External Analysis of Online Dating Industry - Eharmony - Case Study Example

HERE HERE YOUR HERE HERE Case Study Analysis: eHarmony EXTERNAL ANALYSIS OF ONLINE DATING INDUSTRY There are considerable revenue-building opportunities for emerging and existing online dating services in the United States. By 2007, the industry was valued at $900 million (Piskorski, Halaburda and Smith 4). The current valuation for the whole of online dating companies, such as eHarmony and Match.com (to name only a few competitors) is $1.55 billion (PUA University 1). This market valuation has occurred as a result of changing social attitudes about the relevancy and viability of online dating, an emerging social acceptance borne of practical experience with successful couples in the social environment that utilized online dating services and a reducing social stigma about perceived desperation that once plagued emerging online dating companies. Dating Sites Reviews.com provides statistics compiled by quantitative market research findings illustrating that one in 10 consumers in the United States visited a dating website (Dating Sites Reviews 1). Supplementing this are statistics illustrating that two out of every 10 Internet users visited dating websites using smart phone technology as a medium. Much of this use of mobile technology growth for this industry is attributed to evolving social media advertising effectiveness using sites such as Facebook; 38 percent of all online dating advertising occurs on Facebook which has tremendous consumer following and user ship. Thus, it should be recognized, again, that changing social lifestyles using social media as an outlet for communications continue to fuel more interest in visiting and signing up for online dating services. Despite this growth and the aforementioned revenue opportunities borne of changing social conditions, it is a rapidly expanding market with many competitors emerging to saturate the market. In 2008, there were approximately 800 online dating companies operating in the United States (Marsan 1). Today, there are approximately 1,500 competing dating websites in operation, representing a nearly 100 percent increase in competitive forces in just five years. This would tend to suggest that in order to effectively compete and maintain competitive advantage in a rapidly-saturated market, effective promotions and innovations that are differentiated from competitive offerings must be established. eHarmony must also be concerned with external market threats that impose risk or opportunities into the business model depending on the intensity of these factors. Using Porter’s Five Forces Model as an analysis tool, eHarmony needs to be concerned with supplier and consumer buying power, threat of substitute products and/or services on the market, threat of new entrants, and the level of competitive rivalry in the marketplace (Porter 1). eHarmony is impacted to a differing degree by each of these forces. First, consumers had considerable buying power as the switching costs of defection to competing brands are very low. It was already established that there was much price transparency in this marketplace that gave consumers more competitive options and lower price opportunities. Even though eHarmony maintained positive psychographic segmentation and positioning by expressing its innovations in match-making processes, the truth is that the offerings were pretty standardized and homogenous in this market. Perceptions versus tangible operational strategy make a difference. During the growth period of eHarmony, the business experienced much growth from consumers that were, previously, spending hundreds or even thousands of dollars to be matched with a compatible mate. As pricing began to be reduced with competitors that were now emerging, consumers were able to bargain more effectively or simply defect to a competing organization. This imposed considerable risk on the business. Match.com, one of eHarmony’s most viable competitors, increased its advertising expenditures by 80 percent in order to outperform the brand visibility being gradually achieved by eHarmony (Piskorski et al. 1). Match.com and its affiliate website, Chemistry, further promoted their 10 percent lower pricing structure compared to eHarmony which would have significant advantages for price-sensitive consumers. In this industry, competitive differentiation tactics include unique surveys and questionnaires to assist in the matching process which maintains significant risk if these strategies are able to persuade consumers to defect to a competing online dating website. There were many substitutes on the market with growth of differentiated dating sites and also the still-existing personal advertisement business model that was entering the maturity and/or decline state, but still maintained opportunities for consumers to expand their match-making options. Supplier power was not a considerable problem with eHarmony, however, much to the advantage of the organization. Since most services were maintained internally and not reliant on supplier networks, the business did not have to be concerned with procurement cost increases or negotiating power with the small volume of vendors providing any products to the business to sustain the business model. New entrants, however, imposed considerable risk with eHarmony not being able to necessarily create barriers to prevent this. The capital required for start-up of competing websites was relatively low and so was the supporting technology to sustain it, such as Yahoo! Personals that was not a significantly-innovative match-making business model. eHarmony could only create barriers by trademarking or patenting their service models and algorithmic technologies to protect capital assets. As it relates to competitive rivalry, the ability of new entrants and existing competition to try to replicate the innovations of eHarmony posed considerable risks that consumers would adopt these replicated offerings. Additionally, disparate pricing models between major online dating websites create risk to emerging and existing online dating companies. Transparency in pricing provides consumers with many more options to fit their budget expectations and they