Alibaba-com Services, Competitive Advantage, Online Business Model and Strategy - Example

REPORT ON ALIBABA.COM Student’s name Course title Instructor’s name Date of submission 1. Executive Summary Over the past few years, Alibaba has been on the rise. The company has undoubtedly cemented its position as the largest online and mobile internet business company. It recently launched its Initial Public Offering in the USA marking its transition to a publicly traded and announcing its intentions of conquering the American market. The company provides a number of services through its varying platforms. It enjoys some form of competitive advantages ranging from the huge customer base that it possesses form of the Chinese online shoppers to economies of scale. These advantages propel the company to greater levels of success in the global marketplace. The company has a dominant position in the market thanks to the online business models and strategies that it employs. In addition, it strives to be at the forefront of innovation by coming up with the best business practices that redefine the ways of doing business. A number of factors motivate buyers to conduct purchases on Alibaba’s platform. The company has a significant contribution to the global trade and employs a number of pricing strategies. Table of Contents 1. Executive Summary 2 Table of Contents 3 2. Introduction 4 3. Key concepts. 4 4. Key findings/ Discussion 4 Major services provided by Alibaba.com 4 Alibaba’s competitive advantage 5 Alibaba’s positioning in the market  6 The online business model and strategy of Alibaba.com as employed  7 Innovativeness of Alibaba’s online e-business marketing strategy  7 Business motivations for buying on Alibaba.com  8 Contributions and potential limitations of Alibaba’s global trade 9 Contribution of Alibaba.com to global trade 9 Potential limitations 9 Pricing methods used by Alibaba.com 9 5. Recommendations and conclusions 10 6. References 11 2. Introduction Alibaba.com, a world-renowned Chinese e-commerce company, provides a variety of services through its web portals. It runs business-to-consumer, consumer-to-consumer and business-to-business (B2B) sales services to its huge customer base worldwide. The company provides a number of services, employs various strategies to maintain a competitive advantage over its competitors and position itself effectively in the market. The company employs innovative strategies and motivates buyers to shop on Alibaba.com. This report will attempt to present an in-depth analysis of Alibaba.com on various fronts and provide as much meaningful information as possible. 3. Key concepts. The company’s founder set out to mainly attend to the needs of SMEs in China in entering the B2B e-market by providing them with free online services and information according to the different enterprises and the characteristics of the industries (Yazdanifard & Li, 2015). The case study of Alibaba by Yazdanifard & Li (2015) looks at the strategies it employs to stay afloat and achieve success under its diverse business models. SMEs mainly comprise small enterprises that have just rolled out their operations or medium enterprises that are still making strides to break-even into their markets. The company developed a B2B business model that facilitates business operations between various businesses. Murmann (2003) defines B2B e-commerce involves transactions between businesses conducted electronically over the internet, extranets, intranets, or private networks.The company recognized the importance of transactions between business entities especially in the wholesale market. The concept was novel at the onset of the technological revolution but it has gradually gained ground globally. 4. Key findings/ Discussion Major services provided by Alibaba.com Alibaba.com provides a number of services under the stewardship of its subsidiary entities in order to meet its diverse business objectives. The list of major services under the company’s wings include: i. An online platform(s) that connects numerous buyers and sellers to interact over the internet and undertake various business transactions. The small sellers post their products freely on the website. Examples of small sellers include Flamingo Furniture, a small-sized company that has been operating in New York for a long time and decided to enlist on Alibaba.com for an opportunity to grow its customer base. ii. The platforms provides an active avenue for advertisement of various goods and services offered by sellers. The sellers pay for the advertisement that they receive on the platform. For instance, the platform advertises services such as licensing, legal, security and supply chain management. The company runs the Alimama.com technology platform that provides a podium for marketing the products and services for various technological firms. iii. The dedicated websites affiliated to Alibaba such as Tmall.com provide a niche-based market that markets the top brands that includes Nike, Adidas, Dell and Apple. The website thus provides a listing service and these companies pay for every sale they conduct over the platform. Alibaba’s competitive advantage Competitive advantage simply refers to some competitive edge that a firm enjoys over its competitors, thereby putting it in pole position to generate higher sales or profit margins over its competitors and further amass a larger market share (Murmann, 2003). In the case of Alibaba.com, the company enjoys various instances of competitive advantage mainly due its business approach and strategic business decisions. The first source of its competitive edge lies in its location. The company was founded in China and it rides on the large internet usage by the Chinese population that constitutes about 560 million internet users, spending an average of 20 hours a week on the internet (Mourdoukoutas, 2014). As a result, the company enjoys an affiliation to the largest internet market globally thus ensuring that its business strategy to redefine traditional retailing. The company enjoys a strength in light of the huge market composed of Chinese citizens with utmost faith in this company. In addition, the company also enjoys the benefits of economies of scope. The company manages to accrue cost savings based on the back of its ability to sell a