Environmental Analysis.docx

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Administrative Studies
ADMS 2200
Richard Patterson

Environmental Analysis: eBay ADMS 2200 Term W Section M Professor Richard Patterson February 4 2013 Introduction The retail industry has been revolutionized in recent years. Taking into consideration advancements on the social, cultural and technological fronts, the method in which the consumers of the global world buy and sell has begun to fundamentally alter. There has been a worldwide shift to the ever advancing technologies afforded to us through the use of the Internet. The World Wide Web has altered the way in which we communicate, conduct business and last but not least, consume. Retail is the sale of goods and services from individuals to businesses to the end-user. Online retailing is a form of electronic commerce allowing consumers to directly buy goods or services from a seller over the internet without an intermediary service. An increasingly large portion of the modern world’s population has been attracted towards this form of conducting business. eBay is an American multinational internet consumer-to-consumer corporation. It was founded in the mid nineties and has arguable become one of the most notable success stories of the dot-com bubble. It has grown to become a multi-billion dollar business and specialized in online style auctioning. People and business buy and sell a broad variety of goods and services worldwide – hence, the online retail experience. Our environmental analysis will analyze and dissect the multi-faceted components of eBay buy utilizing Michael Porter’s theory of the Five Forces and using the SWOT (strengths, weaknesses, opportunities, threats) analysis in accordance with the elements of the marketing mix within an environmental framework. Porter’s 5 Forces Analysis Threat of New Entrants In looking at eBay’s historical and technological innovation, we can safely say that it is one of the largest auction sites available on the World Wide Web. According to the Wall Street Journal, eBay has reached 17 million people or approximately 17% of all active internet users. From a marketing perspective the internet itself poses as a contributor to the threat of new entrants. Competitors are easily able to launch new sites using commercially available and easily accessible software. Also, the large variety of products allow for competitors such as amazon.com and ioffer.com to enter into more specific market segments. Therefore, it is important for eBay’s marketers to put forth superior technological innovations and deliver a customer service strategy that is beyond customer expectation. Many new entrants have been attempting to rival eBay, leaving the company no option but to increase their web development service as well as to implement a strategic plan to help increase consumer trust and maintain its clientele. In doing so, eBay needs to develop a technology that will give confidence to all users on the web. Different people have different attitudes toward computers, levels of computer anxiety, computer skills, and perception of communication technologies. Also, limiting the threat of new entrants may include partnering with other retailers and expanding their demographic into different geographic areas and different segments of the market. Targeting other countries that have not yet been reached by their competitors is also important. For example according to the “Newswire published by Market Line” eBay is partnering with XIU.com, a Chinese company, to help launch a new line calls eBay style. Another online retailer that eBay has acquired is shopping.com, which was a close competitor in the US for $620 million. Hence, creating another muscle in helping eBay’s expansion which may increase its level of competiveness in the market. In terms of technological innovation, partnering with other IT securities companies could also play a significant role. It is important to acquire new ideas in technology, to help the customers feel more secure in doing their transaction online. A good example of that is eBay’s new affiliation with Compuware Corporation, which is a computer performance company. eBay is using Compuware APMdyna Trace deep transaction management to improve all of its online transaction. eBay‘s global engineering team has the ability to monitor how core business systems are performing and the ability to perform a deep transaction scam to pinpoint and resolve any issues before they reach the customer. This is advantageous for eBay to reduce online scams and ensure superior customer service. Nevertheless, despite all the challenges that eBay faces with other auction sites such as amazon.com, it’s still remain the leading Internet auction sites in the market. Bargaining Power of Buyers The internet can increase the buying power of customers by providing easily accessible information for them, such as price comparisons. With the current growth of the online retail industry, eBay also has more competitors than ever before. This also affects the bargaining power of buyers (eBay customers) which is outlined by the factors below. Switching Costs The switching cost for buyers is minimal because they are not required to pay any cost or fee when they decide to switch to the other online retailers. Also, due to the wide variety of products that can be found online, consumers can easily switch without compromising quality or aesthetics. Undifferentiated Service Aside from the advantage that eBay offers the auction-style listing in selling the products, the service that eBay provides is not much different compared to the other online retailers. Because of the similarity, it allows the buyers to find alternatives from the other competitors and compare the price, quality or service and choose the best offer they can get. Importance to Buyers The products sold on eBay sells vary greatly, however most of