in the classroom belongs to the section.” If the students don’t crack the case, they don’t crack the case. Their loss. But the instructor may ask the difficult question, forcing the student to revise the assumptions with which they construct their original positions.

“Ms. Lumin, what do you think? Will subscribers leave Yahoo because of a little price change?”

If things go well, it should be possible to draw out two larger issues that must be answered to decide whether Goldberg is right and what Norton should do. The first of these is the special relationship between the consumer and music. Music is formative of who the consumer is and the very values and objectives that define as them as people and consumers. Music takes on meaning from the life of the consumer and it gives off meaning in the life of the consumer. A special bond is formed. (This is very hard to get into the case, but it should be a clear and retrievable fact in the experience of most of the students.)

As this approach draws out, a new conclusion emerges. The instructor may wish to beard the class in the following way.

“So you are telling me that consumer really care about their music. And I guess this means that they should be prepared to pay more for it, no? A pricing increase should be ok.”

Again, the less gifted students will go for this, but the brighter ones will remain impatient. And now we are forcing them down into still deeper assumptions about the case and a still deeper knowledge of their culture. Eventually someone will say,

“Look, there is this special connection between the music and the consumer, and this means they will resent a change in pricing.”

“Tell me why.”

“Well, um, because you are holding their music hostage. You are taking advantage of the fact that they’re connected to it. This connection means they have no choice but to pay you.”

“And that’s a problem why?”

“Because you are exploiting their dependency and no one likes having no choice. This really is taking advantage.”

The smart ones will keep digging.

“It kind of stops being a contract when one party has no choice but to continuing to pay whatever the service charges. This is almost like slavery, isn’t it? The subscription model actually incents the consumer to leave the supplier…just to punish them for their temerity. I think people will want to buy, not rent because it protects them from this vulnerability. More than that, they will be incented to move from renting to buying to punish the company that exploited their connection to their music.”

If we are really lucky someone will recall the moment when the CEO of the Coca-Cola Company suggested that Coke machines would use variable pricing technology to charge more when it was really hot out. After all, his logic went, Coke was creating more value, it should harvest more value. This was one of several reasons why the CEO was removed from office. Pricing that takes advantage of the consumer does generate revenue but it also does great damage to the brand in the process.

More tomorrow.

References

Burrows, Peter, Ben Elgin, Ronald Grover, Jay Greene, Heather Green and Tom Lowry. 2005. Online Music: Rewriting the Score. BusinessWeek. May30, 2005, pp. 34-35. (NB: two passages from the “case” [specifically paragraphs 12, 13 and 16] are drawn from the BusinessWeek article, for which acknowledgment and my thanks are here noted.)

The photo above shows C. Roland Christensen who was, for fifty years, a driving force behind the development of the case method.

10 thoughts on “How to write a Case Study

  1. Matt

    First, you start with that Goldberg quote. As soon as you attribute it, the smart students mentally add in the subtext (“…or else the entity I’m getting paid lots of money to both promote and run is going to end up bankrupt”) and begin analyzing why it’d be really stupid for anyone to take Goldberg at his word on this one.

    Even disregarding delusional notions about Yahoo having the power to muscle the music industry into reducing its fees (Microsoft _might_ have that much power, but they’re absurdly deferential to the entertainment biz…nobody else in technology right now has any hope of being that powerful), there’s ample evidence already in the market that the subscription model is unlikely to work as well as the product-purchase model.

  2. Matt

    First, you start with that Goldberg quote. As soon as you attribute it, the smart students mentally add in the subtext (“…or else the entity I’m getting paid lots of money to both promote and run is going to end up bankrupt”) and begin analyzing why it’d be really stupid for anyone to take Goldberg at his word on this one.

    Even disregarding delusional notions about Yahoo having the power to muscle the music industry into reducing its fees (Microsoft _might_ have that much power, but they’re absurdly deferential to the entertainment biz…nobody else in technology right now has any hope of being that powerful), there’s ample evidence already in the market that the subscription model is unlikely to work as well as the product-purchase model.

  3. Grant

    Matt, thanks for your comment. Is the “amble evidence” to which you refer along the lines suggested here, or something else? Thanks. And good point about evident self interest as grounds for skepticism. Thanks, Grant

  4. Matt

    I was referring to the experiences of every other business that’s tried to make an online subscription offering competitive with a purchase offering…including Yahoo’s own previous venture into subscription-based online music distribution.

    BTW…still not sure why my first posts continue to get 500 errors even when they’re apparently successful. Once again that’s the reason for the double-post.

  5. Grant

    Matt, thanks and sorry about the 500 errors. Not sure what is going on. Will get on it. Best, Grant

  6. Anonymous

    You are obviously still high-church Harvard. There is no god but discussion and Christensen is its prophet. Maybe you can still get away with the we-can’t-lecture-to-the-students stuff in Cambridge, but out in the hinterlands that’s a recipe for lots of dead air and frustrated students. For example, as of ten years ago, Kellogg (Northwestern) students had an ethic of never disagreeing with one another in class–period. I’m told it hasn’t weakened in the interim.

    On the specifics of the music example, the real question is how substitutable (in economic terms) are different pieces of music for the user. If every high-priced artist or label can be approximated by a lower-priced artist or label, then the average price is likely to fall. So the issue isn’t Yahoo’s bargaining power as much as it is the slope of the demand curve for any given bundle of songs. Springsteen wants to gouge me? Maybe I just switch to some cheaper imitator or just start listening to techno instead.

    Also, doesn’t Yahoo get paid from advertising on its site? So if cheap music pulls eyeballs to its site, couldn’t that be a sensible loss-leader, like cheap milk or bananas at a grocery store?

  7. Tom Guarriello

    Sorry I’m late to this interesting party. Your case simulation is, of course, very good, Grant. Pity the dim-witted in the East, for they will be eaten by their brethren! In the Midwest, it’s all about the sissidom of crowds.

    As for the music substitution question, I think the Anderson long tail argument has plenty to say here. But, that being said, Springsteen’s Springsteen, so he can still command the premium. And because of the centrality of music to identity, there’s only so much elasticity one can tolerate. No matter how many I own, I always buy the latest Van Morrison CD without ever hearing a note.

    I think the anger of being held hostage should not be underestimated, as cable providers regularly learn in similar circumstances. As soon as choice (emancipation) becomes available, the exodus begins.

  8. Grant

    Steve, Thanks! Some music is substitutable, I guess. Electronica, some folk music, moments of Motown, esp. in retrospect. (The less we know about it, the less we care about it, the longer ago it was made…any or all of these might apply.) But you dont have to subscribe to Romantic notions of creativity to suppose that an awful lot of music is particular to its creator, and to refuse all substitutes. But if its all difference, I guess I am obliged to answer why many different artists were valued with the same price. Hmmm. Best, Grant

    Tom, well said, as always. (And van is the man as ever.) And speaking of captivity, did you see Mossberg’s piece on the captivity exercised by cell phone services providers over the choice of cell phone we have. Exactly to the point, and here at least the market sounds like it is being mobilized. Actually, come to think of it this is Cingular’s big chance to break out of the pack. Thanks! Grant

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