can simply defect to a competing online dating company if pricing is not aligned with their outlook. Concurrently, there is considerable growth in free online dating websites and other online social networks that give consumers no-cost opportunities to meet people with similar interests (Piskorski et al. 1). Furthermore, early entrants into a new or emerging market have significant advantages over late entrants. When a particular brand actually provides acceptable levels of customer satisfaction, risk adverse consumers will often compare late entrants to the pioneering company with largely unfavorable evaluations (Kalyanaram and Gurumurthy 4). eHarmony also maintained many opportunities. The business could have launched bricks-and-mortar campaigns for face-to-face meetings with interested consumers, thus changing the dynamics of market demand, improving the ability to gain new market attention, and also diversifying the business model. In recent years, Match.com has found considerable interest in setting up special meeting events with dedicated consumers, thus improving brand reputation and revenue stream. eHarmony could have also expanded into more international locations by aligning overseas operations and strategies with cultural needs to show its flexibility and give the business more cultural, international appeal. Threats in other areas than those described in the market included lifestyle changes that were unpredictable, such as adopting social media as a means to meet others rather than having to commit to a long-term relationship with eHarmony. Another threat includes the negative publicity received by special interest market segments and those rejected by the business that continues to bring the business skepticism with certain markets. However, the extent to which these threats influenced the business was not significant when considering the entire business model and its years of promotional successes and return on this investment. All of the aforementioned research-supported analyses of the external market illustrate tremendous opportunities for revenue growth so long as consumer buying power can be lessened by establishing appropriate barriers, advertising content is effective for target consumer markets, and appropriate differentiation and innovation strategies can be developed. The external market is absolutely favorable based on the current social sentiment about online dating and the rationale for why so many diverse market demographics choose to visit these websites. INTERNAL ANALYSIS FOR EHARMONY eHarmony understands how to effectively utilize promotions and invests a great deal of effort into brand-building to achieve long-term brand loyalty. This is one of the core competencies that distinguish this company from its competitors. Upon its earliest period of the launch phase of this business model, eHarmony promoted itself on television on such shows as Good Morning America and Politically Incorrect (Piskorski et al. 4). Branding is one of the marketing functions that is able to take intangibles and tangibles of product and service and create connections with its target constituency. Using a variety of integrated marketing communications, including radio, television, online marketing, eHarmony maintains significant strengths in promotional prowess to gain competitive advantages as well as desired market attention. Furthermore, utilizing internal executive experience in marriage and romance psychology, supported by the founder Dr. Neil Clark Warren who maintained 35 years experience in this domain of study, eHarmony is able to develop services and supplementary product models that are appropriate for consumers and also tested against respected psychological models. This is yet another strength for the organization internally, using experiential learning as a fundamental management and strategic development tool to create unique, innovative service offerings. There does appear, however, to be a fundamental weakness of eHarmony’s business model and policy development strategies as it relates to ethics and morality. Initially, eHarmony determined that it would not offer services to homosexual customers, supported by an acknowledgement that the company lacked the fundamental market research data necessary to establish same-sex evaluation templates for match-making purposes. This provided eHarmony with considerable negative publicity for a market demographic with the resources necessary to sustain profitability. eHarmony seems to have a history of imposing heterosexual morality that does not always fit with certain niche markets like the same-sex single market. There is a theory in business ethics known as ethical relativism, which is essentially the belief that there is no singular framework of determining right versus wrong that has been adopted by majority society and, therefore, society should be tolerant of differing ethical actions and behaviors (Blackford 55). The case study further described a legal situation, Claassen v. eHarmony, in which a married, potential member was denied membership to eHarmony because of his current marital status. Imposing stringent and not necessarily universally-accepted moral codes detracts from positive brand publicity and also reduces potential revenues that could be gleaned through these market segments. Finally, effective use of technology, namely the matching algorithm to assist in finding relevant and compatible matches, is something that differentiates eHarmony from many competitors in this industry. In fact, it is the primary concept by which eHarmony positions itself on the market through quality innovation positioning. Upon launching this algorithm, company sponsored research indicated that it was highly successful in ensuring long-term compatibility for matched couples which adds new perceptions with many different markets about integrity and quality of this online dating service. This is yet another strength and a core strategic resource for the business that continues to set it apart from less-developed, less-knowledgeable competitive forces. EHARMONY’S BUSINESS LEVEL STRATEGIES Business level strategies, unlike corporate level strategies, are about seeking opportunities to exploit specific core