Analysis for reformulating the business model
With regard to the economics of a business, some performance metrics determines the success of a business venture in a certain region. These elements comprise of customers, competition, technology and the regulatory framework. In order to appreciate the background and the context of eBay, it is crucial to have an insight on its history. As an American company, eBay had survived the dot-com bubble in the US. Founded in 1995, the company had grown to a level of recording revenue at least 18% of its revenue by 2001 (Ireland, Hoskisson and Hitt). Therefore, having had such success in the US and international markets, the management of this company was optimistic that the Chinese market would bring attractive returns.
Contrastingly, the company met a number of challenges in the Chinese market that threatened its virtual trading platform business. With regard to customers, the company witnessed loyalty towards companies that had a Chinese history. Despite the recognition and acceptance by customers that eBay Each net performed well, they preferred TaoBao. These consumers preferred those companies that had been in China for long owing to their trust in these companies.
With regard to market competition, eBay faced intense competition after gaining success on the entry into the Chinese market. Despite efforts to market the company, with much of the US $ 100 million devoted to advertising budgets, eBay witnessed cut throat competition. TaoBao was the major threat, recording a 60% market share by 2006 compared to eBay’s 29% (Ireland, Hoskisson and Hitt). TaoBao appealed to customers due to its efficiency and trustworthiness based on financial backing by Goldman Sachs and Fidelity Bank. Due to the lack of a developed legal system, Chinese customers preferred those companies they trusted. Therefore, eBay lost to market competition due to a mix of these factors.
As far as technology is concerned, eBay had a less developed online platform in comparison to some industry players in the Chinese market. For instance, eBay had failed to incorporate escrow into its payment system in its Chinese market. Therefore, it lacked a platform of third party monitoring. As a result, this absence of technological complement led to a market share loss for eBay. In addition, the eBay platform lacked a platform for direct online interaction among sellers and buyers. With this inadequacy, customers could not haggle and trust building was constrained.
The regulatory frameworks was another element affecting business model reformulation for eBay in China. The Chinese government authorized eBay, and its competitors to conduct a survey to determine whether customers preferred their products. This regulation resulted in the marginalization of foreign companies such as eBay. In addition, this regulatory environment failed to meet industry standards, which would have promoted trust among Chinese eBay users.
Improvement of eBay’s business model
In order to form a customer value proposition, application of the customer concerns is mandatory. From the analysis, Chinese customers had preference trends for eBay’s competitors’ products. This was due to their high level of trust with those companies which had been in operation, in China, for long. A change in the value proposition is necessary to counter this trend. Therefore, eBay should alter its value proposition by engaging a safe payment platform through including escrow for security. In addition, it should create a value proposition as a safe and responsive online trading platform. These measures will compensate for the long time used by its competitors to gain trust. Therefore, there will be a complementing alteration in resources, processes and profit formula.
For the profit formula, its turnaround will involve a shift in the revenue stream, the cost structure and transaction velocity. For this strategy, eBay must focus its efforts towards providing its services at competitive fees. These strategies will price the services competitively and buffer the revenue stream. In addition, having a lean cost structure by minimizing the heavy advertising expenditure will cut its costs. With these two policies, its transaction velocity will improve.
With regard to key processes and resources, eBay will shift its focus to influence how value will be delivered to both customers and the company. The key resources will deal with people in the organization whereas key processes will revolve around processes relating to people, for instance training and development. In order for eBay to reformulate its business model, it must be perceived as a strong brand. Therefore, the management must implement these strategies by consistency in the provision of quality online trading services. In addition, staff training can be conducted to empower its software engineers and marketers.
Works Cited
Ireland, R. Duane, Robert Hoskisson and Michael Hitt. Understanding Business Strategy: Concepts and Cases. Connecticut: Cengage Learning, 2009.