them fall into the category of lifestyle items. They are usually secondary or tertiary products. Because they are not critical, the buyers can wait until they find a better offer for the products where they can make comparison and choose between them. Incumbents Relative to Buyers Because the online retail industry is still considered a growing industry, the number of incumbents is relatively few as compared to the number of buyers, which gives the online retailers some bargaining power over the buyers. Bargaining Power of Suppliers Before entering a specific industry, it is vital for the growing organization to set their objectives straight. This can be achieved using an important tool which was first discovered by Michael Porter in 1979. Ever since then, the five-force model has been of extreme value to major organizations due to importance of the different factors mentioned in the model. The five-force model has helped organizations understand the main concepts of an industry. For eBay, it is important to take an in-depth analysis for one of the factors, known as bargaining power of suppliers. There aren’t any published statistics which mention the exact number of suppliers on eBay. This is probably due to the fact that the numbers are constantly changing! However, we shouldn’t underestimate the number of suppliers that are constantly dealing on eBay. For a regular buyer, it is very important to select the right supplier with the right business attitude, for many reasons. So what determines the bargaining power of suppliers and why does it matter? This has been further explained below. In the past, suppliers used to have a limited customer base due to the fact that driving distances were lengthy for people to drive to stores. Now, with eBay, the same supplier can publicize the valuable good to a global audience and therefore have a larger customer base. This increases the sales for these suppliers and gives them more power since they have more control of their target audience. Using the eBay platform allows them to get rid of the distributers, essentially the retailers, since they can ship the item straight from their warehouse to the customer’s home, via eBay and their trusted shipping methods. Since there are many suppliers, there is bound to be a wide range of prices for each product. This low switching cost between many products weakens the suppliers bargaining power as they have little influence on the buyers final purchase decision. The reason as to why there are many suppliers is mainly because the barriers to entry in this particular segment are low. As a result, competition amongst suppliers is expected to increase on eBay, in the future. However, eBay must keep its fees and commissions low in order to attract more suppliers. The ability of the suppliers to select the online commerce website offering the lowest administrative costs gives them more power since they could easily switch platforms. This forces eBay to maintain its subscription charges and remain competitive amongst other online services. eBay is required to satisfy the suppliers needs in order to keep them active and satisfied. This may include a better customer service, lower fees or even a more organised selling platform. This type of supplier power gives an increase in products and services to the marketplace, and in turn continues the growth of eBay’s online website. eBay gives suppliers an option to set up an online store for a monthly fee where shoppers can browse through products as they please. This option proves that eBay is working hard to satisfy the supplier’s wants, and make the business a pleasant experience, hence inviting them back for more. Threat of Substitute Products There are potential substitutes for eBay which include: flea markets, auction houses, garage sales and other retail sites. However, it is important to remember that although these substitutes are widely available, they have many drawbacks. For instance, one disadvantage of purchasing goods and services from retail stores is that it can be time consuming to travel the distance to the mall. It can also be very tiring when doing comparisons from store to store to find the best deal possible. eBay takes care of all these matters consumers face on a daily basis, simply by making online shopping more accessible and efficient. A consumer has the opportunity to search for the product or service they wish to purchase, and place an order instantly, without having to waste time searching. Online transactions can be completed with just a click of a button compared to an in-store transaction which could possibly include checkout lines resulting in lengthy waiting times. Customers could easily switch to traditional style shopping, more commonly known by the term ‘Brick and Mortar businesses’, due to the fact that switching costs are low. One leveraging factor which drives consumers towards retail shopping is the fact that they can physically purchase the products as they are tangible. They also avoid waiting since the products are handed over to the customer right then without any waiting times. The threat from substitute markets is not seen as a major factor in this industry for a few reasons. Firstly, eBay has clearly reached success due to the first mover advantage in the online industry. On top of that, they have built from scratch what seems to be one of the top brands in terms of recognition (brand identity), outstanding customer satisfaction and excellent quality control. This has allowed them to reach a large number of base users around the globe. In most cases, consumers from around globe don’t have alternative as they can’t purchase the item in their home country due to the fact that it is unavailable or simply overpriced. Therefore, they do not have further options that they could consider in comparison to ordering the item from eBay. Other online commerce website substitutes include Amazon