Marketing Strategies of Taobao Company - Essay Example

Digital Marketing Report for Taobao Introduction Taobao is a website that allows people to shop online in a similar manner with which eBay and amazon uses. It was founded in the year 2003 and operated by Alibaba Group but adopted a slightly different approach from eBay and Amazon in that it gave sellers a platform where they can open their own online shops to advertise their merchandise (Davidson &Ou, 2009). The initial capital investment in Taobao was 100 million. Buyers shall approach the stores, view what sellers have in store and make orders for the products. By the end of December 2013, Taobao had around 800 million products listed on its website, making it to be ranked top ten most visited sites as per Alexa ranking. Those who have their products on sale have an option of quoting fixed prices or auctioning their products (Xun&Lixia, 2009). Most buyers visit Taobao because of its transparency since each seller is required to provide working contact information and offer items for sale, which are physically available. The site gives buyers an opportunity to rate services received they can post compliments or complains and the same is available to other buyers to view. History Before the year 2003, eBay was the market leader in ecommerce in china where it charged sellers for posting selling items on its online market. Alibaba wanted to get part of this huge online business hence it established Taobao. Taobao came with extra features including free listings, instant messaging to the seller and buyer, email facility to the seller and a secure payment tool. With all this impressive features, its market share jumped from 5% to 60% in only two years of existence, eating into eBay’s market share that reduced from 80% to 35% over the same period. eBay decided to close down its operations in China in the year 2006 to avoid making further losses.By mid-2007, Taobao controlled a massive 83.6 % of the C2C market share, followed by Paipai and in third place we had Tom&eBay. A graphical presentation is as shown below: The exit of eBay gave Taobao an opportunity to reinvent itself more given that it did not have any more stiff competition. The company introduced a dedicated business to consumer platform known as Taobao mall, which offers exclusively high quality Chinese products to the Chinese market. Taobao mall established its own web link, Tmall.com, which focuses primarily on product verticals and gives clients an excellent shopping platform. In 2008, Taobaodecided to champion online sales for the Chinese economy by employing Big Taobao strategy,a strategy that guarantees undisputed current and reliable e-commerce infrastructure. In October 2010, Taobao beta established eTao, which is a search engine targeting specifically online shoppers and it provides useful products and merchant information from all e-consumer platforms across China. It enables users to access different prices offered by different sellers globally hence one can only choose the best rates before entering into a deal. After its undisputed landmark growth, Taobao started witnessing stiff competition from other e-commerce selling platforms and the company management opted to split it into three known asTaobao marketplace, Tmall and eTao each with a specific target market to satisfy. Taobao’s successful strategies a. Operation strategies Offering free services During implementation phase, Alibaba management decided that Taobao should not charge both sellers and buyers for a period of three years, during this period the company shall have acquired a substantial market share and earned trust of buyers. This strategy paid off very well and within two years, Taobao had captured 60% of the market share of all online buying in China (Xun&Lixia, 2009). Cooperation with banks In 2003, Taobao and the Industrial and Commercial Bank of China (ICBC) entered into an irrevocable agreement safeguarding buyers and sellers against fraud and default in payment. The bank undertook to process fully all payments then give an okay to both transacting parties to proceed by delivering goods so that the bank can release money to the seller. Both buyers and sellers welcomed this move as it alleviated fears of non-payment. With the increased user confidence, more parties readily participated in the online trading hence laying a firm foundation for Taobao’s business. Associating with other organizations In the year 2004, Taobao entered into an agreement with 21CN to establish a massive online shopping site in China. This arrangement provided users with communication services like messaging, email and calling hence consumers could communicate with sellers costeffectively and quickly. Taobao again signed an agreement with Sohu.com whereby the two companies decided that they should share data on active user groups. The sharing of resources gave users an enhanced platform of shopping across the globe with a wide network of products. Creating a secure trading area Taobao wanted to eliminate fraudsters completely from using its online platform. The company approached the ministry of Public Security to create a national identification number for all companies to match information about their clients against the government database. So upon registering online, Taobao system had to query and match data received against the government data and if details did not match, one was not registered. This helped to boost client confidence that the government knew whomever they traded with. b. Service strategies Taobao management did a market survey for a long time before they decided to invest in the online platform. They knew that Chinese had been defrauded for a long time hence they always insisted on seeing the goods first, then negotiating on the price. Taobao wanted its service to operate such that a person does not need to travel all the way to view goods then pay and go back so the company employed communication and payment tools called TaobaoWangwang and Alipay to cater for this. TaobaoWangwang Buyers and sellers can communicate confidentially about the quality and cost of products using Wangwang. This tool provides a log of the communication, which can be retrieved incase of disputes. This timely communication helped to attract more players to Taobao platform. Alipay Isabela and Ha (2011) say that Alipay is a secure platform for making payments cutting across many banks in China and holds the buyer’s cash temporarily as the buyer waits and acknowledges receipt of goods. The buyer shall identify goods by communicating with the seller through Wangwang. He shall therefore initiate the trading and make payment to Taobao. Taobao shall acknowledge receipt of goods and notify the seller to send goods. After receiving goods in the right condition, the buyer shall notify Taobao to release payment to the seller. c. New products strategy Taobao has been launching new products that make great first impressions in the minds of consumers. An example is Taobao clothing treasury, which has high quality trendy clothes that are offered at affordable