competencies that lead to competitive advantages. Focused differentiation strategies represent one critical business level strategy for eHarmony. The establishment of the aforementioned matching algorithm and supporting questionnaires that gain specific personality and psychological characteristics of potential and existing customers reflect how the business is able to distinguish itself from many competitors. eHarmony supplemented this differentiation tactic with a new type of filtering system which allowed existing customers, when they had been matched with a relevant potential dating partner, to self-screen to ensure that irrelevant matches were not returned. Giving consumers control over the matching process and communications systems to effectively filter unwanted matches represented one distinct competency of eHarmony that continues to delight a variety of target demographics. It is primarily the technological innovations associated with the matching process, from the completion and analysis of the Personality Profile to use of a psychologically-valid matching algorithm that is the business level strategy for this company. Many online dating companies offer similar service offerings, such as establishing site-supported communications with potential matches, which fail to create discernible consumer perceptions about the originality and novelty about online dating proficiency among a very saturated competitive market. All of this is supported with considerable investment in research and development, such as observation of romantic couples to witness the dynamics of their relationship characteristics, which can be translated into new innovative service offerings unique from competition. It should be recognized, then, that differentiation and effective market positioning using these distinguished characteristics of the business model provide the foundation for eHarmony’s business level strategies. Being able to move from niche marketing to establishing long-term relationships with consumers gives eHarmony opportunities to diversify into international markets. eHarmony has expanded into Brazil, Canada and the United Kingdom, finding success by simply transferring the existing American business model into these countries that maintain many of the same psycho-social characteristics of consumers in the United States. According to Geert Hofstede, a respected cultural researcher and theorist, consumers in the United Kingdom and Canada maintain many of the same cultural characteristics including a desire for individualism (over that of collectivism social values). These are characteristics that will impact the dynamics of relationship management associated with long-standing cultural preferences engrained into society. eHarmony’s business level strategy has been successful by understanding appropriate markets in which to gain cost recognition by not having to adopt a new operational model and still gain consumer following and loyalty in like countries where the business now has presence. IS CHEMISTRY.COM A VIABLE THREAT TO EHARMONY? It would appear that Chemistry.com is a viable threat to eHarmony. Several of the differentiated strategies utilized by eHarmony were benchmarked by Chemistry, such as the use of a personality profile to assist in finding relevant and appropriate matches. If Chemistry continues to adopt and replicate some of the service offerings that have, historically, given eHarmony competitive advantages, it could seize market share by also positioning on quality with a supplementary 10 percent price reduction to further add incentives to price-sensitive consumers. Furthermore, Chemistry.com has been able to somewhat discredit eHarmony, using an underpinning methodology to try to discredit the ethical or moral constructs in eHarmony’s business model, to gain market attention. The Chemistry campaign that asked consumers to consider being rejected by eHarmony as a means of creating a psychographic-based connection with consumers dissatisfied that eHarmony continued to reject membership allowances based on relativistic moral and ethical beliefs. Giving consumers opportunities to consider the questionability of moral and ethical values (e.g. marital status or same-sex values) sheds a negative publicity on eHarmony that maintains the ability to attract more market attention from those who might already be disgruntled with eHarmony’s membership policies and practices. Chemistry was also able to differentiate in a new fashion from that of eHarmony by promoting its focus on securing interpersonal attraction rather than the psychological and emotional attachments related to personality and values that had given eHarmony considerable market following. By being a somewhat more pragmatic dating site that utilizes more realistic parameters of attraction, such as physical attractiveness, Chemistry was able to gain more market attention from those who pursue relationships due to physical characteristics. It is rather unrealistic to believe in all situations, with all market demographics, that personality-based or psychologically-based factors drive long-term attraction and compatibility. By focusing on a new dimension of compatibility, Chemistry maintains many strategic opportunities to gain new market attention and potential long-term brand loyalty for those who measure relationship quality by tangible, physical dynamics of potential mates. Works Cited Blackford, Russell. Sam Harris’ The Moral Landscape, Journal of Evolution and Technology. Vol. 21, Iss. 2 (2010). Print. Dating Sites Reviews. Does Online Dating Really Work? April 27, 2012. Web. February 4, 2013 Kalyanaram, Gurumurthy and Ragu Gurumurthy. Market Entry Strategies: Pioneers versus Late Arrivals. Wright University. 2008. Web. February 3, 2013 Marsan, Carolyn Duffy. The hottest trends in online dating. Network World. Last updated February 7, 2008. Web. February 3, 2013 Piskorski, Mikolaj J., Hanna Halaburda and Troy Smith. eHarmony. Harvard Business School. 2008. Porter, Michael. Porter’s Five Forces: A Model for Industry Analysis. 2011. Web. February 4, 2013 PUA University. Do Online Dating Statistics Show that e-Dating is Bigger than Porn?!. Pick Up Artist University. 2011. Web. February 3, 2013 Read More