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Consumer risk perception: the case of eBay

Executive summary

One of the major developments in business is the use of online marketing. Despite many of the advantages of online marketing, there are a lot of risks that consumers may face while trading online. This article analyses one of the online marketing places called eBay.

In the study, the paper explores the risks that eBay customers may face and the strategies which the organization has employed in order to minimize the risks. The article also suggests additional strategies that eBay may use to further reduce the risks.

Types of consumer risks

Among the types of risks that eBay customers incur while shopping online may include performance risk, financial risk, social risk, time-loss risk and privacy risk.

Strategies to reduce consumer risk perception

Some of the strategies which eBay has employed to reduce consumer risk include the Money-Back guarantee policy, improvement of the company’s image, building of customer loyalty, existence of the customer support service and free security advice for customers.

Additional suggestions

In addition to the strategies listed above, other suggestions that the company may use include brand endorsement, advertising or promotion, free trials, government testing and private testing.

Introduction

In service marketing, it is important for management team to center on the consumer. This is the reason that prompts the efforts to ensure that consumers are protected from any risk that they are likely to incur while conducting business. If consumers incur the risks and move out of the business, the business may then lose a great portion of its market.

EBay is one of the leading online marketing places, where consumers and merchants meet to trade their goods and services. Consumers and merchants make all the arrangements such as negotiation, payment and shipment online.

Like any other online marketing company, however, eBay faces the challenge of earning the trust of customers, because the customers have a negative perception towards online marketing. This perception results from the knowledge about a number of risks that the consumers may face while shopping online.

Types of consumer risks

There are many risks that eBay customers are likely to face, the first one being the performance risk. This is the loss which a consumer is likely to incur in case the product purchased through eBay does not meet the expectations of the consumer.

The risk may result from false advertising or lack of enough information about the commodity before making the purchase (Jahankhani 2009, p. 84).

The other type of risk that may be perceived by eBay consumers is the financial risk. This is the amount of money that a consumer is likely to lose in the transaction as a result of a delivery failure or damage of goods.

It may also be as a result of a price overcharge on a product after considering its performance. This may be the case in eBay since there is minimal face-to-face interaction.

Thirdly, the consumer may also incur a social risk. This is the loss that a consumer may incur in form of misjudgment from friends and family following a shopping choice made.

For example, due to lack of trust for online shopping, people may not embrace that idea, citing lack of a delivery guarantee. There is also a general belief that those who do shopping online are extravagant. The perceptions create a social fence between the consumer and other people.

The fourth risk that eBay customers may face is the time-loss risk. Hong-Youl (2002), explains time-loss risk as the value that a consumer loses when a service fails to meet a certain human want at the right time.

When purchasing via eBay, consumers may spend plenty of time to purchase, delivery and payment arrangements; and return the product in case it is defective (Jahankhani 2009).

Finally, consumers may face a security or privacy risk. It has become very challenging for many organizations to safeguard the privacy of their customers as well as defend themselves against internet attacks such as phishing, scams and hacking (Ozkan, Bindusara & Hackney 2009).

Insecurity can be witnessed in customers through their reluctance to shop online for the fear of falling victims. The other source of fear for consumers is the fact that online vendors may fail to make arranged delivery or to deliver the promised quality (Zhu, Lee & O’neal 2011, p. 8).

This makes eBay customers to be reluctant in providing personal information for fear that they may lose their anonymity over the internet.

Strategies to reduce consumer risk perception

One of the strategies that eBay is using to reduce consumer risk for their customers is the Money-Back Guarantee policy. EBay advises sellers to offer a 100% Money-Back guarantee and return of the product, in case it does not meet the expected quality. This policy increases the confidence of the consumers in the company, thus changing their perception about security and performance risk.

Another strategy that eBay uses to reduce consumer risk is enhancing their image over time. Customers can only gain confidence to shop through eBay by trusting the organization by considering its long-term reputation. It is for this reason that eBay has strived over the years to maintain its image of trust as an online shopping centre.