rates across the globe. On average, about 40,000 people access the clothing store online every single day and majority makes some purchase. d. Innovation strategy Taobao management came with some unique strategy of approaching companies that are currently selling in the market to create new products that shall be sold exclusively through Taobao. An example is Qilong, which had been selling all-purposehigh-end American-European labels but after discussion with Taobao, the company started another product called Top Kor targeting working class women, acquired only through Taobao (Luftman, & Brier 1999). Well-established brands also decided to use this platform to distribute their goods into locations they could never think of, but can now access using the online stores (Gao, Sun, Zhang, & Liu, 2012). SWOT Analysis of Taobao Mengti (2010) says that online selling platforms are an easy target for new entrants. This is because of low costs to entry and the fact that maintenance costs are very low. The customer as well shall manage to access commodities from remote areas and make an order online, make the payment online and wait for items to be delivered (Oberholzer, &Wulf, 2009). Some of the strengths of Taobaoinclude an adoption of working online communicating platforms like texting services called WangWang and QQ, which are quite reliable. The company also uses a number of safety online payment platforms like Zhifubao and Alipay. Taobao boasts of conducting proper and accurate market surveys, accurate market positioning and target marketing. The following are some of the parameters of its SWOT analysis: Strengths Low cost entry Accurate market positioning Reliable communication services like QQ Weaknesses Immature Tax Policy Weak core competency Counterfeit articles Opportunities Policy support Growth of market Largest consumer group Threats Fierce competition Threat from replacement Gao et al., (2012) says that immature tax policy affects all the Chinese citizens, with complaints spanning a long period. The government usually changes tax policies with short notices and this is quite inconveniencing to buyers and sellers (Li et al., 2012). The issue of weak core competence results from companies not having their own products to handle payments and communication hence they rely on third parties products. Taobao therefore does not have the ability to force a third party to modify a product to suit its own clients. In addition, the company does not have the capacity to move around and inspect all commodities on sale to ensure they are original. That is the work of the government;hence, some of its clients have fallen for counterfeits only to realize this when using the products. Fierce competition and threat from replacement affects all companies especially those in the online selling platform owing to the ease in which a new company shall establish a shop and start operating. Credit valuation Taobaois a market place with many C2C users, whose figure stood at 2 million in the year 2006 and increases at an average of 15% per year (Yang, 2010). E-Commerce credit risk Risk is the probability that a certain unwanted circumstance may arise in the course of transacting. Credit risk therefore is the probability of losing money in an even of buying and selling goods and services (Li et al., 2012). Consumers using this online platform have huge desires and exposure to unlimited number of products shall increase their propensity to buy subject to availability of cash. We have to appreciate that there is a homogeneous kind of thinking among online traders. In addition, online clientele includes those who have the ability to buy right now as well as those potential clients who are still young but will buy through their guardians. Therefore, both sellers and buyers can initiate fraud in this transaction since a buyer shall pay through a credit card and payment may delay alternatively the buyer may use a stolen card and the payment shall be cancelled even if it has gone through. The seller could also display a different product from the one he ships to the consumer leading to customer complaints. In some cases, the seller could send very different items and if the customer complaints, the seller will insist that he sent the agreed quality. To address these credit risks, Taobao decided to come up with a sound credit policy that shall help to minimize the risk of loss. TaobaoC2C Credit Evaluation System Chu and Mamchanda (2013) analyzed the criteria that the company come up with for rating both buyers and sellers with the register of buyers handling the following fields: Age: credibility of the buyer increases with age. Gender: female are more trusted than male. Marital status: married people have a higher score than single people. This is because of the assumption that the married handle more responsibilities, so they are more reliable. Education: The more one is educated, the higher the credit rating. Occupation: people in high paying jobs/occupations have a higher rating than those who earn less. Salary: the higher the salary, the higher ones’ rating gets. Bank deposits: Those buyers who deposit regularly receive a higher credit rating than those who make fewer deposits. The register of sellers has the following assessment criteria: Delivery time: the faster one delivers, the higher the rating. Quality: if one delivers as per the sample, the rating keeps on increasing. Price: one receives more credit by offering products at competitive prices as compared with other produces under the same environment. Service: High quality service shall attract higher credit rating. Turnover: This is the number of times one sales the entire stock over a period. Higher turnovers shall attract higher ratings than lower turnovers. Credit rating: a reliable seller shall have a better credit rank in the market. Credit Rating Each trader has the ability and mandate to rate his transacting partner immediately the transaction has gone through. Available options are positive, neutral and negative. Positive increases one’s score while negative reduces it. Traders shall have ranks displayed next to their names hence the trader with higher ranks attracts clients that are more trustworthy and shall have more sales and higher returns. The credit rating shall appear after both parties have rated one another and the transaction has gone through Zhifubao. Conclusion After analyzing Taobao business model, we have seen that a successful business must have a sound business strategy and structure. Taobao has gone further to design attractive and easy to use pages for its customers. The company earned more credit by rating traders and showing credits to both current and potential traders who shall use that information to decide whether to transact or not. However, the company has a great task of ensuring it reduces counterfeits to the minimum and authenticate the real details of users outside china where the company hasno ability to find out their details in the government database. References Amit, R., &Zott, C. 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