Alibaba - Competitive Advantage, Positioning in the Market, Online e-Business Marketing Strategy - Example

Alibaba Name Class Unit 1. Executive Summary This report have analysed Alibaba.com based on articles, publications and other academic materials. The report has started by analysing the major services offered by Alibaba.com. The services includesB2B, B2C and C2C services offered on various Alibaba.com platforms. The company uses Taobao.com as a C2C business platform. Tmall and Tmall global have been offering business services in China and globally respectively. Alibaba.com main competitive advantage is their strong market power and a diversified approach to e commerce. The report shows that Alibaba.com has positioned itself as a reliable and convenient online shop where consumers can make purchases with confidence. Alibaba.com utilise the storefront model in their business. Alibaba has an innovative business strategy that has expanded market opportunities offered through economies of scale. The report is able to identify the main motivation to buy at Alibaba.com is the market model which caters for all types of customers. The platform offers trust and reliability. The company have been helping global trade by providing a platform where business from different parts of world can sell their products to consumers globally. The report shows Alibaba.com has adopted different forms of pricing methods ranging from competitive pricing, product listing, trade commissions and annual subscription fees. Lastly the report recommends that Alibaba must ensure that they do not become over diversified. The company should also decentralise their operations and strengthen their competitive advantage as they expand. Table of Contents Alibaba 1 1. Executive Summary 2 Table of Contents 3 2. Introduction 3 3. Theory and Concepts 4 Alibaba.com competitive advantage 5 Economy 5 Global 5 Technology 6 Industry environment (Porter 5 forces) 6 Competitive advantage 7 Alibaba.com positioning in the market 8 Online business model and strategy for Alibaba.com 8 Online e-business marketing strategy innovativeness 10 Business motivations for buying on Alibaba.com 10 Contribution of Alibaba.com to global trade 11 Pricing method used by Alibaba.com 11 5. Recommendations and conclusions 12 6. Reference list 13 2. Introduction Alibaba.com is an e commerce business founded in 1999. The company was founded by Jack Ma and a team of 18 people. The main aim of Alibaba.com was to make it easy to carry out business anywhere. Since the formation, Alibaba.com has worked to ensure that small Chinese exporters, entrepreneurs and manufacturers are able to get their products into both the international and domestic market. The company operations are based both on mobile and online marketplaces. The company have been able to profit a lot from the Chinese retail marketplace through cloud computing, wholesale trade among other services (Zhao, Wang, S., & Huang, 2008). This report critically analysis Alibaba.com. This is through analysing the services provided by Alibaba.com, competitive advantage, business model, e-business marketing strategy. The report will also looking at the business motivations for buying at Alibaba.com, contribution of Alibaba.com to global trade, limitations and lastly, the main pricing method used by Alibaba.com. 3. Theory and Concepts Alibaba.com major services are in the e-commerce business. This is through conducting business over the electronic means especially the internet. The business carried out through e commerce are; business to business (B2B), business to consumer (B2C) and consumer to consumer (C2C). B2B transactions have been higher in volume than B2C transactions over the years (Gang-lan, Xiang-hua & Huang, 2009). Alibaba.com operates both wholesale and retail market places over both mobile and online platforms. Alibaba.com is China leading e-commerce company. The company operates the world largest online market place offering services for both international and domestic China trade. Taobao which is operated by Alibaba is China largest consumer to consumer auction site. Taobao have more than 8 million sellers who compete for customers. Under Taobao, Alibaba charges the sellers to advertise their products. This has been the source of revenue for Alibaba through Taobao. Another service offered by Taobao is Tmall.com. This is a fast growing business to consumer market place which spun off from Taobao in 2008. Tmall allows only certified sellers to set up their storefronts. The main brands under Tmall are Apple, Ugg and Coca-Cola among others. Tmall have been able to account for more than half of the B2C transactions in China. Through B2C, a business is able to serve the end consumer with the products. Tmall global is the international platform for Tmall. The online platform allows foreign brands to sell in Alibaba without the need of having a business license in China. Tmall global have gained a lot of popularity especially by western countries. This is due to growing demand for the western products in China. To operate in Tmall global, the businesses are expected to have a China based return policy. They are also expected to have Chinese language customer service (Zhao, Wang, S., & Huang, 2008). Alibaba.com competitive advantage To gain insight into Alibaba competitive advantage, it is vital to look at the general environment. The main factors that determine Alibaba competitive advantage are; economy, global, technology. There is also need to use porter 5 forces analysis. Economy Alibaba depends highly on small and medium sized enterprises. Alibaba have been providing the small and medium sized enterprises with a platform where they can access a large consumer base. In 2013, China had