As a result of the long trustworthy image of eBay, many consumers have developed loyalty to the organization. This is another important strategy that eBay has used to increase the confidence of consumers in the organization’s operations.

The Customer Support Centre in eBay is also a major tool to maintain the customers’ trust. This centre helps buyers with pre-purchase information that they need in order to make correct choices. The Customer Support Centre has boosted the loyalty and trust of the eBay customers.

With regard to the security risk, the Security Centre in eBay also offers free and valuable advice to customers on how to ensure that their accounts are secure from phishing, hacking and other internet scams. In this way, customers can always trust the organization and can use the information offered to avoid cases of security attacks.

Additional strategies to reduce consumer risk perception

Apart from the above strategies, eBay may also need to adopt additional strategies to ensure that customers have minimal worry concerning the risk they may incur in their transaction through eBay. One of the additional ways of reducing the risk that consumers may face in online shopping is through brand endorsement.

Since consumers purely rely on information they get prior to the use of an online shopping service, the organization can ensure that there are other third parties that are endorsing its services. This will increase the confidence of the buyer to use the service without worrying about such risks as security and performance.

This strategy can work for eBay as well. For a third-party organization to endorse eBay, it is necessary for eBay to prove to the public that they deserve the endorsement. The organization can only achieve this over time through the experience of those who have already used the service.

For example, if a consumer shopped at eBay and the transaction was successful, the next customer who wants to use the service can develop confidence if he or she gets first-hand information from the previous buyer.

Most of the service organizations collapse due to over-reliance on the services they are offering at the expense of advertising. Consider the case of Starbuck, a one-time world-leading coffee service provider (Patterson, Scott & Uncles 2009, p. 46).

One of the reasons which made the company to collapse is negligence of the value of advertising. Instead of advertising, the company relied on the quality of coffee they offered in their efforts to attract customers. This is one of the factors that led to their collapse.

Advertising is therefore an important strategy which can be employed to reduce the risk perceived by a consumer. There is, therefore, a need for awareness to the public about the organization.

Other strategies that eBay can employ to reduce consumer risk include the use of free samples; where the organization can come up with a policy to offer a trial service to the consumer in order to create a sense of trust in the consumer.

The organization may also implement strict measures to test all the products that merchants sell via the eBay website. This can reduce the consumers’ fear of being victims of performance risk or financial risk. The Government or any other private organization can perform the test (Li & Chu 2008, p. 216).

Conclusion

In conclusion, eBay, just like any other online shopping service providers, may incur the risk of losing customers as a result of the perception of the consumers about consumer risks. This makes it essential for the organization to focus on the customers and how to earn their trust.

It may not be possible for the organization to eliminate the risks completely, but it can reduce them to a minimum level to increase the consumers’ confidence in online marketing. Once the consumers of a service are secure from consumer risks, the company can increase its sales and earn the loyalty of the consumers.

Capacity and demand alignment: the case of American Airlines

Executive summary

One of the most useful tools in a service organization is the ability to manage demand and capacity in such a way that neither of them is in surplus, this balance is paramount to retain the airline viability over a long duration.

Successful alignment of demand and capacity enables the company to utilize the available capacity maximally, while satisfying all of the organization’s customers without making losses. However, this may be hard to achieve in cases where capacity is fixed while demand is fluctuating.

This paper analyses the case of The American Airlines, focusing on the underlying demand patterns in the industry, the challenges that the incorporation faces as a result of different scenarios of demand-capacity imbalance and the strategies employed to achieve demand-capacity balance.

The paper also suggests additional strategies that the incorporation could employ to achieve the alignment of demand with capacity in the cases of fixed capacity and fluctuating demand, such as the American Airlines.

Underlying demand patterns

There are four scenarios that may represent the variation in demand with fixed capacity. The first one is excess demand. Others include a scenario in which demand exceeds the optimum capacity, a scenario where demand is in balance with the optimum capacity and a scenario in which demand is less than the available capacity.

The demand patterns may be predictable or random. Understanding these patterns is paramount to enable the organization design an appropriate measure to keep its operation functional and practical.