diverse range of products on its platform that provide a uniform sales channel. Similarly, the company boasts of the advantage of economies of scale thus it is able to enjoy cost savings thanks to the huge sales volume it generates. For example, its affiliates such as Tmall.com and Taobao.com dominate the parcel deliveries in China (Mourdoukoutas, 2014). The huge traffic of goods its handles and delivers to various customers ensures that it has a larger transaction volume than other giants such as Amazon. On another front, the company reaps huge benefits from its networking capabilities that allows it to undertake massive expansion of its outreach. The company thus sustains its customer base and connects millions of users of various products and services on its platform. The merchants of goods also interact frequently with other users. Moreover, the company recognises the impact and the role the Chinese government plays in its business operations. As a result, the company strives to ensure that it maintains cordial relations with the central government. Such a move ensures that it remains in good books with the central government that oversees the operations of the overall economy. Another additional factor lies in its possession of a payment portal that helps it to save on the costs of transactions in doing business with other payment companies such as Payoneer and PayPal. Therefore, Mourdoukoutas (2014) observes that Alibaba uses AliPay allowing consumers to pay for products and the payments are remitted to the sellers once the consumers confirm that they have received value for their money. The sellers also receive the same form of protection for their monies. Consequently, the company enjoys comparative advantage based on the trust it builds with its clients. Alibaba’s positioning in the market  The company enjoys a prolific position in the both the Chinese and global internet market. The company holds a dominant position in its native Chinese market where it maintains an 80% market share of the online shopping market at the expense of other traditional competitors such as JD.com (Schneider, 2009). On the financial front, the company has a lower net revenue value that falls short of the net revenues of other companies such as Amazon.com. However, the company earns a bigger profit margin that is mainly propelled by its business-to-business business model that allows wholesale transactions. The online shopping industry represents a huge potential for the company to exploit and it reserves maximum energy to exploit extensively. The company recently made a transition from a private enterprise to a publicly traded company thus opening it up to newer horizons. However, this transitions translates to some form of uncertainty concerning its future and general impact of a global scale. Despite all the reservations, the potential this company holds cannot be underemphasized. As it opens up its operations to newer markets such as the United States, the company is sure to cement its position as a market leader in the ecommerce industry. The online business model and strategy of Alibaba.com as employed  The company makes use of a business model that borrows from those of its competitors such as Amazon only that it improves them. It set out to combine various strategies similar to the market leaders and divided its business into different domains. Such a division ensures that Alibaba is able to serve a vast share of the Chinese market. The company, therefore, runs three core websites that follow distinct business models. The parent website, Alibaba.com acts as a middleman thereby providing a platform to connect various buyers and sellers. The company makes money by getting its share of the revenue generated by transactions between these sellers and buyers. Its affiliate, Tmall.com, mentions only top-of-the-range brands such as Apple, Nike, Adidas and many others (Liu & Avery, 2009). These top companies pay to subscribe to the platform and also give some part revenue from every transaction to the company. On the other hand, its second subsidiary, Taobao.com, undertakes free listing of different sellers that gain business traction within the Chinese market. Here, the company aims at giving these Chinese brands an opportunity to advertise and it charges them for the advertising it offers them. Therefore, the company is able to come up with a very profitable model that succeeds in the Chinese market and beyond thanks to its growing e-commerce base. Innovativeness of Alibaba’s online e-business marketing strategy  The first innovative steep that Alibaba took lay in the adoption of its name by its founder, Jack Ma. The company set out to establish a strong image branding by coming up with a name that could easily be remembered thus could easily be spread across the masses with relative ease. The name Alibaba was preferred because of the relative ease with which it could be pronounced and spelt in several languages. The name boasted of clear-cut syllables and thus could be beneficial in creating a string brand awareness for the company (Doland, 2015). The name also borrowed from the famous fairy tale of Ali Baba, a character from a movie that had achieved world over fame. The founder’s move to create an appropriate and befitting name serves as the first important innovative marketing strategy that it employs. The company makes advances in expanding its market through the usage of freebies that it offers to its clients. The freebies encourages more clients and customers to join the company’s platform. For instance, the company through its affiliates such as Alisoft gives out free copies of Shopkeeper TM. The free package offers accounting and consumer resource management tools for the registered users of Alibab.com. In addition, the company promotes its services by using the internet search engines to promote its products. The internet promotion strategy often involves advertisements of the company on other websites and platforms. It also undertakes direct marketing and offers discounts on certain days with the aim of promoting a given collection of items. The company also sponsors some events with the aim of attracting awareness in the general public. Furthermore, the usage of Search Engine Optimization (SEO) strategy puts the company in good hands and ensures