gained 60% of their GDP from the small and medium sized enterprises. This shows the important role that SMEs are playing in China. The importance of SMEs has been a major drive for Alibaba in their business (Zhao, Wang & Huang, 2008). Global Alibaba has benefited a lot from globalisation. There have been rise of internet and internet security has been enhanced. The number of users for Alibaba has been on rise with vendors especially from the western countries. Tmall and Tmall global have been a major business platform for international markets (Gang-lan et al., 2009). Technology In e commerce, the business models are highly influenced by technological development. There have been rise of enhanced web security. This has made online shopping more trustworthy and reliable. Smartphones gave been able to improve the consumers online purchases (Turban et al., 2015). Industry environment (Porter 5 forces) Buyers bargaining powers- the buyers in the industry have low bargaining power. Alibaba only provides a platform where the traders can conduct business hence does not have buyers or suppliers. Alibaba revenue is gained from advertising making the primary buyers to be SMEs and other online shops who have to pay the advertising fee. The company have over seven million merchants using its services. The sellers are required to pay promotional fees in order to stand out from the competitors. Alibaba operates the major online market platforms making it hard for the business to switch to the substitutes (Zhao, Wang & Huang, 2008). Bargaining power of the suppliers- the suppliers have low to medium bargaining power. The SMEs and third party retailers are the major suppliers to Alibaba since they give value to the company through product listing. Alibaba dominated the Chinese e commerce industry. This gives SMEs and third party retailers fewer options to switch to. The main competition is only in the international market where Alibaba have to compete with eBay for suppliers (Turban et al., 2015). Competition rivalry-there is low to medium competition rivalry. Alibaba have focused more on the Chinese market where they have dominance. Among the available firms, there is low rivalry. Alibaba have already captured over 80% of the market (Zhao, Wang & Huang, 2008). In case of expansion of Alibaba market abroad, the competitive rivalry will increase due to companies such as eBay and amazon (Gang-lan et al., 2009). Threat of new entrants- the threat of new entrants is low. This is due to capital requirements, technology and high buyers switching costs. Due to network effect and critical mass, the barrier to entry has been high. Alibaba have the ability to reach large group of consumers through their large number of business in their website. At the moment, the market is dominated by Alibaba, eBay and Amazon making it hard for new entrant to take them (Tan et al., 2009). Threat of substitutes- there is low to medium threat of substitutes. Ecommerce is based online with all activities being carried out electronically. There are few substitutes for e commerce which include physical store and company websites. Use of physical store has been costly since the business is required to rent a shelf space and compete with large firms. Selling through company website has been a problem to SMEs since they do not have adequate technology to secure their market place (Gang-lan et al., 2009). Competitive advantage Alibaba will continue being a major player on e-commerce industry. This is due to strong market power and diversification. As more people continue using smartphone, the company have been increasing their emphasis on them to remain competitive in the market. Globally, the main competitors to Alibaba are eBay and Amazon. These companies have dominated the e commerce industry with an impressive growth. Despite this, Alibaba continues being a leader in the e commerce business globally (Zhao, Wang, S., & Huang, 2008). Alibaba.com positioning in the market Alibaba.com has been able to position itself as a valuable public company in China and worldwide. The company stands out as one of the most popular technology firm especially after they US initial public offer. Consumers see Alibaba as a reliable market place where they can make purchases with reliability and trust. SMEs and third party retailers trust Alibaba as their marketplace. The company is able to connect them with customers’ worldwide (Tan et al., 2009). Online business model and strategy for Alibaba.com The combination of the business policies, operations, ideology and technology defines its model. Alibaba.com utilise the storefront model in their business. This business model provides the users with security, transactions and online payment methods. The model helps the merchants to sell their products on the website. Through the website the buyer and seller can interact in a direct manner. Using the store front model, the merchants are allowed to organise their catalogues, take orders and accept payments to their customers by Alibaba. Alibaba.com is only involved in marketing through advertising (Dubosson‐Torbay, Osterwalder & Pigneur, 2002). Alibaba utilises online shopping malls in their storefront business model. Consumers are given a wide range of products to choose from on the online shopping malls. Consumers can make purchase for a lot of products on the same site. Alibaba has Tmall and Tmall global.com. This has enabled the company to offer the consumers wide variety of goods and services. SMEs and third party retailers have been able to access the company website and gain access to large pool of consumers (Mahadevan, 2000). Fig. 1, Alibaba.com storefront model Fig. 1, Alibaba.com storefront model range of products Online e-business marketing