The concept of fixed capacity

Fixed capacity is a term that describes the situation in which an organization cannot change the sitting arrangement of a plane. The only alternative is to cancel the flight for some passengers so that they can travel with another one later.

This may give mixed signals to the clients loyal to these services, it is thus important to balance the equilibrium while retaining the clients hope in the services.

Challenges which the company faces due to fluctuating demand patterns

Some of the challenges resulting from fluctuation in demand patterns include dissatisfaction of passengers in case of excess demand, creation of discomfort as a result of exceeding the optimum carrying capacity and incurring losses in the scenario where capacity exceeds demand.

Strategies which the organization uses to align demand with capacity

The major strategy that the American Airlines employ is Yield Management. Others include price differentiation, overbooking and allocation of fare discounts.

Additional suggestions

Other strategies that the company can employ include promotion of off-peak demand and advertising the flight services especially during the off-peak demand.

Introduction

The American Airlines industry is one of the service sectors which are face with the problem of fixed capacity and demand fluctuation. In their daily operations, American Airlines experience variations in demand for their services while they cannot change their capacity in terms of sitting capacity.

Underlying demand patterns

There are four scenarios that describe the variation in demand. One of these is the Excess demand scenario. In this case the demand for the airline’s services may exceed the maximum available capacity (Unit 9: Managing Demand and Capacity n.d).

The second scenario is where the demand for the airline’s services exceeds the optimum capacity. This implies that the flight will neither be safe nor comfortable (Unit 9: Managing Demand and Capacity n.d).

The third scenario is the ideal one. This is where demand balances with the available capacity optimally (Unit 9: Managing Demand and Capacity n.d, p. 2).

Finally, there may be a scenario where demand may be lower than the available capacity. This translates to losses for the airline. All these are possibilities in the American Airline Industry. It is necessary for the organization to be aware of the demand patterns and the factors that cause them.

This will help formulate strategies to address the issues at hand. Although the patterns may have a random or predictable variation cycle (Unit 9: Managing Demand and Capacity n.d), arriving at a universal approach that ensures balance is essential to make both parties have a mutual business corporation.

Predictable demand patterns may result from weekly schedules of regular passengers. The Airline may decide to design a paradigm shift in which its regular passengers conforms to its regulations of flight.

This is the dominant cycle in American Airlines. A random pattern, on the other hand, may be as a result of accidents or the weather which may disrupt the regular demand pattern. Random demand patterns require preparedness (Unit 9: Managing Demand and Capacity n.d, p. 3).

The concept of fixed capacity

In airlines, capacity majorly refers to the number of seats available in a plane. This number is determined during the manufacture of the plane, as the requirement of a given Airline purchasing the plane. This means that the capacity of that plane is fixed.

In addition to that, each plane has a fixed timetable which cannot change; this is the aspects that most consumers would need to conform with. In case of excess demand, the only option is to reschedule a later flight for the passengers in waiting reception. This is the reason why capacity is said to be fixed.

Challenges that the company faces due to fluctuating demand patterns

Due to the problem of fixed capacity and fluctuating demand, the company may face different challenges under the different scenarios of demand fluctuation patterns. For example, if demand is in excess, the only choice is to reschedule the flight time of some of the passengers.

Since services are highly perishable, this choice may not benefit them, thus the airline risks losing customers who have tight schedules and cannot wait for the rescheduled time (Calvo & Thoumi 1984). This is the major challenge within the business segment especially during high seasons when clients demands overrides the firm’s capacity.

In case the plane decides to carry more passengers than the optimum capacity, the passengers may be uncomfortable and unsafe. Finally, if demand is lower than the available capacity, the plane risks flying with empty seats, which is an irreversible loss to the Airline Company (Calvo & Thoumi 1984).

Strategies which the company uses to align demand with capacity

Due to the fixed capacity, the only option for American Airlines is to manage demand. One of the major methods that the American Airlines have used for years to align demand with capacity is yield management (Unit 9: Managing Demand and Capacity n.d).

