Introduction
eBay is one of the most successful companies in the online retail industry. The company provides a platform that enables individuals and businesses to sell and purchase efficiently.
The company owes its success to excellent marketing strategies that have enabled it to identify and to satisfy the needs of online buyers and sellers.
This paper will provide a detailed analysis of eBay’s case study. It will begin with a SWOT analysis of the company. This will be followed by analysis of the company’s success and fee structure. Based on these analyses, recommendations will be made to enable the company to expand its operations.
SWOT Analysis
Strengths
First, eBay has different pricing options that suit the needs of each buyer and seller. The buyers can choose between negotiating and paying the prices offered by the sellers. The pricing system improves customer satisfaction by enabling buyers to get the best deal, whereas sellers benefit from high profit margins.
Second, eBay has a huge customer base. This will enable it to increase its profits in future. Third, the company has put in place measures to ensure trust between buyers and sellers. The resulting improvement in customers’ confidence enables the company to attract and retain new clients.
Finally, the company has invested in related businesses such as PayPal and Skype. These businesses generate more revenue for the company and enable customers to use its services easily.
Weaknesses
First, the company depends on transaction fees as its main source of revenue. This exposes it to the risk of making losses if competition results into a reduction in transaction fees.
Second, eBay has no control over the products on its site. Thus, it cannot use its marketing initiatives to increase sales on its website in order to improve its revenue.
Opportunities
Rapid economic growth in emerging markets such as China is an opportunity to the company to expand its operations.
In addition, technological advancements such as video conferencing, social media, and increased use of smartphones provide growth opportunities to eBay. The company can use these technologies to reach more customers, thereby increasing its market share.
Threats
eBay faces the following threats in the industry. To begin with, the company is facing increased competition from large and well funded companies such as Google. eBay is likely to lose its customers to its competitors if it cannot improve its competitiveness.
In addition, high competition is likely to reduce revenues, which in turn will reduce the company’s profits. Declining economic growth is another major threat that the company is facing. A recession in major markets such as the US and Europe will have a negative impact on the company’s earnings.
eBay’s Success
The factors that explain the success of eBay include the following. First, the company has an effective marketing strategy. eBay collaborates with customers who advise it on the markets to serve and how to improve its services.
The collaborative approach to strategy formulation enables eBay to provide services that satisfy customers’ needs. The resulting improvement in customer satisfaction and loyalty enables the company to defend its market share.
Second, eBay has focused on improving its efficiency in order to reduce transaction costs. For instance, the acquisition of Skype enables buyers and sellers to communicate free of charge.
Moreover, PayPal provides instant and cheap payment solutions that can be used by buyers and sellers in nearly all parts of the world. The reduction in transaction costs is an incentive to buyers and sellers to continue using eBay’s services.
Third, eBay has succeeded due to its expansion strategy. The company has focused on acquiring established and trusted online retailers such as Shopping.com and StubHub.
Since consumer trust is one of the main determinants of success in the online retail industry, joining a new market through acquisition is often easier than launching a new company that is not known.
Acquisitions enable eBay to penetrate the market easily by getting instant access to a large customer base. Furthermore, it helps the company to avoid high competition in overseas markets.
Finally, eBay has succeeded because of its focus on investing in technologies that enhance access to its services.
For instance, the company has adopted mobile phone applications that enable buyers and sellers to access its services through smartphones such as iPhone. Improved interactions among buyers and sellers through smartphones increase the trade volume on eBay’s website.
eBay’s Fee Structure
eBay’s fee structure is not optimal because the insertion fee is higher than the final value fee. This structure discourages the use of the company’s services because sellers pay more to list rather than to sell their products.
The high insertion fee is a disincentive to sellers with low sales volume because they might not be able to recover the cost of using eBay’s services. Moreover, the fee structure is expensive to customers who sell products whose values are low.
For instance, a product worth $30 will cost $2.8 to sell, whereas selling a product worth $60 will cost $3.42. This means that a customer who is selling the item worth $30 will pay 9.33% of the value of his or her product.
On the other hand, the customer who is selling the product worth $60 will pay only 5.7% of the value of his product. Thus, the fee structure is likely to create the impression that eBay’s services are expensive, which in turn will reduce sales.
The fee structure should be improved through the following strategies. First, the listing fee should be reduced to encourage more people to sell their products through the company’s website. The company should compensate for the reduction by increasing the final value fee.
This will facilitate revenue maximization since the auction price is often higher than the listing price. Second, the fees for selling various products should be different. Products with high turnover should benefit from low fees in order to retain customers.
Growth Strategy
eBay should consider the following strategies to expand its market share. First, the company should focus on joining emerging markets in Asia, South America, and the Middle East. These markets have a large number of small businesses that are likely to use eBay’s website to sell their products.
In addition, high economic growth has led to increased online shopping in emerging markets. Second, eBay should provide online advertising services to sellers.
Advertising will increase the number of products that will be sold through the company’s website, thereby increasing its revenue. Advertising services will also be a source of income to the company.
Third, eBay should introduce new product categories on its website. This will enable it to serve buyers and sellers who are currently not using its services. Fourth, the company should focus on improving shopping experience on its website.
Customers should be able to search for products easily and to compare prices in order to get the best deal. In addition, eBay should provide excellent customer services to improve customer loyalty.
For instance, it should establish a complaints management system to protect buyers from fraud. The system should enable buyers to reclaim their money if their goods are not delivered.
Finally, eBay should focus on vertical integration by acquiring or collaborating with shipping companies to facilitate trade between sellers and buyers.
Undoubtedly, many people do not make online purchases because of the difficulties associated with transportation. Introducing shipping services will improve consumer trust and reduce sellers’ transaction costs. As a result, the company will be able to serve more customers.
Conclusion
eBay has been successful because of its ability to facilitate effective interactions between buyers and sellers. The company provides different pricing options that satisfy the needs of both buyers and sellers.
In addition, it has invested in technologies that facilitate payment and communication between buyers and sellers at a low cost. However, the company should reduce its listing fee to encourage more sellers to use its services.
Moreover, the company should expand its market share by providing advertising and shipping services, as well as, joining new markets. These strategies will enable the company to overcome threats such as high competition in its industry.
Works Cited
Kazmi, Singh. Marketing Management, London: Sage, 2007. Print.
Pride, William. Marketing, New York: McGraw-Hill, 2004. Print.
Ranchhod, Ashok, and E. Marandi. Strategic Marketing in Practice, New York: McGraw-Hill, 2005. Print.