strategy innovativeness Alibaba have been able to gain a competitive advantage due to their online marketing strategy which focuses on building business to massive scale. Through this, Alibaba have benefited from expanded market opportunities offered by economies of scale. The company targets buyers and sellers through utilising its diverse marketplaces. All the company market places; Tmall, Taobao Market and Juahuasuan.com have been able to target consumers who have different needs. The marketing strategy has been based on a diverse approach. This is through cloud computing, logistics, online payment solutions and mobile applications. All the company business is linked through the technological platform (Tan, Pan, Lu & Huang, 2009). Business motivations for buying on Alibaba.com Alibaba.com provides a platform where a consumer can meet sellers of varying goods and services. The platforms provided by the company cater for consumers with varying needs. There is Tmall where the consumers can meet different suppliers from China. Tmall offers the consumers a unique platform where they can buy genuine goods. This is a platform that spun from Taobao mall especially due to the rise of counterfeits goods in Taobao. Both Tmall and Tmall global are able to offers consumers with authentic products from all over the world. Consumers making purchases at Alibaba are motivated by the security, reliability and convenience offered by Alibaba.com platforms. The company have already established themselves as a trusted platform which can be relied on (Qing, 2008) Contribution of Alibaba.com to global trade Alibaba.com has been able to connect small scale retailers, manufacturers and business to the global trade through their platforms. China economy depends highly on the SMEs and through Alibaba, they have been able to gain a larger market share. The company was able to sell its IPO in USA in October 2014. Through their investment in US, the company have been investing in mobile and ecommerce firms. The company have been participating in global trade by providing a platform where business from different parts of world can sell their products to consumers globally. The main challenge that the company faces in the global trade is stiff competition. By expanding to US, the company will have to compete with Amazon and eBay. Most of the consumers are well versed with eBay and Amazon than Alibaba. Another challenge is the security issue. Consumers will only make online transactions if they are assured of their security. Lastly, there have been rising concern of counterfeit goods on Alibaba. Some of the small sized companies in Alibaba have been selling counterfeits leading to consumers becoming wary. This may lead to lawsuits and a damaged reputation (Zhao, Wang & Huang, 2008). Pricing method used by Alibaba.com Having the right pricing strategy is a critical market tactic. The price set for a product should be high enough so that it covets the production cost but should not be a deterrent to the consumers from making purchases (Turban et al., 2015). The company have adopted different forms of pricing ranging from competitive pricing, product listing, trade commissions and annual subscription fees. The company is able to offer free product listing and gain revenue through charging for advertisements. Exporters and importers on Alibaba are a source of revenue for the company through paying trade commissions. There is also an annual subscription fee which the SMEs and third party retailers have to pay to Alibaba.com. The company is thus able to operate a three part pricing model (Gang-lan et al., 2009). 5. Recommendations and conclusions Alibaba must ensure that they do not become over diversified. This is due to fact that by becoming over diversified, Alibaba risks losing their competitive advantage in the e commerce market. The company must also ensure that they are able to adapt first to the changes in market place. As they expand to the global market, the company may be forced to decentralise. This may lead to cannibalisation of their sales. Despite that, these are moves that Alibaba must take as they expand globally. Alibaba.com has a great opportunity to become the world best e commerce site. This is well elaborated by the analysis. The company must continue ensuring that its competitive advantage is strengthened in the industry. The company have quality business platform which will enable it to compete well in the global market place. 6. Reference list Dubosson‐Torbay, M., Osterwalder, A., & Pigneur, Y. 2002. “E‐business model design, classification, and measurements.” Thunderbird International Business Review, Vol.44, no. 1, p.5-23. Gang-lan, H. U., Xiang-hua, L. U., & Huang, L. H. 2009. “Research on E-business Ecosystem and Its Coordination Mechanism-A Case Study of Alibaba Group [J]”. Soft Science, Vol.9, no.3. Mahadevan, B. 2000. “Business models for Internet-based e-commerce.” California management review, Vol.42, no.4, p.55-69. Tan, B., Pan, S. L., Lu, X., & Huang, L. 2009. Leveraging digital business ecosystems for enterprise agility: The tri-logic development strategy of Alibaba. com. ICIS 2009 Proceedings, 171. Turban, E., King, D., Lee, J. K., Liang, T. P., & Turban, D. C. 2015. “E-Commerce: Mechanisms, Platforms, and Tools.” In Electronic Commerce (pp. 51-99). Springer International Publishing. Qing, H. 2008. A model for value-added e-market provisioning: Case Study from Alibaba. com. In Future Generation Communication and Networking Symposia, 2008. FGCNS'08. Second International Conference on (Vol. 1, pp. 47-52). IEEE. Zhao, J., Wang, S., & Huang, W. V. 2008. “A study of B2B e-market in China: E-commerce process perspective.” Information & Management, Vol.45, no.4, p.242-248. Read More