EBay Case Study
EBay provides a unique model in which the operation is driven by the consumer and seller whilst the operator (or EBay) simply provides the platform within which the transaction takes place. As the largest on-line market place this model would appear to indicate success for the business and with a presence across the globe this can be described as an international operation. Product diversification within the trading areas and the range of price points results in attracting presence from many demographic groups within the marketing mix.
With minimal operating costs from this model one would assume the levels of revenue drive high levels of profits for this business which would drive forward as a key success factor. However although the revenue is relatively high the participation of 40% marketing costs results in a low profit margin participation overall. Thus while the success of the business depends on the operating system the level of marketing would appear to be a challenge for the future in order to drive these costs down and increase the profitability levels going forward.
Reasons for Success
A key advantage EBay holds over other retailers operating on line is the technological development and innovation, through the use of acquisitions EBay are able to challenge the status quo and establish improved transactional capability. EBay have made strategic acquisitions in media companies, for example telecoms Skype. These acquisitions can be used to improve the service offered currently and grow the sales opportunity thus generating further income. Through using innovative changes and building customer trust there is the opportunity to offset marketing costs through increased sales, the present format makes increased and incremental sales difficult to achieve because of the communications limitations however simple changes to communications can result in this challenge being fulfilled.
EBay are fortunate to enjoy relative dominance in the online retail marketplace environment. Although several other organisations have tried to compete the attempts have been unsuccessful and whilst there is limited competition from localised specialist auction houses in some countries this is relatively small in terms of competitive nature given the specifics of the auction sales. However there is the opportunity for this market to be considered by EBay yet some indicate this movement would need to be made in conjunction with specialist partners in order to gain credibility and presence although the movement into specialist product areas would succeed in driving profit and sales additional to the current portfolio.
Challenges and Outlook
Whilst there are challenging times ahead in terms of economic climate EBay for general consumer sales are in a prominent position offering the value end of the market the general public will be looking for, however at the same time the exchange rate will provide a negative impact for this area of the business with global exchange rates reflecting low returns. On the other hand through ventures to improve levels of sales and with new markets to explore there are methods to offset the potential decreases which the market may throw at the business.