and Kijiji, however, eBay is known for its successful organizational techniques, supportive community and product quality control. Moreover, eBay implements laws and regulations to ensure security and is therefore trusted amongst its valued customers. Rivalry Among Competitors There are few competitors that exist in the online retail shopping website industry. eBay’s main competitor is Amazon.com, which is a direct rival and sell very similar products. There are also other auction sites such as webstore, ebid and overstock as well as smaller competitive sites like craigslist and kijiji, which also allow individuals to list and sell their products. Amazon.com This U.S. Company was named after the Amazon River because it’s one of the biggest rivers in the world and it went online as amazon.com in 1995. It started out as an online bookstore but soon diversified it’s business and began selling basically everything including CD’s, DVD’s, software, electronics, apparel, furniture, food and toys. Today Amazon.com is one of the biggest online retailers and has a customer base of over 30 million people worldwide. The company makes money by taking a small percentage of the sale price of each item that is sold through its website and also allows companies to advertise their products and these companies pay to be listed as a feature product on Amazon.com. Overstock.com Overstock.com started was launched in 1999 but it re-launched it in 2011 as O.co to simplify and unify its international operations. It originally started off selling surplus and returned items as well as liquidating the inventories of failed dot-com companies at below wholesale prices. It has now expanded to sell new merchandise as well and reported profits of 7.7 million in 2009 and it’s first billion-dollar year in 2010. Ebid.com Ebid.com is an online auction site that operates in over 20 countries including Canada, U.K., U.S., India, Germany and Norway. It was founded in 1998 and Webuser Magazine has recognized it as the “best eBay alternative”. The company doesn’t charge users to list their products on the site but they do charge a small percentage fee upon selling the item. Similar to eBay, Ebid.com uses it own online payment service known as PPPay that allows users to pay and receive their money in Euros and Pounds Sterling but they also accept payments in the form of PayPal and Google checkout. Ebid.com attracts about 60,000 visitors a day currently has three membership levels. Other Sites There are other smaller sites, which provide a platform for private buyers and sellers to do business for free. Some of these sites include kijiji.ca and craigslist. These sites are not exactly similar to eBay but they must be considered rivals because they allow users to list their items for free and they can encourage some sellers to use this site instead of a bigger company like eBay. SWOT Analysis of Marketing Mix Elements Competitive Strengths eBay has market leadership in global auctioning due to its 62 million members. Members can sell and buy a variety of items without much restriction unlike Amazon, eBay’s strongest competitor. Furthermore, due to eBay’s business approach which provides members a platform on which to make transactions, there is no need for warehouses, inventories, or quality controls. Also, in 2002 eBay acquired PayPal, an e-commerce payments system that was integrated into eBay’s platform allowing the company to offer a faster and more secure method of online payment. Weaknesses eBay charges higher prices than its competitors to list items on their website, as well as higher fees when the sale is made. Competitors like Bonanza and Etsy charge on average 8% less of an item’s selling price than eBay does, however this cost may be negated in part by the fact that eBay attracts many more users and therefore increases the likelihood of the seller making a sale. Like its competitors, eBay comprises a wide range of sellers and buyers from all around the world there have been reports of fraudulent activities involving the sale of counterfeit merchandise such as antiques and collectibles. Another area in which eBay lacks involvement is in its advertisement department. Unlike its competitor’s Amazon, MSN, and Google, whose advertising profits represent a higher part of their annual revenue, eBay’s advertising proceeds only represent 2%. Opportunities The company could review and lower the fees associated with posting and selling items on their website to target future sellers that consider using companies like Amazon and uBid to post their items. Internet usage is increasing daily and eBay may see many opportunities of growth and innovation by acquisitions of other online retailers. Also, advertising should be a priority for the company in order to become more competitive. Likewise, eBay needs further strategies that differentiate them from competitors. Currently, the offer eBay Buyer Protection, a program designed to reimburse consumers for fraudulent selling activity. However, they must put more effort into improving other service features, such as providing same day delivery in order to surpass the competition. Threats Aside from direct competitors, some growing competitive threats include a shift in consumer preferences towards hand-made and artisan goods. Due to this growing trend, other online retailers like artfire, etsy, and bonanza may be taking away valuable market-share from eBay, due to their specialization in hand-crafted merchandise sales. Finally, it is important to note that although eBay is an online industry, local retail stores are also competitors. If local stores start to offer lower pricing or obtain items for wholesale prices from eBay itself, this may lead to the company losing market share as consumers may be more inclined to buy items from physically available sellers if the price difference is not substanti
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