This strategy employs computer technology to study patterns of demand so that the airlines can use the information to charge different prices depending on the level of demand (Unit 9: Managing Demand and Capacity n.d, p. 6). In this case the Airline studies each segment of the consumers and charges different prices for different seats depending on urgency of the service to the consumer.

Customers would therefore, need to pay more for immediate scheduled flight than those who paid their dues some time before. This method enables the Airline to both satisfy every customer using the available capacity and make profits. An example of its successful use was in the case of Flight AA2015 (Unit 9: Managing Demand and Capacity n.d).

Other strategies that the American Airlines use include Overbooking with the expectation of demand rise and allocation of fare discount depending on the forecast demand (Smith, Leimkuhler & Darrow 1992, p. 11).

Additionally suggested strategies to align demand with capacity

In addition to the strategies that the company has already employed, it would be more beneficial to explore other options of balancing demand with capacity. One of the ways in which this article suggests is the promotion of off-peak demand (Unit 9: Managing Demand and Capacity n.d, p. 4).

If the demand pattern is clearly known, the airline company can make arrangements to creatively use the capacity when there is no regular demand by finding other sources of demand to cover for the expenses during the peak of demand (Fitzsimmons & Fitzsimmons 2012).

Another useful strategy is promotion of the flight services especially when demand is in the off-peak. At this period the airline may face unprecedented shift in its economy and would therefore, need to devise a method that ensures it retains its financial projections.

This may include offering lower prices during these periods in order to attract passengers; hence balancing demand (Unit 9: Managing Demand and Capacity n.d, p. 4).

Conclusion

In summary, it may not be easy to achieve demand or capacity alignment for a fixed-capacity situation. However, Yield Management becomes as a useful strategy in such a case. If an organization combines this strategy with the price differentiation technique, the organization can achieve optimum service without losses despite the ever changing demand patterns.

Alignment of demand with capacity is vital for any company to retain its customers without making any losses. This is also paramount to retain its loyal customers and attract the potential ones.

Reference List

Calvo, GA & Thoumi, FE 1984, ‘Demand Fluctuations, Inverntories and Capacity Utilization’, Southern Economic Journal, vol. 50, no. 3, pp. 743-754.

Fitzsimmons, JA & Fitzsimmons, MJ 2012, Chapter 13: Managing Capacity and Demand. Web.

Hong-Youl, H 2002, ‘’, JCMC, vol. 8, no. 1. Web.

Jahankhani, H 2009, ‘The Behaviour and Perceptions of Online Consumers: Risk, Risk Perception and Trust’, International Journal of Information Science and Management, vol. 7, no. 1, pp. 79-90.

Li, CH & Chu, KK 2008, ‘A Study of the Effect of Risk-Reduction Strategies on Purchase Intentions In Online Shopping’, International Journal of Electronic Business Management, vol. 6, no. 4, pp. 213-226.

Ozkan, S, Bindusara, G & Hackney, R 2009, ‘Towards Successful E-Payment Systems:An Empirical Identification and Analysis of Critical Factors’, European and Mediterranean Conference of Information Systems, p. 17.

Patterson, PG, Scott, J & Uncles, MD 2009, ‘How the Local Competition Defeated a Global Brand’, The Case of Starbucks Australian Marketing Journal, vol. 18, no. 1, pp. 41-47.

Smith, B, Leimkuhler, J & Darrow, R 1992, Yield Management at American Airlines; Amercan Airlines Decision Technologies, The Institute of Management Sciences, Dallas.

n.d., Managing Demand and Capacity. Web.

Zhu, DS, Lee, ZC & O’neal, GS 2011, ‘Mr. Risk! Please Trust Me: Trust Antecedents that Increase Online Consumer Purchase Intention’, Journal of Internet Banking and E-Commerce, vol. 16, no. 3, pp. 1-23.

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IvyPanda. 2020. "Service Marketing." May 19, 2020. https://ivypanda.com/essays/service-marketing-2/.

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