that they can be easily found by consumers and clients over the internet (Liu & Avery, 2009). SEO along with the usage of social media marketing also serve as innovative marketing techniques employed by Alibaba.com. Business motivations for buying on Alibaba.com  The platform provided by Alibaba.com due to the huge possibility of selling more products and have a greater access than before to customers both in local and global markets. For example, the Flamingo Furniture signed up for a free membership that runs for a year and ended up completing a full registration Alibaba.com within the first month. As a result, the platform provides a wholesale market consisting of a large number of sellers to serve the large number of buyers. The buyers have the liberty to choose the sellers that they prefer from the large list. The buyers also receive motivation in the form of freebies offered by the company to entice them to make purchases on the website. In addition, the large number of suppliers on the platform must comply with a string of product safety standards thus creating a belief in the products and motivating buyers. Contributions and potential limitations of Alibaba’s global trade Contribution of Alibaba.com to global trade The entry of Alibaba onto the global marketplace marks a significant step for the company to diminish the dominance of other giants such as Amazon and eBay. Alibaba would open up the global markets and provide a platform for suppliers and buyers across various parts of the world to undertake business transactions. The company continues to ride on its domestic market that consist of hundreds of millions of online Chinese shoppers. The company’s entry into Western markets and the United States guarantees it a better opportunity to have a greater impact on the global trade than before and above its competitors. The platforms increases competition that gives consumers a chance to have a variety of goods to choose and increases their overall welfare. Potential limitations On the other hand, the entry Alibaba onto the global scene carries with it some underlying limitations. The entry of Alibaba and its massive potential hold on the global e-marketplace seems bound to saturate the market in the long-run. The saturation of the market would result in increased competition and lower prices that possibly lower the profitability. In the short-run, however, the company’s entry subject’s the global market with a few limitations regarding its ability to successfully penetrate the new markets overseas. Pricing methods used by Alibaba.com The determination of a product’s price ranks as one of the most critical factors that pre-empt the potential product success and assist the marketing mix put in play. Companies strive in order to ensure that they break even thereby forcing set a price that covers the costs of production yet affordable to various consumer groups. Alibaba.com recognises this fact and employs a number of pricing strategies. First, it employs product line pricing that sets varying prices for various products within a similar range (Schneider, 2009). The price differences match the prices set out by the different suppliers and a competitive price ensures that consumer have a wider range from which they can choose from and buy. Second, offering discount on a number of products ensures that the company prices its products competitively as an incentive to its customers. The discounted prices help in fostering consumer loyalty that ultimately results in repeat buying on Alibaba.com in the future. Third, the company employs competition pricing that comprises of prices set in response and in comparison to those of rivals. Alibaba makes no exception as it makes sure that its prices are in close range with those competitors and possibly ensures low prices with a surety of quality. Fourth, Alibaba boasts of the top position as a B2B e-marketplace and it achieved this by implementing penetrative pricing techniques. The company lowered its prices in order to gain entry into some new markets such as the lucrative Indian e-commerce market. Lastly, the prices tagged on value-added services such as shipping costs ensures that the company charges the customers the cost of extra services that it offers to them. For example, products that are tailor-made to a customer’s specifications attract extra charges along with the costs of shipping to various localities. 5. Recommendations and conclusions The company enjoys a significant advantage over its rivals in the ecommerce facet of business. As a result, it is necessary for the company to continually conduct business risk assessments to ensure that it stays up-to-speed with the changing business conditions. The top position it enjoys needs not to be a reason to show some laxity in performance but a motivation to improve and set higher standards for other entities in the e-commerce industry. The potential limitations it faces highlight the fact that it needs make sure that it stays ahead of the competition. The saturation of a market serves as an indicator for a company to re-examine its growth and expansion strategy to allow it to pursue alternative strategies to sustain its profitability and market share. 6. References Top of Form Top of Form Doland, A. (2015). Branding Lessons from China's Alibaba. [Online] Available at: http://adage.com/article/global-news/alibaba-teach-chinese-brands/295115/ [Accessed 11 Aug. 2015]. Liu, S., & Avery, M. (2009). Alibaba: The inside story behind Jack Ma and the creation of the world's biggest online marketplace. New York: Collins Business. Mourdoukoutas, P. (2014). Alibaba's Five Advantages. [Online] Forbes. Available at: http://www.forbes.com/sites/panosmourdoukoutas/2014/04/15/alibabas-five-advantages/ [Accessed 11 Aug. 2015]. Murmann, J. P. (2003). Knowledge and competitive advantage: The coevolution of firms, technology, and national institutions. Cambridge: Cambridge University Press. Schneider, G. P. (2009). Electronic commerce. Boston, Ma: Course Technology. Yazdanifard, R. & Li, M. (2015). The Review of Alibaba’s Online Business Marketing Strategies Which Navigate Them to Present Success. New Hampshire: HELP College of Arts and Technology, pp.2-6. Bottom of Form 7. Appendices A screenshot of Taobao.com A screenshot of Alibaba.com Bottom of Form Read More